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Ofgem approves 40 billion pound investment plan for energy network

(Reuters) - British energy watchdog Ofgem on Tuesday gave the go-ahead for 40 billion pounds ($53.4 billion) in spending on its utility networks between 2021-26 to help prepare for more renewable power, including a higher than planned limit on grid operators’ returns.

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Compared to a July draft, it increased upfront spending on infrastructure by 5 billion pounds to 30 billion pounds, and granted additional funding of 10 billion pounds for future green energy projects.

It also proposed a return on equity rate for network companies of 4.30%, up from an initial proposal of 3.95%. Companies are currently allowed rates of return on equity of 6%-7%.

Britain’s grid companies said they would take time to review the regulator’s price control proposal, which assesses the costs they incur and also sets a profit limit.

The country’s energy infrastructure is owned by several firms, including SSE, National Grid and Iberdrola’s Scottish Power.

National Grid said it would review whether the proposal allowed for sufficient investment to deliver the infrastructure needed to achieve Britain’s net zero ambitions, and will decide on a potential appeal no earlier than February.

Britain has promised to cut emissions by 68% over 1990 levels by 2030 and achieve net zero by 2050.

SSE said it continued to have concerns and would fully review the settlement in the coming weeks.

Ofgem also announced 132 million pounds of funding for vulnerable consumers and said the package would deliver 2.3 billion pounds in savings for customers over the 2021-26 period.

“To keep the bills down we are telling companies they must play their part, and that does mean bringing down the terms for their shareholders but also cutting waste and becoming more efficient,” Ofgem’s Chief Executive Jonathan Brearley said in a call with journalists.

The price controls cover gas and electricity transmission as well as gas distribution and the electricity system operator (ESO). They take effect from April 2021.

($1 = 0.7497 pounds)

Reporting by Nora Buli in Oslo; Editing by Edmund Blair and Jan Harvey

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