Upgrades to the power transmission networks are expected to result in up to £2 a year being added to bills in the next year, and up to £12 by 2020.

Regulator Ofgem has published initial proposals for the revenues it will allow the four energy transmission companies to recover from consumers in the year from 1 April 2012 to 31 March 2013, under a one-year extension to the existing price control.

This will put an extra £2 and £1, or approximately 0.3% and 0.4%, respectively, on the average annual residential gas and electricity bills in the short term.

The amount is made up of figures for incentives for the licensees to improve services to consumers and "uncertainty" amounts to allow them to respond to unforeseen eventualities.

Four companies own the high pressure gas mains and the high voltage power networks: National Grid Gas, National Grid Electricity Transmission plc, Scottish Power Transmission Limited, and Scottish Hydro-Electric Transmission Limited.

The deadline for responses to the Ofgem consultation is Monday 12 September 2011.

Looking beyond this, the next price controls for the gas distribution and energy transmission companies will run from 2013 to 2021. This is a crucial period during which the transmission system will be substantially upgraded in order to accommodate the many new generation installations that will come on stream.

The total cost of this new infrastructure and grid upgrading is estimated by Ofgem at around £200bn.

The National Grid, which is the sole supplier of most of the gas and electricity distribution network, has today asked Ofgem for permission to put up its charges to suppliers by as much as 40% in order to fund its share of new investment over this period, which it calculates to be £30.7bn on the electricity grid and £8.8bn on the gas network.

Its new business plan reckons that the impact on bills will be around 4%, or about £12 a year for a typical household in real terms by 2020.

Ofgem is introducing a new model for regulating the networks' pricing mechanism, which it dubs RIIO (revenue = incentives+innovation+outputs).

In a letter accompanying the consultation document it says that RIIO is "designed to drive real benefits for consumers, providing companies with strong incentives to meet the challenges of delivering a sustainable energy sector at a lower cost than under our previous approach".

The National Grid's proposals assume all planned nuclear and wind power installations go ahead on time.

But given the likely delay in getting new nuclear power on stream - at least a one year delay after 2018 is expected - and the lower cost of any gas generation that would have to make up any shortfall, the eventual cost to the end consumer is likely to be less that £12 a year extra. Additionally, although Britain has a target of 29 GW of offshore wind by 2020, expectations are that only 19-24 GW will be up and running by then.

National Grid is hosting a web-based conference to let investors and analysts ask questions about its business plan. Ofgem will look at the company's proposals and comment in October.

Meanwhile, in Scotland, rural affairs secretary Richard Lochhead has launched a new Agri-Renewables Strategy for farmers and landowners to help them to find ways to make money by generating energy.

The document covers the planning system, pre-construction costs and how to connect to the National Grid, and forms part of the Scottish government's 2020 Routemap for Renewable Energy in Scotland.

Redpoint's role

As part of the effort to upgrade the offshore transmission network to accommodate new wind and marine energy, Ofgem has appointed consultancy Redpoint Energy to assess what changes are needed to the offshore transmission regime.

Redpoint will undertake an economic and policy analysis development support, and independently assess evidence provided by industry alongside the Offshore Transmission Coordination Group that has been set up by Ofgem and DECC to provide support as part of this process.

Ilesh Patel, director of Redpoint Energy, observed that the huge increase in generation means that "additional measures might be required to deliver co-ordinated networks through the competitive offshore transmission regime”.

"We need to investigate what the potential issues are, what policy options are available, and how the commercial framework, including the risk and reward balance, may need to change," he said. "This also takes in the incentives framework required to ensure new investment continues to flow to the offshore generation and transmission sector.”

The energy policy now being pursued by the government, which Redpoint is being asked to assist with, is partly the result of many pieces of research that it has previously commissioned from Redpoint itself.

These include: the policy options for Electricity Market Reform, for Renewable Support Schemes (for the Department of Business, Enterprise and Regulatory Reform), for the National Grid Electricity Transmission (NGET), for reform to the Renewables Obligation, for Ofgem in relation to system operator incentives, and helping new transmission networks and interconnectors overcome regulatory and commercial barriers across Europe.