National Grid warns competition could hinder Hinkley connection

Firm opposes Ofgem proposal to introduce competitive tender for Hinkley Seabank project

Introducing a competitive tender for the connection of Hinkley Point C could pose a risk to the timely delivery of the project, National Grid has warned.

The transmission operator has also questioned the benefits to consumers of outsourcing the work to a third party as Ofgem has suggested may happen.

The regulator said yesterday it believes the Hinkley Seabank project could be completed for around a fifth less than the £839 million figure submitted by National Grid in March.

To lower the cost, Ofgem has floated the possibility of either requiring National Grid to contract out the work through a competitive tender – the special purpose vehicle (SPV) model – or setting the allowed revenues for the project based on its expectation of what would have been achieved through a competitive process.

“Ofgem has undertaken to explore the potential introduction of onshore competition where it is in the interest of consumers,” said a spokeswoman for National Grid.

“However, we believe electricity transmission assets are critical national infrastructure and it is important that the opportunities and risks associated with introducing competition are fully assessed on a project specific basis.”

According to the spokeswoman, National Grid does not support the SPV model as it has not been developed sufficiently and the benefits to consumers “cannot be demonstrated”.

She said the model could bring “additional risk to the timely delivery of Hinkley Point C’s connection,” and added “we favour a model where National Grid constructs and owns the Hinkley Seabank assets”.

Ofgem criticised National Grid for failing to justify the inclusion of a £116 million contingency for extreme weather within the £839 million cost estimate.

“Extreme weather could pose a risk to the delivery of the new connection and it is impossible to be certain how this will affect the project”, the spokeswoman responded. “We are taking action to evaluate alternate approaches on dealing with high-impact but low probability risk.”

Author: Tom Grimwood,
Channel: Operations & Assets , Policy & Regulation , Finance & investment

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