Introducing Competition in the Provision of Onshore Electricity Transmission Networks
Since the privatisation of the electricity sector in 1990, the transmission of electricity, mainly through a network of pylons and high voltage cables, has been the preserve of three monopoly businesses that are regulated by the energy markets regulator, Ofgem. Recently, however, Ofgem has suggested that it might be better for British consumers if competition were to be introduced into the sector. This briefing explores how, in practice, this might be done. In this article, Jason Mann Senior Managing Director at FTI, discusses the potential for the introduction of competition in electricity transmission.
Competition in Transmission
Britain’s high voltage electricity transmission network, that conveys electricity from the country’s power stations to the local networks for onward distribution to homes, factories and offices, is currently owned and operated by three regional monopolies. National Grid is responsible for the network in England & Wales and SSE and ScottishPower undertake the same role in regionally distinct parts of Scotland. Monopolies since their creation at privatisation in 1990, the revenue the three companies are allowed to earn from charging for the use of their networks is set by Ofgem – the energy market regulator.
The electricity transmission network has, since the mid 2000s, expanded significantly to connect windfarms sited offshore to the existing onshore transmission network. In contrast to the onshore regime, Ofgem has chosen to adopt a form of competition for the provision of these offshore transmission networks – on the grounds that this will deliver lower costs than a system of regulation and therefore ultimately be beneficial to consumers. To date 12 different offshore transmission owners (OFTOs) have been created, which own and operate offshore transmission networks worth £2.2bn.
Following the perceived success of the offshore regime, Ofgem is now keen to extend a similar competitive approach to the provision of new transmission assets for the onshore electricity network. Under this regime, new transmission assets that meet certain predefined criteria would be the subject of competitive provision by so-called Onshore Transmission Operators (ONTOs) rather than being provided by the three incumbent monopolists. However, in contrast to the offshore assets where only the financing of the asset was subject to competition, the onshore ONTO responsibilities would include construction and operation of the asset and may also include parts of the development works such as asset design and consenting.