(Bloomberg) --

Energy grid companies in the UK will have 22.2 billion pounds ($26.6 billion) to spend on beefing up local networks as the nation’s green shift requires increasing electrification.

While a huge sum, it’s 12% less than the six main network companies had proposed. The budget will cover everything from service and maintenance to upgrades on 14 local grids for the next five years, regulator Ofgem said in a statement on Wednesday. 

Utilities, including SSE Plc, Iberdrola SA’s Scottish Power and National Grid Plc, are at the forefront of the nation’s electrification drive as it’s the power lines that charging stations for electric cars, heat pumps in homes and local renewable energy plants get connected to. 

“The economics of energy have shifted with home-grown cleaner renewables like wind and solar energy proving cheaper than costly imported gas,” said Akshay Kaul, Ofgem’s interim director of infrastructure and security of supply group. “These new low carbon sources of generation will also need to be connected to an expanded electricity network.”

These local links operate at a lower voltage than the backbone of transmission lines, which, for example, carry electricity from wind farms in Scotland to demand centers further south.

Grids are desirable investments because the price control gives certainty on returns. Last week SSE sold a 25% stake in its distribution business to to the Ontario Teachers’ Pension Plan Board for about £1.5 billion. 

The rate of equity return was set at 5.23%, up from 4.75% in an earlier proposal, but still some way off the 6% in the previous price control period. The price control runs from April 1 next year to March 31, 2028.

(Updates with cost of equity in seventh paragraph.)

©2022 Bloomberg L.P.