A new regulatory framework is required to help finance the upfront grid investment seen as key for cost effective delivery of net zero, while protecting consumers, National Grid Electricity System Operator (ESO) has argued.
In its submission to the House of Commons Welsh Affairs Committee’s ongoing inquiry into grid capacity in Wales, the system operator acknowledged the “chicken and egg” problem surrounding Ofgem’s current regulatory regime for new generation capacity and transmission lines.
Under the existing regime, developers need to submit a connection application to the regulator in order to trigger construction of new transmission network assets, the response said.
However, it is often not cost effective for generators to secure the development and construction of these assets on their own, leading to delays while they wait for other companies to come forward with projects.
Anticipatory investment, which would entail Ofgem giving the green light for greater upfront delivery of transmission assets ahead of when a proven need exists, could solve this problem, the ESO said.
The government signalled in its recently published energy security strategy backing for anticipatory network investment.
However, the ESO’s response also warned that upfront investment could create “additional risk” for consumers.
It said: “A new regulatory framework is required to deliver anticipatory investment and protect consumers.”
Ofgem, which has in the past expressed concern that anticipatory investment could result in higher bills, is looking to create a process that identifies and supports such projects via its Electricity Transmission Network Planning Review.
In its response to the committee’s inquiry, RWE blamed the lack of anticipatory investment in “large part” for insufficient grid capacity in Wales.
It said that current expansion is “highly reactive”, giving as an example how onshore transmission works to support the connection of offshore windfarms will not be given the go ahead until the project has secured a contract for difference.
Instead, it recommended that offshore leases should be treated as a “meaningful commitment” to development of a project because “strong competition” means it is “probable” they will be developed, even if the existing holder does not do so.