Ofgem has warned the companies that run Britain's energy networks to expect tougher price controls from 2021.
The energy industry regulator said today that investors are increasingly willing to accept lower returns to maintain good value for customers.
Because energy networks are monopolies, Ofgem sets controls for the maximum amount companies can recover to fund the operation and investment in their networks.
The regulator said price controls need to evolve to meet the rapidly changing and uncertain needs of the energy system.
"There is great deal of uncertainty about the speed and direction of change: for example, the uptake of electric vehicles and the electrification of heating could have a profound impact on the power network," the watchdog said.
The tougher price controls will aim to maintain good value for customers and attract global investment but mean investors should prepare for lower returns from 2021.
"Our stable regulatory regime appeals to investors. We believe current market evidence suggests that they may be willing to accept lower returns for regulated assets," said Jonathan Brearley, senior partner of networks.
The current gas distribution and transmission price controls run from 2013-2021, and the current forecast rate of return for energy distribution and transmission companies ranges from seven per cent to 12 per cent.
"Ofgem will ensure that returns in the next price controls will allow companies to finance their investments efficiently. However, market conditions continue to indicate that returns in the next price controls should be lower," the regulator said.