The UK is pursuing ambitious low-carbon generation targets to promote energy security and meet its long-term net zero targets. Accelerating transmission investment in onshore and offshore grids has become imperative to meet the UK’s latest offshore wind (OSW) ambitions of 50 GW by 2030 (previously the 40 GW target ), set by the British Energy Security Strategy published in April 2022. As part of the ongoing transmission reforms as part of the government’s offshore transmission network review, the National Electricity Grid Operator (ESO), in July 2022 published its Pathway to 2030 Holistic Network Design (HND), setting out a single, integrated offshore network design to support the transmission of large-scale production from OSW to load centers across Britain.
In addition, ESO released the 2021-22 Grid Options Assessment Update, which identified terrestrial transmission projects to be delivered by three Electricity Transmission (TO) Owners – National Grid Electricity Forwarding, SSEN Forwarding and SP Forwarding. In particular, it identified 26 strategic high-value projects, with a combined cost of £19.8 billion, as well as 52 lower-value projects worth £1.4 billion. Of the high-value projects, 16 projects with a total cost of £9.2bn are already set to be delivered before 2030, while the remaining 10 projects worth £10.6bn are to be accelerated to be delivered by 2030.
In this context, in August 2022, the UK energy regulator, the Office of Gas and Electricity Market (Ofgem), consulted on accelerating investment in onshore electricity transmission to support the implementation of these strategic transmission system upgrades. The consultation includes Ofgem’s proposals to streamline the current Major Land Transport Investment (LOTI) regulatory approval process for transport projects above £100m, as well as proposed measures to protect consumers against the additional risks that changing the process entails.
The typical lead time for onshore power transmission projects from initial concept to completion is currently around 11 to 13 years, half of which is taken up by approval requirements. Delivering the upgrades identified by ESO by 2030 will require the joint efforts of TOs and their supply chain, Ofgem and government, for which TOs will need to develop ambitious and accelerated delivery plans . In addition, required reforms to planning and consent regimes across Britain (England, Wales and Scotland) would be carried out within the government’s power grids policy framework to support early delivery of projects.
Ofgem’s latest consultation responds to TO feedback on the need to modify the current RIIO ET2 (Revenue = Incentives + Innovation + Outputs Electricity Transmission) regulatory approval and funding mechanism to make it more agile, responsive and flexible, to allow them to expedite delivery. While Ofgem believes that its current LOTI regulatory process (applicable since April 2021 as part of the RIIO-2 price control package) does not lead to delays in transmission projects, its proposed package of measures aims to facilitate accelerated delivery by TOs. This can be achieved by:
- Provide early certainty on regulatory funding before the detailed design of the project is known and planning permission has been obtained to allow TOs to accelerate construction. It can save up to a year.
- Reduce the number of regulatory approval points to reduce the time required to obtain regulatory approvals and funding.
- Targeted and programmatic exemptions from competition on terrestrial networks through a competitive bidding process are expected for certain strategic terrestrial projects from 2024, provided the required legislation is in place by the.
At the same time, Ofgem also intends to hold TOs accountable and protect consumers by using strong financial incentives, including late delivery penalties and licensing requirements.
For the qualification criteria to be included in the Accelerated Delivery Framework, Ofgem recommends the early acceptance of the project’s strategic need for all eligible projects or the approval of allocations for eligible projects in two stages – first, for the funding of early construction before any building permit and secondly, for a full cost assessment of the project after permission.
Ofgem seeks to quantify the potential costs and benefits to consumers of its proposals. Although its initial analysis indicates clear net benefits (ranging from £500m to £2bn), these can be significantly reduced if TOs do not deliver the required upgrades by 2030, or if the expected growth in renewable energy production does not materialize.
Ofgem is working closely with the TOs and government to agree the practical steps each party will take to ensure the UK’s renewable ambitions are met. Once Ofgem has finalized the new regulatory framework through consultation, it will review TOs’ updated project delivery plans and intends to publish an initial list of projects eligible for case approval. strategic needs and competitive exemption by the end of 2022. Thereafter, approval of funding for qualifying projects will be in line with individual TO project delivery schedules.
The new framework will only apply to certain strategic onshore projects whose benefits outweigh the cost to consumers; in particular, because over the next two years, network planning is expected to iteratively evolve into a single centralized strategic network plan for the ET network, following an updated HND2 in 2023. In l Taken together, Ofgem’s proposed set of potential changes to its regulatory approvals framework could help alleviate network constraints through the acceleration of strategic projects, deliver wider environmental benefits and ultimately help the country to meet its climate and energy targets for 2030.