UK energy watchdog Ofgem is allowing Britain’s regulated transmission system owners to cut cheques for a slew of large early-stage onshore electricity network upgrades, in anticipation of a surge in offshore wind connections this decade and into the 2030s.

This pivot away from the regulator’s usual cautious playbook signals a politically savvy alignment with the new Labour government’s highly ambitious goal to deliver a zero-carbon power mix by 2030. This is five years earlier than the previous Conservative administration.

Energy secretary Ed Miliband has a checkered history with Ofgem. During his stint as Labour leader between 2010 and 2015, Miliband vowed to abolish Ofgem. He planned to replace it with a tougher new regulator.

Miliband’s political career now rests on his ability to get the UK grid on track for 2030. Ofgem appears keen to ensure that regulatory constraints do not scupper delivery of crucial onshore grid upgrades upon which the energy secretary’s flagship project depends.

“Speed of delivery is a high-priority strategic objective for Ofgem,” the regulator said in an unusually proactive consultation. It is proposing to expedite scores of new pylons and substations across the British countryside.

The calculation seems to be that more – rather than fewer – grid upgrades will be needed to realise Miliband’s policy aspirations.

Getting the ball rolling

Even before the election, National Grid Energy System Operator (ESO) was already proposing dozens of new power lines up and down the country. It described the rollout as the “biggest change to the electricity network since the high voltage transmission grid was established back in the 1950s”.

*New network infrastructure to be delivered by 2030 beyond. Source: National Grid ESO*

The system operator has not yet updated its network upgrade plan to reflect the new 2030 decarbonisation target. Instead of waiting around, Ofgem is ploughing ahead with a funding regime that enables early development of transmission projects “on a low-regret basis”.

Co-ordinating funding and approval of projects in a programme subject to change requires a framework that acknowledges the different levels of project maturity, scale and significance of the proposed infrastructure.

Multi-track cash injection

To minimise the risk of non-delivery, Ofgem is consulting on a new “multi-track funding approach” to push ahead. This will progress while the ESO is developing the new network plan.

Less mature, higher value (>£100m) network projects will be placed in a “development track” funding route. Projects in this track will immediately receive an initial development funding allowance of 0.5% of forecast cost. Transmission owners may use this cash to develop them further and submit to the ESO for re-assessment.

More mature, higher value projects will be placed on a “delivery track” funding route. This will see them receive a pre-construction funding allowance of 2.5% of forecast cost on a “use it or lose it” basis.

Lower value projects (<£100m) will be immediately eligible for full project funding through the regulator’s cost control framework, RIIO (Revenue = Incentives + Innovation + Outputs). RIIO contains a “reopener” mechanism that allows Ofgem to adjust a licensee’s allowances, outputs and delivery dates in response to changing circumstances. This is a handy instrument considering the uncertainties at play.

Planning for uncertainty

Ofgem is tasked with setting rules for capital expenditure of the three regulated owners of the GB grid. These are National Grid Electricity Transmission, SP Transmission and SSEN Transmission.

This means striking a balance between preventing already-evident grid bottlenecks from tightening further. It must also ensure consumers do not end up paying for infrastructure that proves to be unnecessary, or more expensive, than alternative solutions.

With all the moving parts to consider, this is no mean feat.

The system operator, ESO, published a long-term holistic onshore and offshore network plan in March 2024. This recommended “over £60 billion of investment across both onshore and offshore network infrastructure to facilitate the connection of new offshore generation and other new renewable energy sources”.

That document, dubbed Beyond 2030, was the ESO’s second “transitional” Centralised Strategic Network Plan (tCSNP2) for the GB grid. It set out network needs for the next 10-15 years.

It was based on the expected need to connect 21 GW of offshore wind generation from the ScotWind leasing round. This is on top of another 86 GW of offshore wind across the UK, 45 GW of solar, 22 GW of batteries, 10 GW of H2 electrolysis plants in Scotland and other renewables and low carbon sources.

The first transitional network plan (tCSNP1) was published in 2022. It recommended a set of offshore and onshore network upgrades. This would facilitate the connection of up to 50 GW of offshore wind by 2030.

Big plans, short timeframes

The ESO will refresh the second of the two plans later this year to reflect the new government’s 2030 target. It will then amalgamate the two into a definitive single Centralised Strategic Network Plan (CSNP) at some point thereafter.

Until that process is complete, the timing, scale and location of new connections could change. They may be a greater role than previously expected for alternative generation types that are faster to deploy. These include ground-mounted solar or onshore wind in England.

This probably will not undercut plans for growth in offshore wind. But it could still result in a different sequencing of generation and subsequent network buildout.

Considering the scale of the task at hand and time available, Ofgem is loath to wait until it knows the finer details.

“We believe that the work that we are proposing to fund … is highly likely to be needed irrespective of a 2030 decarbonisation target and see no reason to delay that work until the updated network plan is available,” it said in its consultation proposal in early August.

Holding the purse strings

In its second network plan, tCSNP2, the ESO recommended 46 onshore transmission projects worth a forecast £15.7 billion.

Of these, 41 are at Scoping – the earliest stage of development. As such, there remains “significant uncertainty” about their design, costs, delivery timings, economics and business case.

The amount of funding offered for these projects under the Development track – 0.5% – amounts to roughly £78 million. They will use this for desk-based studies to identify the broad needs case and consider different design and reinforcement options to solve boundary constraint issues.

The output from those studies will give Ofgem a clearer picture. It can then decide whether to provide “material project funding or set outputs in the TOs’ licences”.

Enabling inward investment

Scottish offshore projects account a large slice, some 30 GW, of the ESO’s Beyond 2030 regional blueprint. This includes almost 3 GW of generation capacity under development off the coast of Shetland. This will necessitate a second subsea connection with mainland Scotland.

Scottish Hydro Electric Transmission (SHET), the transmission owner for the north of Scotland that trades under the name of SSEN Transmission, is developing the Shetland 2 high voltage direct current (HVDC) subsea cable.

While the project is at a very early stage, Ofgem has proposed to put Shetland 2 in the delivery track. It also plans to confirm SHET as the delivery body, rather than offering the project for competitive tendering.

Timely decisions

SHET has already picked cable manufacturer Sumitomo Electric Industries as preferred bidder. It also chose installer Van Oord Offshore Wind UK for the Shetland 2 link. On the back of that decision, Japan-based Sumitomo is investing in a new cable manufacturing facility in Nigg, its first such facility in Europe, with Shetland 2 as the anchor project.

*A cabling spool in a Sumitomo cable factory. Source: SSEN Transmission*

Ofgem acknowledged the strategic importance of the project. The planned factory will produce around 250 km per year of HVDC cable, it said. This “could be used as a domestic source of much-needed subsea HVDC cable to be used by GB transmission owners and offshore wind developers”.

The regulator added: “We have a high degree of confidence that a second HVDC link to Shetland will be needed. We understand that SHET requires confirmation of project need and that it will be the delivery body before it is able to commit to long-term agreements with the cable manufacture.”

Welcoming the consultation, SSEN Transmission managing director Rob McDonald said: “We now look forward to a timely decision from Ofgem and will continue to work constructively with the regulator and wider stakeholders to unlock the investment required for these vital projects to help us reach net zero.”

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