UK energy regulator lifts grid spend cap

LONDON (Reuters) - British electricity network operators should push ahead with extra investments of up to 1 billion pounds ($1.63 billion) to connect renewable energy sources to the grid by 2012, UK energy regulator Ofgem said on Tuesday.

Britain's three electricity transmission companies, including National Grid, expect to invest 5 billion pounds in transmission projects over the next 10 years.

But Ofgem is worried the companies might hold back on investing in infrastructure needed to connect wind farms and other clean energy projects until current controls on their investment spending run out in 2012.

So the regulator plans to let them spend up to an extra 1 billion on key new project over the next two years.

"This is needed urgently to handle the growth in wind power and other renewable generation that is arising from Britain's drive to curb climate changing emissions," Ofgem chief executive Alistair Buchanan said in a statement.

About 90 percent of the investment is earmarked for Scotland where most wind projects are.

The announcement means Scottish & Southern, which operates the transmission network in northern Scotland, could invest 200 million pounds in three upgrade projects from next year, the company said in a statement.

Ofgem is close to concluding it review of the 20-year-old incentive scheme that ties expenditure to inflation under a regime designed to limit the cost to consumers.

The remaining 80 percent of the expected decade-long investment program will fall under new regulatory controls which come into effect from 2012.

(Reporting by Victoria Bryan, additional reporting by Daniel Fineren)