Tenders for grid upgrades could be tied to central network plan

Ofgem is consulting on proposals by the Electricity System Operator (ESO) to restrict competitive tenders for design and build onshore grid upgrades to projects identified in its Centralised Strategic Network Plan.

The regulator said it agrees with the ESO that this will provide more certainty to bidders and local stakeholders and make it easier to compare bids. The ESO has also proposed excluding non-network solutions from the tenders.

In April 2021, the ESO published its Early Competition Plan (ECP) for introducing tenders for the delivery of major onshore transmission projects.

Its proposed ‘early competition’ model would allow participants to compete to design and build grid upgrades, with their bids being compared to high-level indicative projects designed by the transmission owners or the ESO itself. For comparison, ‘late competition’ would see participants compete to deliver projects that have already received planning consent based on an initial design.

The tenders would be open to non-network solutions such as flexibility or grid services, allowing them to compete against proposals for new power lines and substations.

In March 2022, Ofgem published its decision on the continued development of the model, largely agreeing with the ESO’s proposals, and in October 2023, the regulator received new powers to appoint and licence Competitively Appointed Transmission Owners (CATOs) with the passage of the Energy Act.

Earlier this month, the ESO issued an update on its plan for implementing early competition in which it proposed to restrict tenders to projects identified in the Centralised Strategic Network Plan (CSNP). It said competition should “build on the optioneering carried out in the CSNP rather than redo it”.

It said the technical specifications for a tender should be aligned with the indicative solution set out in the plan and should include both the connection points and spatial constraints for the route.

As such, the tenders would specify the need for an X gigawatt circuit between substations A and B, rather than requesting an X gigawatt uplift in capacity across boundary Y, as was previously proposed.

The ESO said the model proposed in its ECP would “tender a network need, rather than a particular solution, and leave the development of options, including network vs. non-network options, alternative connection points, and route options, open to bidders”.

But it said many of these options may already have been discounted as part of the development of the CSNP: “By aligning bidder’s solutions to that of the indicative solution selected through the CSNP, greater certainty can be given earlier in the process to multiple stakeholders as they develop their own investments, wider works, and user connections.”

The ESO said the specification of connection points and an indicative solution would negate the need for transmission owners to assess the influence of each bid on their network.

This would eliminate what was previously one of the main concerns over conflicts of interest by reducing the ability of participating transmission owners (TOs) to influence competitions. It would also help bidders to protect their intellectual property by avoiding the need for them to share sensitive commercial information with TOs.

The ESO said the government’s endorsement of the CSNP should additionally reduce the risk of projects failing to secure to planning consent. And it said the removal of one of the stages would the reduce the length of the tender process by around 20 weeks.

Furthermore, the ESO said non-network solutions should not be able to compete in the tenders. It said these services are likely to be “most effective in specific circumstances” and would be better procured through tailored tenders.

It said its Pathfinder trials of new grid services have “already successfully demonstrated the ability to find alternative solutions to network needs”.

Ofgem is now consulting on the ESO’s latest proposals, which it described as “the best option on balance”.

“This approach simplifies planning and consenting due to endorsement of the solution by the CSNP,” the regulator explained. “It can also result in reduced risk for bidders as a defined scope of solution and connection points being already known can assist network planning for all the involved parties.

“Not undoing CSNP optioneering may also lead to reducing the conflict of interest as the TOs won’t have to assess bidders’ options under the competition owing to clarity on connection points and solutions; whereas bidders will be able to concentrate on a pre-defined study area used to set a wide route corridor.

“In addition, potential reduction of tender stages from two stages to one can speed up the process.”

The deadline for responses to the consultation is 20 March 2024.