First onshore transmission competitive tenders expected in 2017, says Ofgem

It has begun consulting on how to extend the competitive regime for offshore wind transmission infrastructure to onshore projects worth £100 million or more, as announced by the last government at the March 2015 Budget. The offshore transmission owners (OFTO) regime has saved the public between £200m and £400m since it was introduced in 2009, according to Ofgem.

"Part of our role is to ensure that customers pay no more for energy infrastructure than they have to," said Ofgem chief executive Dermot Nolan.

"We took a ground-breaking approach to 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," he said.

Energy expert Jeremy Chang of Pinsent Masons, the law firm behind Out-Law.com, said that there were "no real surprises" in Ofgem's initial consultation.

"As expected, Ofgem has looked offshore and proposes to adapt the 'OFTO-build' model," he said. "Some may still need to be convinced about the attractions of such an approach given that it remains untested and unproven offshore. Neither is it a surprise that Ofgem is building on its emerging thinking, trailed in May earlier this year, about what the criteria to select the projects to be subject to competitive tendering might look like."

"However, some questions remain. For example, how will the new regime affect existing connection and construction agreements where the transmission assets still need to be built? Is there scope to derogate certain projects which would otherwise be caught by the criteria, for example, because of the impact on project timetables? Perhaps above all, the market is keen to see a list of actual projects which could be subject to the new regime - only then can we understand the scale of the available opportunities and the potential benefits that can be realised," he said.

The new competitive tendering regime would apply to new, separable projects worth over £100m, such as overhead lines, cables or substations. 'New' in this context would also cover the complete replacement of existing overhead lines, cables or substations. Under the new arrangements National Grid Electricity Transmission, which holds the monopoly over such projects in England and Wales, and Scottish Hydro Electricity Transmission and Scottish Power Transmission, which hold monopolies in separate parts of Scotland, would have to compete against other firms for the right to build, own and operate these assets.

The three monopoly companies are currently subject to regulatory price controls and, until these expire, Ofgem would only consider tendering out new projects proposed as part of the Strategic Wider Works (SWW) programme, according to the consultation. The SWW programme covers large investment projects that could not be agreed as part of the price control process. Once the current price control period expires in 2021, all proposed projects that meet the criteria would be competitively tendered.

Ofgem would make final decisions on the technical and economic need for proposed projects under the new regime, and on whether these meet the criteria to proceed to tender. It would be supported in this process by transmission network 'system operator' National Grid, which would be given a new role to make recommendations to Ofgem on technical and economic need and suitability. Successful bidders would receive an annual revenue stream from their assets over a 25-year period, according to the proposals.

The consultation closes on 11 January 2016.