The sustainable economic growth implications of expanding the electricity network: can early investment reduce consumer costs and support greater GDP and jobs gains?

Abstract

In 2024, the UK Government introduced a statutory ‘Growth Duty’ on the energy industry regulator Ofgem. One implication is that industry actors must explain how proposed investments might enable sustainable economic growth processes when submitting their business plans as part of the regulated energy price control system. The first instance of this requirement affected the three GB electricity transmission owners (TOs) when submitting business plans in late 2024 for the RIIO-T3 period, which will run from April 2026 through to March 2031. This paper reports results and insights from independent research drawing on the investment plans of one of the three TOs in a set of economy-wide scenario simulations using a dynamic computable general equilibrium (CGE) model of the UK economy. A central finding is that our results indicate that undertaking early, planned investment at pace in anticipation of projected rising electricity demand, in response to the UK Government's electrification policies, is likely to deliver substantially stronger GDP and employment outcomes than a reactionary investment approach. This outcome is due to both an increased scale of earlier investment and the early creation of some excess capacity, which introduces downward marginal pressure on electricity bills. Moreover, where the latter is sufficient to offset the user bill impacts of investment cost recovery, the net outcome for UK households becomes progressive. The commonly expected outcome of cost recovery through energy bills being regressive does, however, manifest if electricity prices do not adjust in a competitive manner.