Ofgem has given the go-ahead for transmission network companies to procure equipment earlier to speed up network expansion.
Huge investment is required in the electricity transmission network, but transmission owners face constraints in the supply of equipment and services also in demand in other countries. Normally companies cannot make reservations with the supply chain until cost assessments have been completed for a project, but the crunch means projects could be delayed, with customers paying higher prices while they are awaited.
Ofgem has now agreed that a so-called Advanced Procurement Mechanism (APM) can be implemented so networks can secure supply chain capacity in bulk at a much earlier point in the project development cycle.
In the coming five years APM will be a £4 billion ex ante use-it-or-lose-it (UIOLI) allowance. Networks can spend on procurement of equipment and services up to a pre-agreed cap, and procure without requesting further approval from Ofgem.
Ofgem also plans to amend the spending cap during the following five years (RIIO-ET3) to reflect updated project pipelines, reflect new supply chain constraints or to remove items if some supply chain constraints ease.
To minimise the risk of “stranded procurement”, the APM focuses on procurement of assets that are transferable between many different projects or on flexible procurement. More bespoke procurement can be considered on a case-by-case basis.
Services are eligible where Ofgem can track their use against eligible equipment types.