SCOTS energy firms have seen their investment plans for the green energy revolution cut by over £1 billion - while being ordered by the regulator not to pass on the cost to households.

Ofgem has curtailed the requests of the two major Scottish energy distributors to invest a total of £7.639bn over the next five years to upgrade the network to be better able to handle renewable power.

The energy watchdog has told Perth-based SSE owned Scottish and Southern Electricity Networks (SSEN) and Scottish Power Energy Networks (SPEN) that their total investment should be £1.098bn (14%) less than asked for.

The operators of the UK's local energy networks are being forced to spend more of their profits on investing to future-proof the electricity grid, after the regulator, Ofgem, said it would not allow any rises in household bills.

In a new set of price controls that will run from 2023 to 2028, the energy watchdog said it would keep costs to customers unchanged as investment is made to provided cheaper and greener and more reliable energy through the network.

The regulator wants to keep costs for households low, not least at a time when the country is gripped by a global energy crisis.

But consumer groups say the move does not go far enough and that customer bills should be cut.

Ofgem's RIIO-ED2 package sets the level of investment the electricity distribution network operatiors (DNOs) are allowed to make between 2023 and 2028.

The five year investment package aims to tap into the potential of renewable energy sources such as wind, solar and wave power.

Across the UK, the changes, which come into force from April 1 next year, means companies can invest £22.2bn of customer money in the network, £3bn less than requested by the firms.

SPEN had requested £3.397bn but Ofgem allowed £2.951bn - a 13.1% cut. Meanwhile SSEN which wanted a spend of £4.241bn were allowed £3.589bn - a 15.4% cut.

The Herald:

Companies also affected include Northern Powergrid, Electricity North West, National Grid and UK Power Networks.

Unions and consumer groups have been critical firms for not doing enough to reduce domestic bills as households struggle with the rising cost of energy.

Customers are estimated to pay £100 a year in network charges on their bills to allow firms to invest in improvements. These charges are expected to remain at that level even after the changes are made.

Gillian Cooper, the head of energy policy for Citizens Advice, said: “Networks have been allowed to make excessive profits for far too long. In the middle of a cost of living crisis, Ofgem is right to challenge them to operate as efficiently as possible – which will help lower people’s bills.”

Ms Cooper said that Ofgem’s announcement “shows some progress in getting better value for money for consumers. However, network profits will still be too high and targets too easy. We believe Ofgem could have gone further and cut at least £1.5bn more off people’s bills.”

Unite accused companies responsible for bringing electricity to UK homes of “rampant profiteering” and called for a cap on their earnings.

Sharon Graham, general secretary of Unite, had written to Ofgem to ask it to clamp down on “excessive” profits generated by regional electricity distribution network operators (DNOs), which raked in £15.8bn in profits last year and have paid out £3.6bn in dividends between 2017 and 2021.

In the letter to Ofgem, Ms Graham said the six operators have “been holding the public to ransom for too much and for too long” and called for a recent consultation on the amount they could charge energy suppliers, and ultimately consumers, to be reopened.

Ofgem has now said that companies must invest heavily in the grid to make them ready for the added demand expected as more homes and businesses opt for electric cars and electric heating, and more windfarms are connected to the grid.

The Herald: Most of the planned wind farms affected by the change are in Scotland

The regulator said the companies that operate Britain's local electricity networks will have to become leaner while investing to make the grid greener.

Ofgem said the operators of the grid will have to reduce their operating costs and tap into their profits to deliver one of the biggest transformations of the country's energy systems for decades.

The regulator promised it will force them to shell out despite not allowing them to charge more for their services.

Akshay Kaul, Ofgem interim director, infrastructure and security of supply, said: "The investment set out today delivers value for consumers, safeguards security of supply and helps ensure Britain is no longer at the mercy of international energy prices or geopolitical events.

"We've set the initial amount of investment that local electricity distribution network operators can make in the 2023-2028 period, with every pound representing value for money for consumers and no increase in bills.

"The economics of energy have shifted, with home-grown cleaner renewables like wind and solar energy proving cheaper than costly imported gas."

Despite the regulator not allowing companies all the investments they wanted to make, it will allow spending to reach 6% higher than the draft decision had indicated.

Analysts at Jefferies said the outcome is positive for National Grid and Scottish and Southern Electricity Networks owner, SSE, and neutral for Spain's Iberdrola, which owns ScottishPower.

National Grid said: "We will now review in detail the full package contained within the final determination to see whether it incentivises sufficient investment to ensure safe, secure and reliable supply of electricity alongside the need to help transition to a low-carbon domestic energy system, at the lowest cost to customers."

Vicky Kelsall, the boss of SPEN, said: "Throughout the development of our plan, our customers' voices were clear - we must be bold as we reimagine our network, support the UK's accelerated road to net zero, create a green recovery and stimulate more high-quality jobs. That's what we're committed to delivering.

"We're pleased Ofgem has recognised the strength of our plan by accepting 95% of the investment outlined and we will now review the detail to ensure it delivers for the customers and communities we serve."

Research by the think tank Common Wealth, said that distribution network operators have higher profit margins than any other sector in the UK, and expects operators to register profit margins of more than 50% in 2022. The think tank argues that consumers are paying for privatised monopolies to reward their investors.

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