National Grid calls for 10-year supply chain contracts

National Grid has called for extended supply chain contracts to build up a reserve of critical equipment.

It says that by offering 10 year-plus guarantees, crucial supply chains can be established.

It warns that failing to set up long-term agreements could jeopardise the UK’s ability to rollout required electricity infrastructure needed to meet forecasted demand.

Current contract rules restrict supply chain contracts to a maximum eight years.

In its response to the House of Commons energy security and net zero committee’s inquiry into supply chain issues, the transmission owner says a different approach to developing and engaging suppliers will be required to accelerate delivery of grid infrastructure to cope with greater demand for electricity.

It says competition for net zero products and services, including the electricity cables and transformers needed to expand the grid, has grown rapidly as countries push to meet decarbonisation targets.

This race to secure supply chain capacity has intensified further as the US Government and the European Union have introduced lavish tax reliefs and subsidies to spur their own decarbonisation efforts.

In response, National Grid has urged the UK Government to support industry to reserve capacity for the critical equipment needed over the medium-term with appropriate guarantees, stretching over a 10-year plus time horizon.

It also calls for legislation to give network companies the ability to award net zero energy infrastructure contracts using a more streamlined statutory procurement process.

National Grid says that it is collaborating with other transmission owners and suppliers on a review to identify solutions to key supply chain challenges.

Meanwhile, in its response to the committee, SSE calls for the government to respond to the rollout of investment incentives in the US and the EU by re-focussing the UK’s policy and regulatory framework to facilitate early supply chain engagement and at sufficient scale to trigger investment.

The company says its distribution network business is currently facing impacts from a constrained global supply market due to the same competitive pressures identified by National Grid.

SSE also calls for the UK to reduce its vulnerability to disruptions in the supply of minerals critical for net zero technologies, like cobalt and lithium, by developing their reuse and recycling.

Developing a circular economy in these materials, which can be extracted from existing products like the estimated 1,600 early-model offshore wind turbines that will need to be decommissioned by 2030, is essential, it says.

And the government could stimulate investment in the offshore wind supply chain by significantly increasing the Contracts for Difference auction budget to ensure that capacity to meet the 2030 50GW target can be procured at an economically sustainable strike price.