Ofgem has challenged National Grid on the proposed cost of upgrading the transmission network to connect the new nuclear power plant at Hinkley Point C.
The regulator believes the Hinkley Seabank project could be delivered for around 20 per cent less than the £839 million figure quoted by the transmission operator.
The work would include reinforcing and reconfiguring some of the existing power lines at Hinkley Point and swapping out a 132kV double circuit between Bridgwater and Seabank with a new 400kV replacement.
Responding to proposals submitted by National Grid Electricity Transmission in March, Ofgem accepted that there is a “clear economic and technical case” for the project to go ahead and said the majority of the firm’s design choices are economically justified.
However, the regulator said that National Grid has “not fully justified” the £65 million estimated price tag for the new T-Pylon technology it intends to use, nor the £116 million cost contingency it has included to reflect the risk of delays due to extreme weather.
To drive down the figure, Ofgem is considering ways of introducing competition to the delivery of the upgrade.
The project has so far been developed under the strategic wider works (SWW) arrangements within the RIIO framework, whereby transmission operators are funded to undertake pre-construction work and then subsequently follow up with applications for construction funding once the costs of the project become more certain.
Following the success of the offshore transmission owners (OFTO) regime in lowering offshore transmission infrastructure costs, Ofgem intends to extend competition to the delivery of onshore assets through the development of the competitively appointed transmission owner (CATO) regime.
But Ofgem said legislative delays mean the new CATO framework will not be implemented soon enough to be applied to the Hinkley Seabank project. The regulator has instead proposed two alternative competitive delivery models.
The first – called the special purpose vehicle (SPV) model – would see National Grid run a competitive tender for the financing, construction and operation of the project by a third party. The successful bidder would deliver the upgrade via a project-specific SPV which would receive defined revenues over a fixed period of perhaps 25 years under a contract with National Grid.
This would differ from the proposed CATO regime in that the tender would not be run by Ofgem and the assets would remain governed by National Grid’s transmission license.
Under the second proposal – the competition proxy model – National Grid would build the new infrastructure itself. However, Ofgem would set the allowed revenue in line with its expectation of what the cost would have been had the project been tendered on a fully competitive basis.
Ofgem said although it currently believes that both alternative models are better options, it will still consider sticking with the SWW arrangements.
The regulator has launched a consultation on both the alternative delivery models and the proposed cost for the project; it expects to make a final decision on whether the upgrade is needed and how it should be delivered by the end of this year. A decision on allowed costs is anticipated to come in late 2018 or early 2019.
EDF admitted last month that Hinkley Point C is already on course to breach its previous £18.1 billion budget by £1.5 billion. The company began pouring the first permanent concrete for the 3.2GW power station in March.