Energy and Utilities

The Energy Transition | £2 billion provisional budget for fast-track transmission investment project

Published on 2nd Apr 2024

Welcome to our top picks of the latest energy regulatory and market developments in the UK's transition to net zero.

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This week we look at: the £2 billion funding package for the EGL1 Fast Track Project; Ofgem's future price cap consultation; and the prioritisation of electricity transmission network charging reforms.

Ofgem's first fast-track project receives £2 billion provisional funding

Ofgem has reported that the Eastern Green Link (EGL1) project has received a provisional budget of £2 billion. The project aims to be able to transport 2GW of wind generated electricity between East Lothian and County Durham using a high voltage subsea cable. The project is being developed by National Grid Electricity Transmission and SP Transmission, and the proposed route would require 196km of cable, 176km of which would be under the North Sea.

EGL1 is the first of 26 energy projects to receive accelerated project funding under Ofgem’s new Accelerated Strategic Transmission Investment (ASTI) framework which is designed to fast track "strategically important" energy transmission projects. If all of the ASTI projects are delivered by their optimal delivery dates, Ofgem believes that consumers will see reduced costs and carbon savings equating to £2.1 billion. This will also help the UK to meet its 2030 target of securing 50GW of offshore wind capacity.

The consultation for the proposed budget for EGL1 will close on Wednesday 17 April. The project also remains subject to securing the necessary planning permissions.

EGL1 is one of four subsea connections along the east coast of Britain, each with a capacity of 2GW. As we previously reported, the Eastern Green Link 2 (EGL2) project, a joint venture between National Grid Electricity Transmission and SSEN Transmission, recently announced that contracts for development have been awarded to Prysmian, Hitachi Energy and BAM.

Ofgem launches future price cap consultation

Ofgem has launched a consultation on how to develop the price cap to protect customers in the ever evolving energy market.

The original intention behind the price cap was to protect customers from both the "loyalty penalty", where the best rates were only available to new customers, and the recent volatility in energy markets. However, with changes in energy consumption such as the use of electric vehicles and solar panels, and the increasing adoption of time-of-use tariffs, a universal price cap is no longer appropriate.

As a result, Ofgem has published a discussion paper, complementing the Call for Evidence on default tariffs published by the government earlier this year. In the paper Ofgem considers options such as introducing a more dynamic cap, a targeted cap based on vulnerability, or market-based price protections.

The proposed dynamic cap would provide flexibility for the consumer and ensure that they pay a fair price for their energy, including cheaper energy when renewable energy generation increases in windy and sunny conditions. A time-of-use dependent dynamic cap would also incentivise energy consumption at off-peak times – this represents value for both the supplier and the consumer, with the consumer benefitting from lower rates, and demand for energy being spread more evenly throughout the day. However, the dynamic cap would be based on peak times of the day while favourable weather events for energy generation cannot be predicted.

Ofgem is also reviewing other aspects of the retail market to ensure it works for all consumers including replacing the price cap with a ban on acquisition-only tariffs which would prevent energy companies from offering cheaper tariffs to new customers only.

Electricity transmission network charging reforms –  shift in priority

Ofgem has published an open letter setting out its prioritisation of activities for electricity transmission networking charging reforms for the remainder of 2024. Following on from letters published in November 2022 and April 2023, the focus of this latest publication by Ofgem is determining the most appropriate vehicle for effecting the reform. The publication follows (and aims to address) an increase in the number of code modification proposals and urgency requests raised by the electricity energy industry.

The letter highlights the use of the Transmission Network Use of System (TNUoS) Task Force to support and co-ordinate near and long-term reform. As part of the proposals, Ofgem states that the TNUoS Task Force will work with a sub-group to address issues relating to storage charging and be a focal point of contact for industry complaints regarding issues of unpredictability and cost reflectivity in current charging arrangements. The changes also envisage Ofgem working closely with the Department for Energy Security and Net Zero (DESNZ) to ensure suitable and compatible locational investment signals are delivered via TNUoS within the context of wholesale electricity market reform being considered under the ongoing review of electricity market arrangements.

Ofgem also highlighted an increase in the number of poorly drafted or incomplete code modification proposals put forward to the electricity systems operator. Ofgem has suggested a change in approach in these modification proposals to focus on:

  1. The delivery of benefits linked to the Connections Action Plan published by DESNZ and Ofgem in November 2023; and
  2. The delivery of the Offshore Transmission Network Review and the Holistic Network Design.

The letter was published on 21 March 2024. Ofgem's prioritisation approach will remain under review and further publications are expected.

This article was written with the assistance of Khushal Thobhani, Jessica Sawford, Charlotte D'Arcy, Luke Hopper and Hannah Bradley, trainee solicitors.

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* This article is current as of the date of its publication and does not necessarily reflect the present state of the law or relevant regulation.

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