The UK’s energy regulator Ofgem has raised the maximum amount that National Grid and National Grid Electricity System Operator (NGESO) can claim for costs associated with the transition to the new National Electricity System Operator (NESO).
NESO has been transferred into public ownership as it separates from the operations of National Grid, and will be formally established on 1 October. Delivering NESO and separating it from National Grid has caused the latter to incur significant costs, which earlier agreements allowed it to reclaim up to a pre-agreed threshold. This threshold was set at £75 million in 2018/19 prices.
Last month, NGESO submitted a request for an increase to this funding cap to Ofgem, noting that several factors had increased the projected costs of the transition. NGESO argued that the delay in launch for NESO, from summer 2024 to 1 October, had added months worth of day to day expenditure, as well as the costs of setting up future progress beyond launch day.
NGESO suggested the spend cap be increased to £91 million (in 2018/19 prices), based on a projected spend of £87 million and a £4 million contingency. Of the projected total spend, £62 million is actual spend to June 2024, while the remaining £24 million is the forecasted spend from July 2024 to launch day.
Ofgem has approved the £91 million spend cap, noting in its decision that the request “is sufficiently well evidenced and justified and that NGESO would be unable to recover economic and efficient costs for Transition Activities without a change in the maximum value recoverable”.
Ofgem launches consultation on early competition for onshore transmission
The regulator has also opened a consultation on its suggested regulations for the introduction of early competition for transmission licenses-the awarding of transmission licenses for projects that have not yet undergone detailed design work. The decision to move ahead with a future early competition model was made by Ofgem in 2022, after its analysis suggested that this model would allow net zero targets to be met at the lowest cost to consumers.
The regulator is now consulting on its proposed regulations for the tendering process, which set out the proposed competitive tender process for granting an onshore electricity transmission licence to an electricity project. These draft tender regulations were drawn up by Ofgem alongside the ESO and the Department of Energy Security and Net Zero (DESNZ).
The draft sets out the stages of the onshore transmission tender exercise, the process for competitive tenders, governance framework for events such as the withdrawal, re-run, cancellation of tenders and disqualification from an onshore transmission tender exercise, governance framework for payments and security, and the defined functions of NESO and Ofgem in the tender process.
The consultation is open until 1 November, after which time the regulator will finalise the regulations, submit them for governmental approval, and then publish guidance on the new process to industry stakeholders.
