July 16 (Bloomberg) -- About 22 billion pounds ($34.2 billion) will be needed to upgrade Britain’s aging gas and electricity networks, the Office of the Gas and Electricity Markets said today.
The majority, or 15 billion pounds, will go toward improvements on National Grid Plc-operated English and Welsh high-voltage electricy and British high-pressure gas networks, the country’s market regulator said today in a statement. The investment covers the eight years from 2013 through 2021.
The funding is needed to finance major projects like the construction of new sub-sea electricity cables connecting England and Wales to Scotland, Ofgem said. The U.K. plans to get 15 percent of all energy for heat, power and transportation from renewable energy in 2020, helped by wind farms in Scotland.
“Britain faces an unprecedented need to invest to replace aging infrastructure, meet environmental targets and deliver secure supplies,” Ofgem Chairman John Mogg said in the statement. The weighted average cost of capital for the investment will be around 4.5 percent, he said.
Around 7 billion pounds will go toward maintaining Britain’s low pressure gas networks and replacing gas mains, Ofgem said. A total of 17 billion pounds has been approved for investment, while the remaining 5 billion will only be used “where there is a demonstrable need for the infrastructure,” the regulator said.
The extra spending will add about 7 pounds to household bills in 2013, rising to about 15 pounds in 2021. The annual average increase across the eight-year period is 11 pounds, Ofgem said.
Today’s proposals, which are part of a new regulatory framework, will be published on July 27 and remain open for consultation through Sept. 21. Ofgem will publish its final proposals in December.
“We believe that these initial proposals will not appropriately incentivise the essential investments necessary to provide safe, reliable networks for the U.K. consumer and avoid delays to the achievement of the U.K.’s environmental targets,” National Grid said in response to the spending plans. The financing packages don’t “adequately reflect the increased scale of investment and implicit risk,” the company said.
National Grid dropped 10.5 pence, or 1.5 percent, to 682.5 pence in London trading.
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