Out-Law News 1 min. read

Budget 2015: 'competitive tendering' proposed for onshore electricity transmission infrastructure


Introducing a competitive tendering process for the construction of cables, pylons, substations and other onshore electricity transmission infrastructure could drive down the costs of these necessary projects, the UK government has said.

It announced that it would legislate for market regulator Ofgem's plans as part of this year's Budget document, citing savings made as a result of increased competition elsewhere in the energy sector. The introduction of the competitive offshore transmission owners (OFTO) regime by Ofgem in 2009 has already saved consumers between £200 million and £400m, while last month's first competitive auction for renewable electricity generation subsidies saved the government over £100m per year, according to the document.

Projects expert Michael Watson of Pinsent Masons, the law firm behind Out-Law.com, said that the plans could encourage much-needed private sector investment into domestic energy infrastructure.

"In a Budget that is big on vote-winning headlines, it's really encouraging to see significant thought around the development of energy infrastructure and some concrete proposals for the future," he said. "Attracting much-needed international and domestic investment into energy infrastructure could be a game changer for the industry and economy."

However, Watson warned that "careful management" of any new regime would be needed to ensure that investment secured under it was "additional, and not in substitution for existing sources of investment".

Subject to approval of the necessary legislation, Ofgem intends to run the first tender for onshore transmission assets in 2016 or 2017, according to a report published this week as part of its Integrated Transmission Planning and Regulation (ITPR) project. ITPR was Ofgem's now-concluded work programme to review and modernise the existing arrangements for planning and delivering onshore, offshore and cross-border British electricity transmission networks.

Under the new arrangements, investors would be able to bid to construct, own or operate certain "new, separable and high value" assets including those that connect new power projects to the grid or update existing transmission assets. Investment in these assets is currently planned and delivered by monopoly transmission owners that are regulated through a performance-based price control mechanism known as RIIO, which stands for 'Revenue = Incentives + Innovation + Outputs".

OFTOs are already selected and licensed through a competitive tender process run by Ofgem. Ofgem has decided that it will keep the existing developer-led approach governing the construction of new interconnectors between the UK and other countries, as well as open further application windows under its new 'cap and floor' revenue guarantee regime, according to its final ITPR report.

The British electricity transmission network 'system operator', National Grid, will be given additional responsibilities under the new regime. Its enhanced role will require it to identify the need for investment in the transmission network, and coordinate and develop investment options, according to the report. Ofgem said that it would shortly consult on licence changes with the aim of having the new arrangements in place by "late summer".

We are processing your request. \n Thank you for your patience. An error occurred. This could be due to inactivity on the page - please try again.