Ofgem: Brexit likely to delay onshore transmission competitive tendering

Ofgem had been expected to tender for its first competitively appointed transmission owners (CATOs) this year, following announcement of the plans as part of the 2015 Budget. However, further work now depends on the introduction of legislation to underpin the new regime, according to Ofgem.

"We have been working with government to introduce relevant legislation in order to implement the CATO regime," said the regulator, in an update to the industry published on its website. "The necessary primary legislation has been drafted and was subject to pre-legislative scrutiny by the Committee for Energy and Climate Change in 2016."

"We remain committed to working with government to seek an appropriate opportunity to introduce this legislative change. You will have seen from the Queen's Speech that legislation related to EU exit will likely dominate the parliamentary timetable, so an opportunity to introduce this legislation in the immediate future currently looks unlikely. We will take forward further development of the CATO regime (and the next iteration of CATO policy/documentation) once there is greater clarity on timing of enabling legislation," Ofgem said.

The regulator intends to set out some of its thinking around "alternatives to CATOs" as part of its next needs case consultation on planned onshore electricity transmission infrastructure later this summer, it said. It added that it "continue[s] to consider that there are significant benefits to consumers in introducing competition into the delivery of new, separable and high value electricity transmission projects".

The introduction of a competitive tendering regime for new onshore electricity transmission projects worth over £100 million was announced by the then government as part of the March 2015 Budget, and has since been subject to a number of consultations by Ofgem. The regime would have been based on the competitive tendering regime for offshore transmission owners (OFTOs), which was introduced in 2009.

Energy law expert Jeremy Chang of Pinsent Masons, the law firm behind Out-Law.com, said that the delay would be "disappointing news for those who had hoped that the new regime would encourage new entrants and promote innovation in the transmission sector".

"The onshore transmission sector will need to wait a while longer to see if the CATO regime can replicate the benefits of enhanced competition seen in offshore transmission," he said. "According to Ofgem, the OFTO regime has realised savings of some £670m and £1.2 billion in 2014/15 prices for the first three transitional rounds."

"We suspect the delay is part of a trend which is likely to continue. Apart from the CATO regime we are still waiting for the Clean Growth Plan, which will set out the government's plans to get us back on track to meet our climate change targets; the government's response to its call for evidence on a smart, flexible energy system, which was expected this spring; and the next steps in the development of the industrial strategy, to name but a few," he said.

"But in a world where Brexit will dominate parliamentary time and where the hung parliament will make concluding legislative business more fraught, complex and time-consuming, energy policy will not be alone in inevitably slipping down the government's list of priorities," he said.