Power companies ‘underspending on fixing networks’
Electricity network companies have spent hundreds of millions of pounds less than planned on refurbishing and replacing their networks in recent years, blaming factors including supply chain problems and labour shortages.
Regional power distribution companies underspent their budget for so-called “non-load related” capital expenditure — investment to maintain the health of existing assets — by £290 million or 22 per cent in the 2023-24 financial year, according to figures quietly released by the regulator last month.
National power transmission companies have underspent their non-load budgets for grid replacement and refurbishment by £508 million over the three financial years from 2021-24, the figures show.
The disclosures come at a time of heightened scrutiny of the reliability of Britain’s power networks, following substation fires including one that disrupted electricity supplies to Heathrow, and amid concerns over energy security following the blackouts in Spain and Portugal.
The Common Wealth think tank, which highlighted the figures, said it was concerned that they were part of a pattern of network companies systematically underspending on vital infrastructure replacement. It argued that the regulatory system “incentivises companies to overestimate required investment in their business plans and then pocket a portion of the difference as profit when they underspend”.
An enormous power cut plunged Spanish shops and homes into darkness last month
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Ofgem, which regulates the companies’ budgets and how much they can charge energy billpayers over five-year price control periods, said in a report that the distribution network operators had been delayed in their upkeep investment plans by “external market conditions, supply chain disruptions, and labour market constraints”. It said they had been affected by “extended lead times” for high voltage assets and manufacturing delays.
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It said the transmission operators had “fallen behind their expected delivery schedules”, especially “in the work programme focused on existing network assets”.
“A significant boost in activity is essential to meet the asset-health related delivery goals and to reach a total spend by March 2026 that aligns with the transmission operators’ current performance estimates,” it said in the report.
Mathew Lawrence, Director of Common Wealth, said: “The networks are the backbone of our energy system. But this new analysis shows they are routinely underinvesting. This is the fault of the UK’s model of privatisation, which incentivises companies to sweat assets to pad their profits.”
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However Lawrence Slade, chief executive of the Energy Networks Association, said the think tank had “cherry-picked particular categories of investment over specific timeframes”.
“While the timeframe for the delivery of some recent projects has changed — primarily due to manufacturing delays in the wider global economy and the resulting extended project lead times — network operators will deliver this vital infrastructure spending at a later date within the same price control period,” he said.
An Ofgem spokeswoman said: “Our regulation means network companies must meet their targets and deliver the investment that our networks need without lowering service quality. We look at investment over five-year periods, and any under or overspend is shared with consumers. As the regulator, we will continue to hold them fully to account on delivery and if they fail to meet set standards, they may face fines and penalties.”