Ofgem consulted on the initial findings of the Electricity Transmission Network Planning Review (ETNPR) in November 2021 (see our Insight). Ofgem has now issued its Minded-to Decision and a draft Impact Assessment of the proposed changes.
The key proposal of ETNPR was to introduce a new Centralised Strategic Network Planning (CSNP) model to be delivered by an independent central network planner.
Ofgem is proposing that:
a) the new CSNP planning process should go ahead, expected to be implemented by 2024 – 2025;
b) the CSNP should cover all aspects of load related planning for the entire National Electricity Transmission System, including offshore and incorporation of interconnection;
c) delivery of CSNP should be led by the Future System Operator (FSO). The Energy Bill 2022 being debated in the UK Parliament will, if passed as presently contemplated, establish the FSO (which will be known as the Independent System Operator and Planner, or ISOP) on a legislative footing; and
d) a detailed process for delivering the CSNP should be developed prior to the establishment of the FSO.
Reasons for the minded-to decision
Ofgem thinks that a centralised overarching plan for the transmission system as a whole, spanning both the offshore and onshore elements, that are currently treated separately, will have many advantages over the existing system. In Ofgem's view this new CSNP approach wil
- deliver the optimum technical solutions;
- ensure resilience to future challenges, such as developing the infrastructure to connect the planned new generation;
- address all the challenges faced by the GB national electricity transmission system (such as changing generation mix and the increasing distances between power generation and consumption) in the optimal way;
- if delivered every two to three years, the CSNP will send stronger investment signals than the current annual planning process;
- it will co-optimise the development of the GB national electricity transmission network with the wider energy system, by helping the decision-makers identify where to site new generation or demand and avoiding some network reinforcement; and
- it will enable assessment of the cumulative effect of the environmental and community impacts of new infrastructure and consideration of such impacts at an earlier stage.
Furthermore, Ofgem thinks that the FSO, which will be an independent public corporation:
- will be more likely to consider a wider range of solutions (including non-network, time-limited, flexible, commercial and innovative solutions) because, unlike a network asset owner, it will not have a bias towards a particular option;
- is best placed to identify strategic system requirements and facilitate strategic investments because it will have a GB-wide visibility of the transmission system and its constraints. Ofgem will consult separately on the definition and criteria of a strategic investment. These are likely to include investments to deliver bulk transfer of power across GB or to facilitate large new demand or generation; and
- will ensure transparency in all stages of the network planning process and the visibility to implement it. Ofgem recognises that the FSO will need to build the necessary competencies, but believes that this body will be better placed to advise Government on the energy system than a private entity might be.
CSNP Impact assessment
Ofgem estimates that CSNP will impact a potential £134 billion of load related expenditure in the GB national electricity transmission network between 2025 and 2040. This includes:
a) approved investments that are part of the RIIO-2 baseline allowances;
b) known or proposed investments that may come forward via RIIO-2 reopener uncertainty mechanisms; and
c) investments in offshore transmission: those within the scope of the Holistic Network Design (HND) or its follow-on exercise and those that are outside of the HND because they are later in their development cycle.
The first investment decisions are possible as early as April 2025.
In Ofgem's view, the highest risk of CSNP is that the FSO fails to source the right skills in sufficient quantity. The likely benefits are:
a) to OFTOs - from increased competition, after the distinction between the offshore and the onshore elements of transmission are blurred;
b) to generators - from more timely connections to the network, although (importantly) not all generators will be able to choose where to connect; and
c) to consumers - from reduced constraint payments and more innovation in network solutions.
Building on the proposals in the 5 November 2021 consultation, the first transitional CSNP in 2022 aims to achieve the following objectives:
a) to identify key investments in the onshore network to connect the offshore wind generation planned by 2030 – the ESO will publish proposals later this year;
b) to provide a blueprint for the offshore transmission infrastructure required for 2030 – this is part of the HND published on 7 July 2022; and
c) to identify where onshore reinforcements are required – this is set out in the 2021/2022 NOA refresh published in July.
Ofgem will work with the ESO to apply the lessons learnt from the initial HND and the updated Network Options Assessment (NOA) in a second transitional CSNP in 2023 and the lessons from both transition processes will be applied to the enduring regime.
The consultation closes on 18 August 2022.
CSNP was a controversial proposal which received mixed views from stakeholders. As a general observation, the history of "central planning" in other economies has had a poor history in terms of outcomes and efficient delivery. After all, one of the fundamental drivers for these changes is to speed up the transition of our energy economy towards low carbon, net zero and the acceleration of offshore wind from the current 11GW to 50GW by 2030. Some commentators were supportive of CSNP's increased coordination and certainty, but concerns were raised that the trade-offs with the increased time, cost, resources and complexity that CSNP created were not fully understood. The CSNP could be characterised as the beginning of the end to "developer led" transmission projects, although in fairness there are the "early opportunities" projects that are grandfathered under what amount to transitional arrangements as the CSNP comes into effect.
Other comments were that competition has not been fully considered, that the FSO did not have the skills or knowledge required to enact the Centralised Network Planner role and that there could be greater investor costs or a lack of innovation. Again, the point being made is that while on paper a centralisation would appear to deliver efficiency, optimization and the acceleration of the energy transition towards net zero, experience from other economies of central planning over time can become inefficient, bureaucratic, insufficiently accountable (particularly in public ownership) and stifling of innovation as developer led solutions from the market evaporate.
Ofgem's view, however, is that CSNP is essential in order for the UK to achieve its Net Zero targets.
It remains to be seen whether the benefits of CSNP will outweigh its potential risks.