Energy regulator Ofgem has opened a consultation on a proposed new investment fund that it says could help transmission owners cut connection delays.
The investment fund would be worth between £5 billion and £8 billion would provide allowances for transmission owners to buy essential equipment – switchgear, cables and steel, for example – in advance of when it is needed and before their project has been finalised.
The Advanced Procurement Mechanism (APM) would, in theory, ensure greenlit projects break ground as soon as planning approval is granted.
Ofgem is consulting on the APM coming into effect from early 2025 as a ‘use-it-or-lose-it allowance’ accompanied by comprehensive governance.
Ofgem’s Accelerated Strategic Transmission Investment (ASTI) mechanism, which recently saw £2 billion funding awarded to the Eastern Greenlink 2 project, and RIIO-ET3 framework are steps that the regulator has already taken with the intention of ensuring that network infrastructure does not slow the energy transition; a whole system approach, including a shift in how infrastructure is developed and rolled out, was called for in the National Energy System Operator’s (NESO’s) Clean Power 2030 report.
Akshay Kaul, director general of 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.
“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.”
Notably, the APM is not proposed as additional spend as part of wider system planning, but an acceleration of spending that would otherwise happen later. The three key principles in Ofgem’s development of the APM are that it should be agile, transparent and protect consumers.
The advantages of the mechanism, Ofgem states, would be:
- Reduced supply chain risk
- Lower or controlled build costs
- Support for growth in domestic manufacturing and attracting international investment
- Accelerated project delivery
The regulator acknowledges the impact that the energy transition has on consumer bills, and states that it would ensure the APM did not disproportionately affect consumers. As such, it would come with an “APM governance document and re-opener”, including set allowances for transmission owners and strict reporting requirements.
Allowances will be set in transmission owners’ licenses that would enable them to procure at short notice without additional approvals, in line with the governance that all parties would have to sign in advance.
Ofgem also proposes that the scope of the APM focus on supply chains that are demonstrably constrained and focus on fungible procurement that could be used across multiple projects. More bespoke procurements would be considered on a case-by-case basis.
Energy minister Michael Shanks said: “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.”
