We have announced our draft price control determinations for our electricity transmission and gas networks as we face a watershed moment

We have announced our draft price control determinations for our electricity transmission and gas networks as we face a watershed moment that tackles our economy, our energy security and our household budgets.  

Ofgem has a statutory duty to both support the delivery of the government’s net zero goals and to promote economic growth whilst protecting the interests of present and future consumers. Let’s be clear: in the interest of consumers the question is not, should we embrace net zero for environmental reasons? But what happens if we do not act on the hard-headed case for energy infrastructure investment that protects Britain's economy and energy security?  

The 2022 energy crisis taught us a painful lesson. When Putin invaded Ukraine, British consumers paid a devastating price with bills doubling, and they would have tripled without unprecedented government support. This occurred because our overreliance on imported gas left us dangerously exposed to volatile international markets. We cannot afford this vulnerability again and it would be a failure of regulator, government, and industry if we were once again exposed to the full force of an energy crisis in the future. So there is no viable strategy that does not involve diversifying our energy mix and there is no strategy that does not require investment. 

Our electricity grid - the backbone of our energy system - is becoming outdated. Originally designed to deliver power from large coal plants to major population centres, it's not fit for the future energy system Britain needs. In an era where energy generation is going through rapid change with generation happening in hundreds of smaller wind, solar and wave generators, the grid, without investment, is at risk of becoming a bottleneck that constrains economic growth and threatens our energy security.   

This isn't abstract - it's costing you money right now. Last year, consumers paid £2 billion in ‘constraint costs’ - payments to wind farms forced to shut down on windy days because our grid couldn't transmit their power to where it was needed. This is equivalent to around £3 a month on a typical domestic energy bill. We're literally paying to switch off clean, home-grown energy on ideal generating days while importing gas from overseas. Without the investment that RIIO-3 brings, these costs will spiral.  

The Secretary of State set out in his Clean Power 2030 plan a clear way towards a more secure home-grown clean power system. To deliver on this plan investment in the grid is essential. Our choice isn't between spending and not spending. It's between investing now in infrastructure to maximise the contribution of the renewable generation, some already built, some to be built soon, across the country, or continuing to send billions abroad for imported energy we don't control, that sets the price we pay, and that could spike in price at any time due to events thousands of miles away we have little to no control over.  

So, while we are creating the conditions to enable this unprecedented Investment, we’ve worked very hard to ensure consumers now and in the future are protected in this process. We've rigorously challenged network companies' spending plans, reducing their requests by being sharp on prices, avoiding unnecessary spending and imposing a tough but deliverable efficiency challenge on the industry to keep costs low. This is a massive investment, and companies must now deliver their projects efficiently, delivering major network improvements on time and upholding high service standards or they will face financial penalties.  Companies face automatic penalties if they fail to deliver infrastructure on schedule for example. No delivery means money returned to customers.  We will be monitoring them very closely. 

We've set the allowed returns for investors at a fair level – supported by current market data and sufficient to attract investment and be competitive with other countries trying to attract the same investment for their own energy upgrades, but not excessive. If we set this number too low, then we won’t get the investment we need which will cost consumers more in the long run. 

 This investment does impact bills and it’s right we always keep a keen eye on this. For example, the total cost of RIIO-3 spending will add around £104 to bills by 2031. Around half of this will cover gas depreciation and general maintenance and repairs to the electricity and gas grid that would be needed anyway under any scenario. The other half covers the upgrades needed to modernise our energy system to move away from gas. But this investment will more than pay for itself through reduced constraint costs, mentioned earlier, and less use of expensive gas. In fact, bills could be up to £30 higher by 2031 if we didn't invest in upgrading the grid.

If we faced another gas price spike like 2022, our reduced dependence on gas, by connecting all the renewables we have, would more than halve the impact on electricity bills.  

This is also about national and economic resilience. Russia's war in Ukraine demonstrated how energy dependency becomes a geopolitical weakness. Britain's true energy independence can only come from diverse, domestic sources - whether that's offshore wind in the North Sea, solar in our southern counties, or nuclear providing reliable baseload power, combined with interconnectors with strong allies to trade energy out when our generation is more than enough and in when it isn't.   

Our competitors understand this. China dominates renewable technology manufacturing. And the EU is rapidly strengthening its energy infrastructure. Britain risks falling behind in this global race for energy security unless we act decisively. This is about protecting Britain's long-term energy and economic interests through pragmatic investment in critical infrastructure.  

The businesspeople I speak with are frustrated not by the vision of a more secure and decarbonised energy system, but by the planning delays and regulatory uncertainty that hinder their investment decisions. Ofgem's determinations provide much-needed clarity on the overall scale of investment expected and how that will be remunerated, giving industry the confidence to deliver the infrastructure we need. But it’s also worth noting here that businesses I talk to also talk a lot about the cost of energy and the impact it has. So, I’m pleased to see the government has taken steps towards helping energy intensive businesses with their electricity bills through their Industrial Strategy. And the changes that RIIO-3 will pay for will give permanent protection from price spikes that can send otherwise viable businesses under.  

So, the choice is clear. It’s between building modern infrastructure that secures our energy independence or continuing a risky dependence on unstable global gas markets, which even today we see playing out in real time with the middle east conflict.   

By investing in our grid infrastructure now, it will cost less than doing so later and we protect ourselves from the next energy crisis and build a more secure, prosperous Britain.