Network upgrades to push energy bills up £11 a year

Plans to upgrade Britain's gas and electricity networks could push household energy bills up by £11 a year, the energy regulator Ofgem has said.

It warned that bills could initially increase by £7 this year, and by £15 a year by 2021, to help pay for the essential £22 billion upgrade and renewal.

Ofgem said the investment would 'ensure that Britain's networks remain among the most reliable in the world.'

Around £15 billion of investment will be needed to upgrade both the high voltage electricity and high pressure gas networks across the UK, and could include the construction of new sub-sea electricity cables linking England, Wales and Scotland.

It estimated the new projects could create around 7,000 new jobs.

A further £7 billion of investment would ensure low pressure gas networks, which deliver gas to homes and businesses, 'remain safe and reliable'.

The money would also fund maintenance across the network and enable companies to connect 80,000 new households to the gas network.

Ofgem chairman, Lord Mogg said: "As Ofgem's Project Discovery set out, Britain faces an unprecedented need to invest to replace ageing infrastructure, meet environmental targets and deliver secure supplies.

"This needs to be carried out at a time of global financial uncertainty, which makes attracting investment difficult but possible."

Ofgem, however, said it would reduce companies' requested funding by 20 per cent. National Grid, which operates the UK's electricity and gas networks, commented that this would not adequately reflect the increased scale of investment needed to carry out the upgrades.

National Grid is restricted by Ofgem as to what it can charge consumers under 'price control' regulations.

Speaking to The Telegraph, National Grid said: "While the information currently available is limited, we believe that these initial proposals will not appropriately incentivise the essential investments necessary to provide safe, reliable networks for the UK consumer and avoid delays to the achievement of the UK's environmental targets."

A consultation on the ways companies can deliver investment while providing value for money for consumers will open from 27 July until 21 September. Ofgem's final proposals will be published in December 2012.