Ofgem to spark more competition in building onshore electricity infrastructure
Ofgem is consulting on how to tender out new onshore electricity transmission infrastructure projects worth £100m or more. The first tender could take place in 2017.
Since 2009 links to offshore wind farms have been competitively tendered, saving consumers between £200m and £400m so far. Now Ofgem wants to apply this successful formula to new, high-value onshore electricity transmission infrastructure.
It will mean that the three monopoly transmission companies in Britain, (National Grid Electricity Transmission, Scottish Hydro Electricity Transmission, and Scottish Power Transmission) will have to compete against other firms for the right to build and own new, high-value transmission assets.
Ofgem CEO Dermot Nolan said: “Part of our role is to ensure that customers pay no more for energy infrastructure than they have to. We took a ground-breaking approach by opening up ownership of offshore links to competition and now we are going further. In future we will tender out high-value electricity infrastructure projects onshore. This ensures that customers get even better value for money from Britain’s grids.”
Ofgem is now consulting on the detail of how onshore tendering would work, including how eligible projects would be identified and the revenue that winning bidders would receive from operating the links.
Notes to editors:
- The current price control for the three transmission companies runs from 2013-2021. During this period Ofgem will only consider tendering out new projects worth £100m or more that the companies propose as part of the Strategic Wider Works programme (if Ofgem has accepted there is a need for the project). A 2013 factsheet gives more information on the SWW arrangements and a list of prospective SWW projects. The list of projects is subject to change and may not include newer projects in early development.
Beyond the current price control, the proposal is that new transmission investments worth £100m or more will be tendered.
‘New onshore electricity transmission infrastructure projects’ in this context refers to either brand new overhead lines, cables or substations, or a complete replacement of existing overhead lines, cables or substations. Additionally, projects will only be tendered if it is possible to clearly delineate ownership boundaries so that it is clear who is responsible for each asset.
National Grid (as the GB transmission system operator) will be required to recommend to Ofgem whether a project meets the criteria for tendering and whether there is a technical and economic need for the project. Ofgem will make the final decision on whether a project meets the criteria and should proceed to a tender. Ofgem proposes that successful bidders should receive an annual revenue stream fixed over a 25-year period. Ofgem is working with government to explore potential legislative change to support the use of competitive tendering onshore.
- The offshore regulatory regime was developed by DECC and Ofgem and was launched in 2009. The regime is for licensing offshore electricity transmission. It uses competitive tendering to ensure lower costs of transmission services for generators and, ultimately, consumers.
Ofgem runs tenders for projects where:
- Offshore Transmission Operators (OFTOs) design, build, operate and maintain the transmission assets; or
- generators build the transmission assets and then transfer them to OFTOs at construction completion.
- See our video on how energy is transported and Ofgem’s role in regulating network companies
Ofgem is the independent energy regulator for Great Britain. Its priority is to make a positive difference for consumers by promoting competition in the energy markets and regulating networks.
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