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Up to £8bn would be available to allow project owners to buy equipment in advance
Ofgem is consulting on introducing a new £5-8bn investment fund to help Britain’s energy transmission owners cut delays, control costs and beat other nations to attract international investment in the drive to net zero.
The regulator’s new Advanced Procurement Mechanism (APM) would provide billions of pounds in allowances for transmission owners to buy essential equipment years in advance of when it is needed, and often before their project has been finalised.
This could include switchgear, cables and steel.
This streamlined process would ensure green-lit projects are ready to break ground as soon as planning approval is granted, with the key construction equipment already in place, Ofgem said.
The framework would reduce the risk of costly supply chain delays as global demand for vital infrastructure materials increases, according to Ofgem.
It could also lower or control build costs by purchasing materials in advance, as supply and demand steadily raises prices year on year.
The framework would also support growth in domestic manufacturing and attracting international investment to British projects and is expected to accelerate project delivery which will help government achieve clean power by 2030, and subsequent net zero targets after that.
Ofgem added that the proposal, detailed in a consultation which will run until 18 December, chimes with independent advice provided to government last week by the National Energy System Operator (NESO).
This called for a step change across the energy sector to achieve clean power by 2030.
However, conscious of the significant impact that the transition to net zero has on customer bills, the regulator said it will be clear in its governance rules to ensure that the APM is used only for the intended purposes and any unused funding will be returned to consumers.
Akshay Kaul, director general, infrastructure at Ofgem, said: "The race is on to meet the Government’s 2030 clean power target and we are determined to clear the way for trailblazing projects to drive forward.
"Across the world many countries are stepping up their investment in clean energy at the same time, putting unprecedented pressure on the supply chain as growing demand for essential materials forces up prices and lengthens delivery times.
"Such avoidable delays to construction could cost consumers billions of pounds over the coming years.
"This is why it’s vital that we help the electricity transmission owners move quickly, procuring at scale as early as possible to reduce financial risk – and show the global supply chain that Britain is committed to investing in its energy networks.
"These proposals balance acceleration with accountability to ensure that companies operating within Ofgem’s strict financial framework are delivering projects on time and at the best value to customers."
Energy Minister Michael Shanks said: "The independent National Energy System Operator has said that clean power by 2030 is achievable and can create a cheaper, more secure energy system.
"To get there, we need to give developers a head-start to secure the essential equipment needed for new clean energy infrastructure.
"By getting ahead of the global race for these materials, developers will be able to avoid costly delays to projects and ensure nothing stands in the way of our clean power mission."
Ofgem is consulting on the APM coming into effect from early 2025 as a ‘use-it-or-lose-it allowance’, accompanied by comprehensive governance.
It would also include a re-opener allowing the regulator to increase the allowances and to add items to the mechanism’s scope or remove items if supply constraints ease.
To minimise the risk of stranded procurement – pre-ordered equipment for projects that do not progress – Ofgem will ensure that only equipment that is transferable between many different projects is eligible for APM funding.
More bespoke procurement will be considered on a case-by-case basis to assess the benefit and risk, the regulator added. |
