By Karolin Schaps
LONDON (Reuters) - UK energy regulator Ofgem on Monday proposed rule changes to encourage investment in the power grid, which needs 32 billion pounds ($49.4 billion) to meet low-carbon commitments.
The regulator suggested, among other proposals, that it could extend price controls for energy networks to eight years from five years, giving investors more investment security, and offer greater incentives for companies that perform well and foster innovation.
"A five-year cycle actually feels too short. So an eight-year cycle where we're expecting a lot of investment for smart grids is a good thing," Rick Hanks, Smart Metering Lead at consultancy firm Accenture, told Reuters in a telephone interview.
"I think it'll enable better investment policies as many of the assets have 15- to 30-year lives, so it'll enable surety and will focus on delivering assets instead of the next price review," he added.
The regulator had come under pressure from the British Parliament's energy and climate change committee in February, which urged Ofgem to adapt policy to include setting up a smart grid in order to manage the influx of intermittent renewable energy into the British electricity grid.
Developing Britain's smart grids -- networks that manage supply and demand efficiently -- is part of Ofgem's new future network model.
Ofgem also proposed to penalize poorly performing companies and to encourage new companies to deliver large-scale projects.
"Ofgem is seeking to make regulation 'smarter' by placing more emphasis on financial incentives to deliver efficient innovation and investment over a longer timescale," Ofgem Chief Executive Alistair Buchanan said in a statement.
In addition to energy network operator National Grid, Britain has 14 regional distribution network operators that will play a key role in modernizing the grid.
The government's Department of Energy and Climate Change and National Grid both received the review of Britain's network regulation positively.
"We welcome progress made through Ofgem's extensive stakeholder consultation and look forward to the introduction of a new regulatory framework that helps achieve the timely and cost-effective delivery of sustainable energy networks," the ministry said in a statement.
National Grid said it looked forward to playing an active part in the ongoing consultation process.
Utility Centrica said it was pleased to see that the new regulation addressed increased investment by network owners in a way that would control spending and ensure that the work undertaken meets requirements.
Ofgem's proposals will be subject to a final round of consultation, and comments will be published in September, the regulator said.
New rules will be rolled out over the next two price control revisions, which will not start before 2013.
OFGEM'S MAIN PROPOSALS
* Give more feedback options to network customers to determine what operators need to provide
* Reward companies that perform well with fast-track price controls, giving higher returns
* Penalize poorly performing companies with more intrusive regulation
* Extend price controls to eight years from five years
* Provide support for the entry of new network companies to deliver large-scale projects
* Expand current low-carbon networks fund
(Reporting by Karolin Schaps and Kwok W. Wan; Editing by Jane Baird)
