Transmission Buildout

Ofgem to ease approval process for strategic wind projects in the UK

The UK is pursuing ambitious targets for low carbon generation to promote energy security and meet its long-term net zero targets. Accelerating transmission investment in both onshore and offshore networks has become im­perative to achieve the UK’s latest offshore wind (OSW) ambitions of 50 GW by 2030 (previously 40 GW target), set by the British Energy Security Strategy released in April 2022. As part of the ongoing tra­ns­mission reforms under the governme­nt’s Offshore Transmission Network Re­view framework, the National Grid Elec­tricity System Operator (ESO), in July 2022, released its Pathway to 2030 Holis­tic Network Design (HND), setting out a single, integrated offshore grid design to support the transmission of large-scale OSW generation to load centres across Great Britain.

Further, ESO published the 2021-22 Network Options Assessment Refresh, which identified onshore transmission projects that are required to be delivered by three electricity transmission owners (TOs) – Na­tio­nal Grid Electricity Trans­mission, SSEN Transmission and SP Transmission. Par­ticularly, it identified 26 strategic high-value projects, with a combined cost of GBP 19.8 billion as well as 52 lower-value projects worth GBP 1.4 billion. Of the high-value projects, 16 projects with a total cost of GBP 9.2 billion are already expected to be delivered before 2030, while the remaining 10 projects worth GBP10.6 billion ne­ed to be accelerated so that they are delivered by 2030.

In this backdrop, in August 2022, the UK’s energy regulator, Office of Gas and El­ec­tricity Market (Ofgem), consulted on ac­celerating onshore electricity transmission investment to support the delivery of th­e­­se strategic transmission network up­grades. The consultation includes Of­ge­­m’s proposals to streamline the current Large Onshore Transmission Investment (LOTI) regulatory approval process for tr­a­­­nsmission projects greater than GBP100 million as well as proposed mea­su­res to protect consumers against additional risks that changing the process brings.

The typical time taken for onshore electricity transmission projects to be delivered from their initial design, through to project completion, is currently around 11 to 13 years, half of which is taken up by co­nsenting requirements. Delivering upgrades identified by the ESO by 2030 will require joint efforts of TOs and their supply chain, Ofgem, and the government, for which TOs will need to develop ambitious and accelerated delivery plans. Further, requisite reforms to the planning and consenting regimes across Great Bri­tain (England, Wales and Scotland), wou­ld be carried out under the government’s Electricity Networks Strategic Framework to support early project delivery.

Ofgem’s latest consultation is in response to the TOs’ feedback regarding the need for changes to the current RIIO ET2 (Re­ve­nue=Incentives + Innovation + Outputs Electricity Transmission) regulatory app­roval and funding mechanism to make it more agile, responsive and flexible, to enable them to expedite delivery. While Ofgem opines that its current LOTI regulatory process (applicable since April 2021 as part of the RIIO-2 price control package) does not cause delays to transmission projects, its proposed package of measures aims to facilitate accelerated delivery by TOs. This can be achieved by:

  • Providing early certainty on regulatory funding before the detailed project de­sign is known and planning permission has been secured to enable TOs to sp­eed up co­n­struction. This can save up to one year.
  • Reducing the number of regulatory approval gates to reduce the time ta­ken to secure regulatory approvals and funding.
  • Providing targeted, programmatic ex­em­ptions from onshore network competition as a competitive tender proce­ss is expected for some strategic on­sh­ore projects from 2024, provided the requisite legislation is in place by then.

Parallelly, Ofgem also intends to hold TOs accountable and protect consumers by using strong financial incentives, including penalties for delays in delivery and licence obligations.

For qualifying criteria for inclusion into the accelerated delivery framework, Of­g­em recommends early acceptance of the strategic project need for all qualifying pr­o­jects or approval of allowances for qu­alifying projects in two stages – first, for early construction funding prior to any planning permission and second, for a full project cost assessment post the per­mission.

Ofgem seeks to quantify the potential costs and benefits to consumers of its proposals. While its initial analysis indi­ca­tes clear net benefits (ranging from GBP 500 million to GBP 2 billion), these can be materially reduced if TOs do not deliver the required upgrades by 2030, or if the anticipated growth in renewable generation does not materialise.

Ofgem is closely working with TOs and the government to agree on practical steps that each side will take to ensure that the UK’s renewable ambitions are met. Once Ofgem finalises the new regulatory framework through consultation, it will review TOs’ updated project delivery plans and intends to publish an initial list of projects that qualify for strategic needs case approval and competition exemption by the end of 2022. Subsequently, funding approval for qualifying projects will be in line with individual project delivery timetables from TOs.

The new framework will be applicable only to certain strategic onshore projects where benefits exceed the cost to consumers; particularly, because over the next couple of years, network plan­n­ing is expected to evolve iteratively into a single centralised Strategic Net­work Plan for the ET network, following an updated HND2 in 2023. Overall, Ofgem’s proposed package of potential changes to its regulatory approval fra­mework could help alleviate grid constraints through fast-tracking of strategic projects, provide wider environmental benefits and ultimately aid the country in achieving its 2030 climate and energy goals.

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