Ofgem has today put forward proposals to lower the cost of capital for energy network companies working to deploy a range of smart grid and low carbon infrastructure technologies.

The proposals are set out in a consultation on the watchdog's RIIO (Revenues = Incentives + Innovation + Outputs) regime, which controls prices across the network sector. Under the proposed reforms for the price control period from 2021 network companies would enjoy a "much lower cost of capital" for the billions of pounds of investment they need to raise. "This will result in lower returns for investors and more savings for consumers," Ofgem said, adding that savings for the next RIIO period should total £45 per household per year.

Network companies are set to deliver a major investment programme throughout the 2020s to provide new electric vehicle charging services, support home and distributed generation technologies, and ensure the grid can support increasing levels of renewable power. However, experts have warned high costs of capital could land consumers with a significant bill to fund the necessary upgrades, even if the shift to a cleaner and smarter energy system delivers net savings in the long run.

Ofgem said it would work to curb costs and that based on current market conditions and the evidence available, its proposals would set a new cost of equity at four per cent - about 50 per cent lower than the previous price controls. Ofgem said it is also proposing to keep adjusting the cost network companies face to borrow annually so that consumers continue to benefit from the fall in interest rates since the financial crisis.

The lower overall cost of capital is expected to save consumers £6.5bn in the next price controls from 2021 onwards, it added.

The move follows controversial proposals last month to introduce fixed charges designed to ensure those who generate their own electricity at home or on-site pay a larger share of grid charges. Ofgem argued the changes would help reduce the cost burden placed on households that do not have access to renewables, but critics warned it would undermine the deployment of onsite renewables that contribute to theUK's wider decarbonisation and energy security efforts.

Ofgem has rejected that criticism and today said it was continuing to work on a wide range of initiatives to help accelerate the shift to a smarter and cleaner grid, including new time of use tariffs and electric vehicle technologies, which encourage vehicles owners to charge up during off-peak times.

Jonathan Brearley, executive director for systems and networks, said the new package of proposals "will help build a lower cost, fairer energy system which is fit for this smarter, cleaner future".

"We want to cut the cost to consumers for accommodating electric vehicles, renewables and electricity storage, and make sure that all consumers benefit from these technologies," he said. "This will mean driving a harder bargain with network companies to ensure that households who need it always have access to safe and secure energy at a fair price."

However, David Smith, chief executive of the Energy Networks Association (ENA), warned that the sharp reduction in capital costs could make it harder for network operators to attract the necessary investment in new smart grid technologies and could inadvertently slow the deployment of infrastructure that is critical to the UK's decarbonisation efforts.

"It's important that the public and the country as a whole benefit from the changes that are sweeping across the country's energy system, but much more work still needs to be done by the regulator to understand the pace of that change, the risks that investors face and how that is reflected in the price control," he said. "Energy network companies are building a smarter, more efficient, cleaner energy system that is fit for the British public, so we can all benefit from things like more electric vehicle chargepoints to help improve our air quality and a lower-carbon gas grid to heat our homes.

"But as things stand, the proposals could jeopardise the innovation and investment that is critical to delivering these important outcomes. Britain's people and businesses risk missing out."