EDF set to appeal Ofgem energy price controls

Energy firm EDF Energy has said that stringent price controls on its distribution business set by industry regulator Ofgem will prevent it investing in smart grid technology – and the firm is prepared to go to the Competition Commission to challenge the watchdog's ruling.

Ofgem is poised to announce price controls for distribution networks for the period from 2010 to 2015 that will set the maximum amount distribution companies can charge for delivering electricity.

But industry insiders are increasingly concerned that the price caps will be set at a level that will make it difficult for energy firms to fund investment in grid upgrades and accelerate the rollout of smart meters and other smart grid technologies.

Yesterday, Vincent de Rivaz, chief executive at EDF, which as well as generating power operates a distribution network in the South and East of the UK, went public with his concerns, telling the Financial Times that " the distribution price review is my single biggest focus…we cannot have smart grids on an underfunded network".

Ofgem estimates that distributors must invest at least £6.5bn in the UK's electricity network between 2010 and 2015 to enable the development of a smart grid, in a move that will add £4 to the average annual electricity bill.

But in an initial proposal on price controls earlier this year, Ofgem recommended that energy distribution firms cut their investment plans for the period by 17 per cent, and reduce operating costs by 10 per cent to help pay for smart grid investment.

At the time, industry body the Energy Network Association said there were still some "outstanding issues" between distributors and Ofgem – suggesting that distribution firms felt the balance between costs to their customers and their own investment levels were unfair.

A smart energy grid would enable decentralised generation of electricity and allow energy suppliers to measure demand much more accurately, leading to an overall reduction in the amount of energy needed to keep the lights on. Advanced smart grid technologies could also allow energy firms to automatically turn off so-called "smart" appliances during times of peak energy demand in order to further cut power requirements and curb carbon emissions.

In addition to calling for less stringent price controls, Vincent de Rivaz called for distribution companies to be given responsibility for installing smart meters, which will measure energy use in the home more accurately and send real-time information to energy suppliers.

The government is currently considering whether to mandate electricity suppliers or distributors to fit the meters, and a decision is expected next month.