The UK energy regulator, Ofgem, has approved a £28bn ($35.3bn) investment programme for energy infrastructure covering the 2026–2031 period. This initiative falls under the RIIO-3 (Revenue = Incentives + Innovation + Outputs) regulatory cycle, which determines the allowed revenues of network operators based on performance outcomes.
A strategic balance between gas and electricity
The approved funding allocates £17.8bn to the maintenance and expansion of gas networks, and £10.3bn to high-voltage electricity networks. This represents the largest network expansion since the 1960s. The plan marks the initial phase of a broader infrastructure programme that could reach £90bn ($113.5bn) by 2031.
This decision responds to projections from the National Energy System Operator (NESO), which estimates that £58bn in reinforcements will be needed to connect renewable energy projects. The key objective is to accelerate both onshore and offshore interconnections, as Europe faces over 1,700 GW of renewable projects awaiting grid connection.
Tighter governance and a demanding framework
Main beneficiaries include National Grid Electricity Transmission, National Gas, SP Transmission (a subsidiary of Iberdrola), and SSE’s transmission business. These companies operate under a regulated revenue model, with enhanced performance obligations enforced by Ofgem.
Firms will be required to deliver projects on schedule or face financial penalties. Ofgem stresses cost control, service quality and technical innovation. The programme also includes stricter conditions regarding local acceptability for new transmission lines and substations.
Tariff consequences and political trade-offs
The projected impact on household bills is an increase of £108 per year by 2031—£48 for gas and £60 for electricity. Ofgem forecasts system cost savings of £80 annually, which would reduce the net impact to £30. This approach allows the regulator to frame the increase as a total system cost adjustment rather than a straightforward tariff hike.
The decision comes amid political tension, as the UK government had pledged to reduce energy bills. Consumer groups and NGOs raised concerns over the direct pass-through of investment costs to households, while operators argue the need to modernise an undersized network.
Industrial and financial implications
Shares of affected companies declined following the announcement, reflecting market caution over the profitability of regulated assets. The expected growth in the Regulated Asset Base (RAB) ensures stable future cash flows, subject to performance and cost-control targets.
The programme also generates substantial demand for the industrial supply chain, particularly in engineering, high-voltage cables (HVDC), transformers and interconnection infrastructure. Capacity constraints in this supply chain may lead to delays and cost overruns if not addressed.
Strengthening energy security and European alignment
A strategic goal of the investment is to reduce reliance on imported gas by accelerating renewable grid connections. Lower network congestion and redispatching costs could result in long-term structural savings.
The UK aligns with European strategies that invest heavily in interconnections to ease grid bottlenecks. This move bolsters the country’s position with international infrastructure investors.
