Watchdog urges 'rewiring' of energy networks

Ofgem said the investment in pipes and wires across the country, twice that seen in the last 20 years, was necessary to secure supplies to households and to move to a low-carbon economy.

The regulator said Britain's "ageing networks", mostly built in the 1950s and 1960s, need replacing to match increasing demand and a change in how consumers will use energy - such as charging electric cars overnight.

Ofgem also revealed a new pricing model, which moves away from the previous inflation-tied controls to an incentive-driven approach that rewards more efficient companies. It added that the proposals could save consumers up to 1 billion.

Ofgem, the Office of the Gas and Electricity Markets, promotes competition between gas and electricity companies and regulates them so there is adequate investment in the networks.

Ofgem's new pricing model, dubbed RIIO, will set pricing controls every eight years, rather than the current five-year period, and will offer incentives to efficient companies while clamping down on poorly performing firms.

Ofgem chief executive Alistair Buchanan said the RIIO model would "ensure investment but at a fair price for consumers" and would "financially penalise laggards" in the industry.

He added that the model would deliver the benefits of a green economy, such as more skilled jobs in areas such as solar energy installation.

A step-up in investment is required to meet new sources of energy generation, such as offshore and onshore windfarms and new nuclear power stations, Ofgem said.

The regulator said "smarter networks" were required to deal with more complex methods of supply such as energy recycling methods like combined heat and power generation.

The plans have been developed over the last two years and will be rolled out from the end of 2012, Ofgem added.