The British regulator Ofgem has planned to ‘slash earnings’ for companies that own the country’s energy networks.
Ofgem’s plans, proposed in July, will set the baseline rate of return on equity at 3.95 per cent for five years starting in April 2021. This is a dramatic decline from the 7-8 per cent return companies are experiencing under the current regime (in force since 2013).
The regulator has also cut £8 billion of planned spending from network companies’ proposals, causing fierce backlash from the public companies that control the UK’s energy infrastructure, including National Grid, Iberdrola, and SSE.
Since the announcement in July, these large public companies have expressed their outrage, claiming the cuts will threaten jobs as well as the stability and security of Britain’s energy system – undermining the country’s ability to achieve its legally binding net zero emissions target by 2050.
Recently, Wales & West Utilities, a business that covers about one-sixth of the UK, published a document warning that Ofgem’s allowances are ‘inadequate’ to cover the costs of its debt and equity, which could leave shareholders with ‘zero cash returns’.
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