UPDATE: SSE, National Grid Submit Final Price Control Plans To Ofgem

(Alliance News) - SSE PLC and National Grid PLC on Monday submitted their final business plans to ...

Alliance News 9 December, 2019 | 11:19AM
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(Alliance News) - SSE PLC and National Grid PLC on Monday submitted their final business plans to the UK regulator for the RIIO-T2 transmission price control period.

Electricity utility SSE said it plans for a minimum total expenditure of GBP2.4 billion over the five-year period.

The RIIO-T2 price control period lasts from April 2021 through to March 2026. SSE subsidiary Scottish & Southern Electricity Networks Transmission has submitted its business plan for the period under the title "A Network for Net Zero", which includes the investment case for a GBP2.4 billion minimum spend.

According to SSE, the investment is necessary to maintain and grow the transmission network in Scotland on the path toward net zero emissions, in line with the UK and Scottish government target for net zero emissions by 2050 and 2045, respectively. The previous forecast was for a minimum spend of GBP2.2 billion, as included in the draft business plan at summer consultation.

The GBP2.4 billion spend would cause SSEN Transmission's regulatory asset value to rise to more than GBP5 billion from the current GBP3.4 billion by the end of control period in 2026.

The business plan submitted to the UK Office of Gas & Electricity Markets includes a plan to cut greenhouse gas emissions by a third and produce GBP100 million worth of efficiency savings through "innovation".

In order to reach net zero, the plan said it will need more investment to deliver a transition to the net zero target, likely another GBP1 billion on top of the GBP2.4 billion.

SSEN Transmission expects the average cost per customer over the RIIO-T2 period will be about GBP7 per year including inflation.

Rob McDonald, managing director for SSEN Transmission, said: "We believe our business plan represents a balanced package that makes a powerful case for the vital investment needed to deliver a pathway net zero. It will also lead to improved network reliability, at an affordable cost to consumers, whilst also providing a fair return to investors."

Shares in SSE were down 0.6% at 1,314.00 pence in London on Monday.

National Grid also Monday said it has submitted its final business plans to Ofgem. The plans cover National Grid's UK electricity and gas transmission businesses, as well as its electricity system operator.

In May, Ofgem announced its RIIO-2 price controls and set the allowed baseline return on equity at 4.3% in a cost of equity range of between 4.0% and 5.6%. This is close to 50% lower than the previous RIIO-1 price control and is intended to cut the costs passed on to UK energy consumers by GBP6 billion over the five-year price control period.

National Grid said the plans include a financial framework needed to incentivise investment, and it has provided further evidence for why it thinks a real, consumer price index-stripped, allowed cost of equity of 6.5% is the "right level" for RIIO-2.

The baselines spend is likely to result in a slight reduction in UK consumer bills for electricity and gas transmission in real terms, National Grid said.

The company's electricity transmission plan has a GBP7.1 billion baseline total expenditure over the five-year period of RIIO-2 and assumes the connection of 15.3 gigawatts of customer capacity.

The gas transmission plan, meanwhile, has a GBP2.8 billion baseline total expenditure over the five years and assumes the firm will undertake a work programme to test and prove hydrogen conversion options.

"With a growing societal focus on the speed of decarbonisation and the challenges in meeting the UK's 2050 net zero emissions target, the plans provide options for additional anticipatory investment to facilitate additional wind generation and develop a national [electric vehicle] rapid charging network," said National Grid.

"We look forward to engaging further with all our stakeholders as we explain and debate our plans, including through the open forums in March and April 2020, ahead of initial determinations from Ofgem in summer 2020, and final determinations in late 2020," the company added.

National Grid's shares were down 0.3% at 890.40p on Monday morning.

By Anna Farley; annafarley@alliancenews.com

Copyright 2019 Alliance News Limited. All Rights Reserved.

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Securities Mentioned in Article

Security Name Price Change (%) Morningstar
National Grid PLC 942.20 GBX 1.40
SSE PLC 1,284.59 GBX 2.68

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