Ofgem plans £4bn energy upgrade

The investments will help improve ageing infrastructure

UK energy regulator Ofgem has said gas and electricity network operators should invest £4bn over the next five years to meet rising demand.

The money will be spent enabling the gas network to take more imports and linking more renewable energy sources to the electricity grid.

Ofgem is reviewing the investment needs of the four main transmission firms and how much they can charge customers.

The companies have outlined their own spending programmes - worth £7-9bn.

Eventually Ofgem will issue price controls within which the network operators - National Grid Electricity, National Grid Gas, Scottish Power Transmission and Scottish Hydro-Electric Transmission - have to run their businesses from 2007 to 2012.

It suggested that the investment figure could rise to over £5bn, which would be twice the spending level set during the last spending review.

'Huge challenges'

Ofgem said customers' bills would be little impacted by the investment because the cost of transmitting energy only represents about 2% to 3% of energy bills.

"Britain's energy networks face huge challenges over the next five years to respond to changes in the sources of our gas and power," said Alistair Buchanan, chief executive of Ofgem.

"A variety of import projects to bring gas from areas across the world are being built and there are also proposals to greatly increase the amount of electricity sourced from renewables," he said.

The announcement comes ahead of the UK's energy review.

Due next month, it is expected to call for the building of new generation of nuclear power stations.