The UK's energy companies could soon be free to increase charges for customers as a means of raising more money to invest in renewable energy projects after industry watchdog Ofgem yesterday announced a review into the regulatory regime governing gas and electricity networks.

Ofgem chief executive Alistair Buchanan said the two-year review would focus on the formula Ofgem has used over the past 20 years to set price controls that govern the maximum amount energy firms can charge customers for energy coming from their networks.

He explained that the system had proved successful at improving the efficiency of energy networks and lowering costs for customers, but said that changes in the energy landscape, such as the growing need for investment in renewables, meant it was time to reassess the approach.

"We need to know that the regime can continue to promote innovation from the companies at the level that is required for the future," he said. "The challenges for the future include ambitious new government renewables targets for 2020, proposals for greater power network interconnection in Europe, a greater emphasis on small-scale distributed generation and growth in gas imports."

A spokesman for Ofgem said that the regulator had raised the price controls in recent years to allow network operators to charge more and increase investment in renewables, but that now it was keen to assess if a more fundamental change to the regulatory system was required. He added that the current system may be retained, but that the review would also investigate whether price controls should be removed altogether.

Buchanan said Ofgem would seek to consult heavily with the energy industry throughout the review and offered assurances that any changes to price controls that resulted would not come into effect until after 2010.