We set price controls for the companies that run Britain’s gas and electricity networks. These limit the amount of money that the network companies can recover in their charges to suppliers, who pass these costs on to customers through energy bills. These price controls are needed as the networks are natural monopolies.
RIIO is Ofgem’s framework for setting price controls. It aims to ensure that a reliable and secure network is delivered at a fair price for consumers. In 2012 we published our RIIO-T1 final proposals for the three electricity Transmission Owners (TOs) that operate in Great Britain – National Grid Electricity Transmission Plc (NGET), Scottish Hydro Electric Transmission Plc (SHE Transmission) and Scottish Power Transmission Limited (SPTL). The final proposals set out the key elements of the price control package for an eight-year period, from 1 April 2013 to 31 March 2021. As part of the RIIO-T1 price control, we put in place the Strategic Wider Works (SWW) arrangements to allow the TOs to bring forward large investment projects during the price control period.
At the time of setting the price control, we considered that certain large network developments would be needed during the price control period to provide additional network capacity. Funding for several of these developments was not awarded at the start of the price control period because the timing and costs of the projects were uncertain at that time. To help manage this uncertainty we introduced the SWW mechanism.
The SWW mechanism allows us to consider the need for and funding of projects as and when they are brought forwards during the price control period. This helps ensure that the delivery of these projects’ outputs can be progressed in a timely manner to avoid unnecessary delays to required network investments. Considering these projects as they are brought forward by the relevant TOs, rather than as part of the original price control settlement, enhances our ability to assess the specific benefits, costs and risks that each project presents when the project is more developed and there is more certainty on these issues. It also provides flexibility for TOs, allowing them to bring forward projects as and when information is available (rather than only allowing TOs to develop projects that were agreed at the start of the price control).
TOs have a statutory obligation to develop and maintain an efficient, coordinated and economical transmission system. The TOs work with the System Operator (SO) to identify what system reinforcements are required to meet the needs of existing and future transmission system users.
Each year the SO develops the Networks Options Assessment (NOA) which seeks to identify large new onshore transmission projects that may be required in the future. The TOs use the NOA alongside their own analysis to determine which projects are brought to us for assessment under the SWW arrangements and when the optimal timing for delivering these projects will be.
We scrutinise these projects when they are submitted to us. This includes considering whether there is a need for the reinforcement and whether the TO’s plans are likely to represent long-term value for money for existing and future consumers.
When a TO wishes to bring forward a project for consideration under the SWW arrangements, it must give us notice that it is proposing a new network development. It must also submit supporting information to justify the network reinforcement and show that the project meets our eligibility criteria for assessment under the SWW mechanism:
the project delivers additional network capacity;
the project is not funded elsewhere in the price control; and
the project value meets a minimum financial threshold.
We will assess whether the proposed reinforcement is well justified and whether it is in the interests of existing and future consumers through the Initial and Final Needs Cases. We will then assess the efficiency of the technical design, costs and delivery plan in greater detail at Project Assessment. We will consult stakeholders on our needs cases and project assessment to inform our decisions on whether to approve the proposal.
This process, and approximate timings for each stage, is shown in the diagram saved as a subsidiary document below this page.
If we conclude positively on all aspects of our assessments, the specific cost allowances that the TO will be permitted to recover from consumers will be set and we will consult on the proposed modifications to the TO’s electricity transmission licence. These modifications would specify a new SWW output for the network development, and the additional allowed expenditure that the TO can recover from consumers through network charges in order to fund this network reinforcement.
Until we approve the final needs case, all expenditure on construction is undertaken at the TO’s own risk.
We highlighted in our final proposals for RIIO-T1 (referred to above) that SWW eligible projects could potentially be subject to competition.
At the initial needs case stage, or (where a project is sufficiently advanced at the relevant time) at the final needs case stage, we will undertake an assessment of the suitability of a proposed project for delivery through a model intended to secure the benefits of competition. This process will be conducted in parallel to the relevant SWW assessment. More information on our plans to introduce competition into onshore electricity transmission can be found here.
Generally, proposals for new network developments that will be assessed under the SWW framework are large and complex. In line with our RIIO principle of proportionality, we will apply more scrutiny to larger and/or more technologically complex projects than to projects that are smaller and/or more straightforward.
Our assessments and stakeholder consultations on proposals will take time. We expect a TO to take these matters into account when deciding on the best time to provide a submission. In general, we expect a well evidenced need case (initial or final) or project assessment to take approximately 6-9 months from the start of the assessment process to a decision. Projects that are particularly complex or sensitive may take longer.
If our assessment process for a particular project differs significantly from our usual process we will try to notify relevant stakeholders at an early stage, and explain our reasons for adopting a different process. We also expect the TOs to engage actively with stakeholders and keep them informed on timelines of SWW projects.
An up-to-date list of potential SWW projects can be found on the SWW page of our website.