Ofgem says the UK grid needs to be revamped in order to accommodate the growth in the renewable energy sources, including wind, and the decline in Britain's existing power stations. It said investment in new pipes and wires must increase by 75% in the next ten years.
Under new rules, network prices will be set by a price control model, ‘Revenue, Incentives, Innovation, Output’ or ‘RIIO’, which will aim to reward energy companies both for innovation while keeping prices low.
The new system will not come into place until after 2013.
In an announcement, Ofgem added: "Generation will no longer flow from large power stations. This will require much smarter networks to manage this increasing complexity. Also, large-scale renewable generation will make managing the network more complex due to the intermittent nature of wind power."
However, under new billing framework, consumers will be faced with higher bills to fund the new network.
Speaking about the new framework, Ofgem chief executive Alastair Buchanan said: "£32 billion of the £200 billion investment challenge Ofgem has identified falls to the regulation model, RIIO, will ensure we attract this investment, but at a fair price for consumers.
"The RIIO model will ensure that efficiency and innovation are hard-wired into the network companies. This means the benefits of the green economy, like more skilled jobs delivering smarter networks to allow householders to run solar energy and other types of microgeneration, will be delivered. However, there will be no gold plating of the networks at customers’ expense.
"RIIO also gives consumers and network users a bigger voice in what they want network companies to deliver and then rewards companies that take the initiative and deliver this efficiently, while financially penalising laggards and subjecting them to closer regulatory scrutiny."
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