Ofgem dismisses ‘very early’ competition for onshore electricity transmission

Ofgem has dismissed the idea of introducing “very early” competition for onshore electricity transmission in line with the view of National Grid Electricity System Operator (ESO).

The regulator said very early competition could allow a wider range of solutions to compete to fulfil network requirements but waiting to hold tenders until after indicative solutions have been identified would “significantly reduce the complexity of the bid assessment process”.

Ofgem was outlining its position in a consultation on the introduction of “early” competition to onshore electricity transmission, whereby competitive tenders to fulfil network requirements would be held ahead of detailed design work for a preferred solution.

This is in contrast to “late” competition, whereby parties compete to construct and deliver a project once it has already been designed and consented, and “very late” competition, in which parties compete to own and operate a project once it has already been built.

The government and Ofgem have already introduced the latter to offshore infrastructure through the Offshore Transmission Owner (OFTO) regime and proposed to extend this to onshore networks with a Competitively Appointed Transmission Owner (CATO) regime.

Summarising the findings from the ESO’s Early Competition Plan, published at the behest of the regulator in April, Ofgem said: “Without sensible limits on what solutions could win the competition and their impact on the design of the wider network it concluded it would be very difficult to determine an appropriate winner.”

Potential bidders “emphasised the importance of having sufficient clarity through the tender specification to allow them to effectively tailor their bids.”

Ofgem continued: “The ESO’s view is that by defining the scope of a competition based on an indicative design, the progression of other system needs and projects will remain insulated from the impact of the competition.

“This should ensure that the need and indicative design for these related projects, which may not need to be delivered until slightly later, can be confirmed before the result of the competition.”

Ofgem agreed, stating: “It is difficult to see how a very early competition model could be implemented without introducing a significant level of uncertainty and complexity to wider network planning and the tender evaluation process.”

The regulator also agreed with the ESO’s suggestions that there be no minimum value threshold for early competition and that the ESO takes on a number of roles in the process, including the procurement body, contract counterparty and payment counterparty. Ofgem said it should take on the roles of approver and license counterparty.

The Department for Business, Energy and Industrial Strategy (BEIS) has also released a consultation on the introduction of both early and late-stage competition to onshore electricity networks, including at the distribution level.

BEIS said it currently views Ofgem and the ESO as the only two bodies potentially suitable to run competitive tenders: “We do not think that network companies assessing competitions for solutions to constraints on their own networks would provide a comparable level of confidence in their suitability to carry out the role.

“This is because we think it is reasonable some bidders would see the network companies as not being sufficiently independent as to be free from the perception of bias when running competitions for constraints on their own network.”

BEIS said network companies could put in place measures to avoid perceptions of bias, such as ring-fencing certain parts of their businesses: “However, this potentially drives up cost of competition, tipping the balance on the economies of scale.”

The department additionally outlined an indicative timetable for the introduction of competition to onshore networks, stating that if legislation was passed immediately, it would likely take 18 months before the first competition could begin and more than two and half years before delivery could commence.

The deadlines for responses to the consultations are 14 September and 26 October respectively.