In March National Grid submitted to Ofgem its economic case for an £840 million upgrade of the network to connect the new power station in Somerset.
Ofgem is challenging around 20 per cent of National Grid’s proposed costs, particularly in relation to the treatment of how severe weather could delay construction of the grid upgrades.
As well as driving down the costs of the upgrade, Ofgem has put forward two additional options for using the benefits of competition to deliver further potential savings for consumers, over and above what could be delivered under the existing delivery and funding mechanisms for large projects under our transmission price controls.
The options are for National Grid to put the financing, construction and operation of the infrastructure upgrade out to competitive tender for a third-party to deliver on National Grid’s behalf. Alternatively Ofgem could estimate National Grid’s revenue for building and operating the infrastructure based on if the upgrade had been tendered on a fully competitive basis. (See notes to editors for more information).
Ofgem has today launched a consultation on these options, as well as the proposed costs for the upgrade. Ofgem will make a final decision on whether the upgrade is needed and if so how it should be delivered by the end of this year. A decision on what costs will be allowed for the upgrade would be made in late 2018 or early 2019.
