Energy regulator Ofgem has published plans designed to cut household energy bills by £20 a year.

The plans would see energy providers cutting their return on investments, instead investing £25 billion over the next five years on greener energy.

This brings us to the topic of ESG in investing. It is becoming more evident that in the coming years, sustainable investing will be an important factor for investors and therefore for wealth planners, when it comes to fund selection.

At Wells Gibson, we will include low-cost, systematic and sustainable funds in our portfolios when required – these funds invest in companies that meet certain environmental, social and governance factors.

“Socially responsible investing, or social investment, also known as sustainable, socially conscious, “green” or ethical investing, is any investment strategy which seeks to consider both financial return and social/environmental good to bring about social change regarded as positive by proponents.” [1]

We can certainly see a shift in attitude towards greener energy and the implementation of this.

Green maple leaf in sunlight photo by Ben Moore on Unsplash

Under the present system, around a quarter of consumers’ domestic energy bills go towards network upgrades and maintenance. Investors can achieve a return of nearly 8% on these projects.

According to Ofgem, the plans are designed “to deliver a greener, fairer energy system for consumers.”

Despite being good news for consumers and the environment, energy providers were quick to criticise the plans.

National Grid said:

“We are extremely disappointed with this draft determination which risks undermining the process established by Ofgem.

“This proposal leaves us concerned as to our ability to deliver resilient and reliable networks, and jeopardises the delivery of the energy transition and the green recovery.”

However, Ofgem claims investing in the UK’s energy network is low-risk, making it an attractive proposition for investors. Ofgem said:

“Strong evidence from water regulation and Ofgem’s offshore transmission regime shows that investors will accept lower returns and continue to invest robustly in the sector.”

Also critical of the plans, was Rob McDonald, managing director of transmission at Perth-based SSE.

However, the plans would contribute towards the UK’s target of reaching net-zero emissions by 2050, which need a significant increase in renewable energy and investment to improve the stability of energy networks.

Ofgem’s price control system allows it to impose limits on the profit energy providers can make, once network operators present their plans for the work they will do and establish the costs.

If you would have any questions, please don’t hesitate to get in contact.  Alternatively, if you would like to learn more about Wells Gibson, we would encourage you to schedule an Exploration Call using the contact form on our website. We would love to hear from you.

Header image by Karsten Würth on Unsplash