IN Brief:
- Ofgem has published proposed guidance on evidencing wider long-term benefits in regulated electricity network procurement.
- The consultation covers electricity network owners, interconnector developers and offshore hybrid asset developers.
- The guidance would complement existing regulatory cost assessments, with responses invited until 5 January 2027.
Ofgem has published proposed guidance on how electricity network owners and developers should demonstrate wider long-term benefits when making regulated infrastructure procurement decisions. The consultation examines the evidence required where those benefits are used to justify effects on project costs, delivery timescales, delivery confidence or risk, while retaining the regulator’s existing requirements for efficient expenditure.
Published on 13 October, the consultation covers electricity network owners, interconnector developers and offshore hybrid asset developers. Ofgem is seeking responses to the proposed guidance before 5 January 2027, with the final arrangements intended to complement the regulatory frameworks under which network investment and associated costs are assessed.
The consultation follows an earlier examination of Great Britain’s electricity network supply chains, in which manufacturers and network companies raised concerns about investment certainty and the visibility of future demand. In September, Ofgem confirmed that it would develop procurement guidance following that exercise. The new document advances the work from an intention to produce guidance into a specific consultation on how procurement benefits should be evidenced.
Electricity infrastructure procurement frequently involves manufacturing commitments made years before equipment is installed. Large transformers, high-voltage cables, switchgear and other specialist components require engineering design, production capacity, factory testing and transport arrangements, with some orders needing to be placed before the wider construction programme is fully established.
A purchasing decision based on the lowest available price may therefore produce different delivery outcomes from one that also considers manufacturing availability, contractual risk and the consequences of delay. Those wider considerations can affect the eventual cost of a project, particularly when an unavailable component prevents other completed infrastructure from being tested or energised.
Ofgem’s proposed approach is concerned with how developers establish the evidence supporting those decisions. The regulator is not proposing that higher prices automatically become acceptable because a supplier offers domestic manufacturing, greater resilience or an alternative delivery arrangement. Any additional expenditure must still be justified within the relevant regulatory framework and demonstrate efficient value for consumers.
Procurement of major transformers illustrates the relationship between equipment specification and delivery risk. The transformer must meet the required voltage and power ratings, insulation requirements, thermal performance and electrical characteristics of the network in which it will operate. Manufacturing capacity and delivery dates may differ between suppliers, but an alternative product cannot be selected solely because it is available sooner if it fails to meet the necessary engineering specification.
Where several technically compliant options exist, the procurement assessment can consider how their relative costs and delivery characteristics affect the complete infrastructure programme. An earlier manufacturing slot may reduce exposure to construction delays, while a longer delivery schedule might be acceptable where other project activities determine the earliest possible commissioning date.
Those relationships are particularly important when infrastructure delivery involves several interdependent contractors. Cable installation cannot proceed without the necessary route access and civil works, while energisation may depend on substations, protection systems and connection equipment being completed and tested in sequence. Delays in one package can affect other contracts even when the individual equipment price represents a relatively small proportion of the overall investment.
Early procurement creates its own financial exposure, however. Reserving manufacturing capacity before a project has secured every consent or completed its final design can leave the purchaser carrying costs if specifications change or the construction programme is delayed. The potential benefit of earlier delivery has to be weighed against those uncertainties and the contractual terms under which the equipment is ordered.
Supply chain resilience can also influence procurement decisions where equipment is available from a limited number of qualified manufacturers. Developing alternative supply arrangements may reduce dependence on a single source, but the value of that approach depends on the equipment involved, the likelihood and consequences of disruption, and the cost of maintaining additional manufacturing or purchasing options.
The proposed guidance does not prescribe a particular procurement outcome for every project. Its purpose is to establish how network owners and developers can present evidence of wider benefits when their procurement decisions have implications for costs, delivery or risk. The existing processes for assessing whether expenditure is efficient remain in place.
Interconnectors and offshore hybrid assets are included alongside conventional electricity network infrastructure. These developments can involve specialised subsea cables, offshore electrical equipment and interfaces between separate transmission systems, making procurement choices dependent on both technical compatibility and the coordinated delivery of several major construction packages.
Where wider benefits are claimed, their relationship to the proposed purchasing decision must be sufficiently clear for Ofgem to assess them. General assertions about industrial growth or improved supply resilience cannot establish the value of a particular contract without evidence of the relevant costs, alternatives and expected effects.
The guidance is being developed during a period of substantial investment in transmission infrastructure, with network owners seeking manufacturing capacity for equipment that can have long production lead times. Ofgem’s existing assessment arrangements continue to require efficient expenditure, while the consultation examines how developers can account for longer-term benefits without removing that requirement.
Responses are due by 5 January 2027. Ofgem will consider the evidence received before determining its final guidance, which will inform how regulated electricity infrastructure developers present and justify procurement decisions involving wider long-term benefits.
