Ofgem plans for ‘competition proxy’ on Hinkley link could face challenge from National Grid

National Grid may mount a legal challenge to Ofgem’s decision on how to finance and deliver a new transmission line needed to connect Hinkley Point C to the electricity network. The transmission network owner said, “We have previously raised concerns and will now review the detailed decision by Ofgem and consider all of our options.”

The dispute has arisen over the new line known as the Hinkley Seabank Connection. Ofgem has had longstanding plans to introduce competition into large transmission projects such as Seabank, aiming to use its Offshore Transmission Owner (Ofto) wind farm links as a model. Time pressure has made it impossible to use a ‘special purpose vehicle’ like that used for London’s super-sewer. Instead, Ofgem has now decided to go ahead with a ‘competition proxy’ under which National Grid will have a project-specific licence, with five years to build the link and 25 years to own and operate the asset. Ofgem will benchmark National Grid’s costs and allow different costs of capital for the construction and operating phases. The regulator believes that option will cut the cost of the link by £65 million (down from £100 million in earlier assessments), in large part because it can take advantage of current low financing costs.

In February, responding to an earlier consultation on the competition proposals, National Grid said: “We do not believe that the proposed ranges for cost of debt and cost of equity included in the consultation reflect either the actual cost of financing this project or the risk being taken for construction of this complex project. We also believe that Ofgem has significantly overestimated the potential consumer savings in their consultation.” At that time it said that unless it could come to a different agreement with Ofgem it would seek judicial review.

Ofgem has now confirmed plans to use the ‘competition proxy’. National Grid said, “We remain committed to delivering Hinkley-Seabank to time and to quality, and any challenge to Ofgem’s decision does not affect this commitment”.

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National Grid and Ofgem at loggerheads over Hinkley Point C connection

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