Ofgem proposes £7bn funding to connect Scottish renewables to the National Grid

The proposal, which includes £2.9bn of investment from 2013 with up to a further £4.7bn available to 2021, is part of the regulator's ongoing project to replace the UK's ageing energy infrastructure.

In Scotland the major power supply firms are also responsible for the electricity transmission network, however in England and Wales this is run centrally by the National Grid. The National Grid has presented further proposals for the regulator’s consideration valued at around £30bn it said.

Scottish Power, one of the companies which will benefit from the proposal, described it as “the most significant investment in electricity infrastructure to take place in 60 years”. The company intends to use the funding to connect 11 gigawatts (GW) of onshore and offshore wind generation capacity - enough to power over six million homes - to the national grid.

Ofgem intends to fast track proposals by ScottishPower and SSE under its new RIIO model (Revenue = Incentives + Innovation + Outputs), which allows companies who deliver low carbon energy while saving customers money to avoid burdensome price control regulations. The investment will be funded by an extra 35p on UK consumers’ bills over the eight year investment period, the regulator said.

It intends to publish its proposals based on the companies’ business plans for consultation next month.

Ofgem's Hannah Nixon said that both companies had embraced the RIIO process.

"Their business plans provide good evidence of how the companies will deliver significant benefits to consumers through greater efficiency, enhanced consumer engagement and investment. The fast-tracked companies can now benefit from the swiftness of the process and concentrate on delivering efficient network improvements for consumers," she said.

SSE’s energy business, SHETL, has proposed a £1.1bn capital investment programme, with the flexibility to increase this by up to a further £4bn if required, to upgrade its transmission network in the north of Scotland. The company’s managing director, Mark Mathieson said that its investment programme would help it to grow its renewable generation capacity over the next decade.

“The fast tracking of SHETL’s business plan means we can now focus on delivery; confident that the required funding is in place, a clear mechanism has been created to deal with the uncertainties of investing over this time frame, and that an overall positive investment climate has been established,” he said.

ScottishPower’s chief executive Frank Mitchell added that its early agreement with Ofgem had the potential to create 1,500 jobs within its license area.

“This agreement will ensure the best value for consumers, whilst guaranteeing a modern and robust electricity system capable of supporting the UK’s and Scotland’s ambitious carbon reduction targets,” he said.

“Our engagement with Ofgem during the course of this process has been very positive and we have worked effectively together to agree these proposals. The fact that our initial submission is relatively unchanged reflects well on the detail of work that went into our plans.”

Both companies would have to undertake further work to improve their environmental performance, Ofgem said, while two other companies who had missed out on fast-tracking would be able to submit revised plans by 5 March.