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13 June 2003 - Companies running the UK's regional electricity distribution networks will have improved incentives to reduce the £600m ($1bn) worth of electricity lost on their networks each year under plans unveiled by energy regulator Ofgem Thursday.
An average of seven per cent of electricity is lost as it travels along the wires and transformers, equivalent to 20 terrawatt hours of electricity - enough to power five million homes. These losses add more than £12 on to the average domestic customer's bill.
Ofgem is proposing to encourage efforts by the 14 price-regulated distribution companies to reduce losses by increasing and simplifying the incentives that they face under their price controls. This will bring losses into line with the revenue benefits companies receive for achieving other efficiency gains and improve the current incentive scheme.
Managing Director, Regulation and Financial Affairs, David Gray, said: "Currently, distribution companies do not have the right incentives to make the best decisions to reduce the amount of losses on their networks. Our proposals seek to remedy this situation because even a small reduction in losses can have significant economic benefits and will reduce the amount of carbon emissions."
Ofgem also published today, proposals to make it easier and more cost-reflective for smaller generators, like renewables, to connect to, and use the local electricity networks. At present, charges for connecting to and using local networks are largely based on principles established in the 1980s.
"In a future in which substantial growth of renewable generation is expected, in the light of the Government's environmental targets, the role of the networks is likely to change as more electricity is provided by smaller generators connected to local networks," added David Gray.
Distribution costs make up between 25 and 30 per cent of domestic customers' bills - and the way that distribution companies charge for connection can affect theses costs.
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