Ofgem pledges to power up "smart cities"

Energy regulator Ofgem has announced a plan to invest £6.5bn in Britain's electricity networks over the next five years as it seeks to rebuild ageing infrastructure and move towards the universal adoption of "smart grid" technologies.

The proposals include a new £500m fund to encourage operators to connect renewables to their networks as well as cut energy waste, which the watchdog estimates is currently at a level equivalent to the electricity used in around six million homes.

The fund will also support several large-scale "smart grid city" pilot schemes, where the regulator will pay for smart meters and other technologies to be installed in a number of trial cities and towns.

Ofgem said network operators have collectively cut their operating costs to 10 per cent below their original forecasts, but it admitted that the plans will still add £20 to the average electricity bill between now and 2015.

However, Ofgem chief executive Alistair Buchanan insisted that customers would be rewarded with a better and more reliable service as a result of the proposed upgrades.

"We are looking in particular for better service in new connections where the companies will face penalties should they fail to meet new standards," he said. "And we have proposed ambitious new incentives and funding to deliver the networks we will need in a low-carbon economy."

The current electricity grid built in the 1950s and 1960s is too old to accommodate widespread decentralised energy generation, such as power fed into the grid from small-scale wind turbines and solar panels.

Industry experts said that the upgrades and wider rollout of smart grid systems were essential given that the installation of microgeneration technologies is expected to increase rapidly from next year with the introduction of the government's new feed-in tariff.

The anticipated increase in the number of electric cars resulting from the government's planned incentive scheme is also expected to place further pressure on the grid in the coming years as motorists recharge cars overnight.

However, the proposals omitted two key details – the cost of borrowing that electricity firms would be expected to pay and whether the cost of deficits on their pensions plans could be passed on to consumers.

David Smith, chief executive of the Energy Networks Association, which represents the seven network operators around the UK, said that the watchdog should stop ducking the issues.

"It is of some concern that there remains a large number of outstanding issues," he said. "Until these are satisfactorily resolved, Ofgem will not be able to say that the process has reached a conclusion that delivers for customers, investors and the low carbon agenda."

The regulator said it will consult on current proposals over the autumn and make final decisions in the winter.