Ofgem is consulting on introducing a new £5-8 billion investment
fund that will help Britain's energy transmission owners cut
delays, control costs and beat other nations to attract
international investment in the drive to net zero.
The regulator's new Advanced Procurement Mechanism (APM) would
provide billions of pounds in allowances for transmission owners
to buy essential equipment – such as switchgear, cables and steel
– years in advance of when it is needed, and often before their
project has been finalised.
This streamlined process would ensure green-lit projects are
ready to break ground as soon as planning approval is granted,
with the key construction equipment already in place.
Advantages to this first-of-its-kind framework include:
- Reduced risk of costly supply chain delays as global demand
for vital infrastructure materials increases
- Lowering or controlling build costs by purchasing materials
in advance, as supply and demand steadily raises prices year on
year
- Supporting growth in domestic manufacturing and attracting
international investment to British projects
- Accelerated project delivery which will help government
achieve clean power by 2030, and subsequent net zero targets
after that
The proposal, detailed in a consultation launched today (20
November) by Ofgem which will run until 18 December, chimes with
independent advice
provided to government last week by the National Energy System
Operator (NESO), which called for a step change across the energy
sector to achieve clean power by 2030.
However, conscious of the significant impact that the transition
to net zero has on customer bills, the regulator will be clear in
its governance rules to ensure that the APM is used only for the
intended purposes and any unused funding will be returned to
consumers.
Akshay Kaul, Director General, Infrastructure, for Ofgem
said:
“The race is on to meet the Government's 2030 clean power target
and we are determined to clear the way for trailblazing projects
to drive forward.
“Across the world many countries are stepping up their investment
in clean energy at the same time, putting unprecedented pressure
on the supply chain as growing demand for essential materials
forces up prices and lengthens delivery times.
“Such avoidable delays to construction could cost consumers
billions of pounds over the coming years. This is why it's vital
that we help the electricity transmission owners move quickly,
procuring at scale as early as possible to reduce financial risk
– and show the global supply chain that Britain is committed to
investing in its energy networks.
“These proposals balance acceleration with accountability to
ensure that companies operating within Ofgem's strict financial
framework are delivering projects on time and at the best value
to customers.”
Energy Minister said: "The
independent National Energy System Operator has said that clean
power by 2030 is achievable and can create a cheaper, more secure
energy system.
"To get there, we need to give developers a head-start to secure
the essential equipment needed for new clean energy
infrastructure.
"By getting ahead of the global race for these materials,
developers will be able to avoid costly delays to projects and
ensure nothing stands in the way of our clean power
mission.”
Ofgem is consulting on the APM coming into effect from early 2025
as a ‘use-it-or-lose-it allowance', accompanied by comprehensive
governance. It would also include a re-opener allowing the
regulator to increase the allowances and to add items to the
mechanism's scope or remove items if supply constraints
ease.
To minimise the risk of stranded procurement – pre-ordered
equipment for projects that do not progress – Ofgem will ensure
that only equipment that is transferable between many different
projects is eligible for APM funding. More bespoke procurement
will be considered on a case-by-case basis to assess the benefit
and risk.
Notes to editors
The APM is among options to free up Britain's transmission owners
(National Grid, SPEN and SSEN) to accelerate investment both now
and via the RIIO-3price controls
framework, which sets investment levels from 2026-2031.
In symmetry with moves to accelerate the construction of new
infrastructure projects, Ofgem has also proposed reforms to the
process of connecting new builds to the network via an End To End Review of
connections.
