The Transmission Investment Incentives · The TII framework3 was introduced in April 2010 to provide funding within the current price control period (TPCR4, which runs to 31 March

The Office of Gas and Electricity Markets 9 Millbank London SW1P 3GE Tel 020 7901 7000 Fax 020 7901 7066 www.ofgem.gov.uk

Promoting choice and value for all gas and electricity customers

Dear Colleague,

Transmission Investment Incentives (TII): decision on requests for funding in

2012-13

The Transmission Investment Incentives (TII)1 framework is designed to provide project-

specific, interim funding2 for critical, large-scale investments that the electricity

Transmission Owners (TOs) identify and justify to be required to support achievement of

the Government‟s 2020 renewable energy targets. Our TII work seeks to ensure value for

money for consumers in the short term while keeping a range of investment options open

in the long term. The TOs are National Grid Electricity Transmission plc (NGET), SP

Transmission Ltd (SPTL) and Scottish Hydro Electric Transmission Ltd (SHETL).

The TII framework3 was introduced in April 2010 to provide funding within the current price

control period (TPCR4, which runs to 31 March 2012). It is being extended into 2012-13

under the one-year adapted rollover of TPCR4 (TPCR4 Rollover) in line with the approach

set out in our decision letter of 30 November 20114 (our November 2011 policy

decision). For all projects considered under TII, funding arrangements beyond March 2013

will be addressed as part of our work on the next full transmission price control review,

RIIO-T1, which will take effect on 1 April 2013.

Our work to extend the TII framework includes extending existing TII funding to include the

rollover year, 2012-13. Our default approach is to use the same baseline assumptions on

which the relevant past TII funding decisions were based. By this approach, we will have

funded £545m (2009-10 prices) of additional investment prior to RIIO-T1, over and above

that included in the TPCR4 baseline.

We published a consultation on 15 November 20115 (our November 2011 consultation)

in relation to five further requests under TII for funding in 2012-13. The purpose of this

letter is to set out our decision to fund a further £72m of additional investment

under TII. This increases the total level of investment funded under TII to £617m.

1 For further information on TII, see: http://www.ofgem.gov.uk/Networks/Trans/ElecTransPolicy/CriticalInvestments/InvestmentIncentives/Pages/InvestmentIncentives.aspx 2 By “funding under TII”, we mean efficient cost recovery allowed via a revenue stream calculated under the relevant provisions of the TII framework. These provisions are set out in Special Condition D11 of NGET‟s licence and in Special Condition J12 of the licences of SPTL and SHETL. 3 For more detail, see: Enhanced Transmission Investment Incentives: Final Proposals (Ref 04/10), Jan‟10: http://www.ofgem.gov.uk/Networks/Trans/ElecTransPolicy/TAR/Pages/Traccrw.aspx 4 TII: decisions on extending the policy framework into 2012-13, 30 Nov‟11: http://www.ofgem.gov.uk/Pages/MoreInformation.aspx?docid=29&refer=Networks/Trans/ElecTransPolicy/CriticalInvestments/InvestmentIncentives 5 Transmission Investment Incentives: Update and consultation on requests for funding in 2012-13, 15 Nov‟11:

http://www.ofgem.gov.uk/Pages/MoreInformation.aspx?docid=24&refer=Networks/Trans/ElecTransPolicy/CriticalInvestments/InvestmentIncentives

Direct Dial: 020 7901 7165

Email: [email protected]

Date: 31 January 2012

http://www.ofgem.gov.uk/Networks/Trans/ElecTransPolicy/CriticalInvestments/InvestmentIncentives/Pages/InvestmentIncentives.aspx


http://www.ofgem.gov.uk/Networks/Trans/ElecTransPolicy/TAR/Pages/Traccrw.aspx





2 of 12 The Office of Gas and Electricity Markets

9 Millbank London SW1P 3GE Tel 020 7901 7000 Fax 020 7901 7066 www.ofgem.gov.uk

To reflect this decision, it will be necessary make appropriate changes to the transmission

licence to specify project-specific funding allowances and associated deliverables. We will

take this forward as part of our licence changes to extend the TII framework to 2012-13.

We published an informal consultation on our initial drafting of those licence changes on 30

November 20116. We are continuing to work with the TOs in developing our final drafting

ahead of issue of the statutory consultation currently planned for February 2012.

We are separately continuing work towards a decision on NGET‟s and SPTL‟s requests for

construction funding under TII for the High Voltage Direct Current (HVDC) component of

the Western HVDC link7. As set out in our November 2011 policy decision letter, any further

requests for funding of works planned to be undertaken before the end of the rollover year

will be considered in the context of RIIO-T1.

Funding requests in scope of November 2011 consultation

This document focuses on five funding requests8 (referred to in our November 2011

consultation and in this document as the current funding requests) received from the

TOs under TII up to the end of August 2011:

Three requests relating to construction works planned to commence in 2012-13:

o Western HVDC link: Hunterston East substation

o Anglo-Scottish Incremental Works: Reconductor Harker-Hutton-

Quernmore

o North Wales: Reconductor Trawsfynydd-Treuddyn

Two requests relating to works with existing TII funding (to end 2011-12) in line

with funding decisions reached in January 2010:

o Western HVDC link: Deeside/ Connah’s Quay substation

o Eastern HVDC link: Pre-construction (excl. onshore works)

Our November 2011 consultation outlined these requests and set out our assessment

process. We sought views on the issues relevant to our assessment of the requests, the

initial views of our consultants (Pöyry) taking into account information provided by the TOs

up to early November 2011, and our process and timescales towards reaching a decision.

Responses to November 2011 consultation

We received three responses to our November 2011 consultation, all of which are non-

confidential. The responses are summarised in Appendix 1.

Assessment of funding requests and funding decisions

We set out below our assessment of each funding request taking into account responses to

our November 2011 consultation, Pöyry‟s recommendations and any relevant past

assessment. We then set out the funding decisions which we have reached in light of our

assessment. In relation to Pöyry‟s recommendations, Appendix 2 of this letter sets out the

criteria against which we asked Pöyry to assess each request, taking relevant past

assessment into account. It also sets out Pöyry‟s views in these areas taking into account

further information provided by the TOs up to the end of November 2011. Where relevant,

Pöyry‟s recommendations also take into account interactions with any funding previously

provided.

6 TII: informal consultation on licence changes to extend the policy framework into 2012-13 (Ref 164/11), Nov‟11 http://www.ofgem.gov.uk/Networks/Trans/ElecTransPolicy/CriticalInvestments/InvestmentIncentives/Pages/InvestmentIncentives.aspx 7 Transmission Investment Incentives (TII): update on Western HVDC Link (“Western Bootstrap”), Nov‟11: http://www.ofgem.gov.uk/Pages/MoreInformation.aspx?docid=20&refer=Networks/Trans/ElecTransPolicy/CriticalInvestments/InvestmentIncentives 8 For more detail on these requests see Appendix 2 of our November 2011 consultation.







Summary of funding decisions

Table 1 below summarises the 2012-13 allowances9 we have determined under TII in

relation to each cost item for which funding was requested, as compared to the allowances

requested by the TO. The default allowances, based on extension of funding decisions

reached in January 2010, are also shown.

Table 1: Funding decisions in relation to current funding requests TO Cost item Default

2012-13

allowance (Jan 2010 decision)10 (£m)

2012-13 allowance

requested by the TO11 (£m)

2012-13 allowance

determined under TII (£m)

Comment

Works planned to commence in 2012-13

SPTL Western HVDC link: Hunterston East substation

N/A 2.6 2.6 Funding provided

NGET Anglo-Scottish Incremental Works: Harker-Hutton-

Quernmore reconductoring

N/A 25.0 25.0 Funding provided

North Wales: Trawsfynydd-Treuddyn reconductoring

N/A 20.2 2.6

Funding provided

(adjusted for TPCR4 funding)

Works with existing TII funding via January 2010 decisions

NGET Western HVDC link: Deeside/ Connah‟s Quay substation

24.5 65.7

65.7

Default superseded

Eastern HVDC link: Pre-construction (excl. onshore works)

0.2 3.4 0.2

Default maintained

Overall, in relation to the above cost items we have determined 2012-13 funding

allowances under TII totalling12 £96.2m, comprising £24.6m of default allowances and

£71.6m in addition to this. The funding allowances we have determined are consistent with

Pöyry‟s recommendations.

Our assessment and funding decisions (our January 2012 funding decisions) are set out

in more detail below. These funding decisions will be reflected in ex ante funding

allowances and associated deliverables within the existing TII framework as extended to

2012-13. We do not consider it necessary to vary any aspects of our TII framework13 for

these cost items. In the majority of cases, the deliverables14 to be set out in the TII funding

provisions15 will reflect the TO plans as of December 2011. The only exception to this is the

Eastern HVDC link pre-construction works, where the deliverables will continue to reflect

the TO plans as of January 2010, given that the default allowance has been maintained.

9 Note: all numbers are specified in 2009-10 price base and have been converted from their source values using

the RPI indexation method set out in http://www.ofgem.gov.uk/Pages/MoreInformation.aspx?docid=117&refer=Networks/Trans/PriceControls/RIIO-T1/ConRes 10 Default 2012-13 allowance, where applicable, is based on extension of existing TII funding using the same assumptions underpinning the original funding decision. 11 Some monetary values have been updated since the November 2011 consultation in line with basing the relevant calculations on data converted from their original source to 2009-10 price base. 12 Aggregate numbers may differ from similar values derived using values in Table 1 - this is due to rounding. 13 As set out in our November 2011 policy decision letter, we retained flexibility to vary aspects of our TII framework when funding individual cost items where we see good reasons to do so. 14 Key project milestones for each year and (where applicable) forecast output measures on completion of planned construction works 15 Project-specific information set out in Annex A of Special Condition D11/J12 of the relevant licence.

http://www.ofgem.gov.uk/Pages/MoreInformation.aspx?docid=117&refer=Networks/Trans/PriceControls/RIIO-T1/ConRes

http://www.ofgem.gov.uk/Pages/MoreInformation.aspx?docid=117&refer=Networks/Trans/PriceControls/RIIO-T1/ConRes



Works planned to commence in 2012-13:

SPTL: Hunterston East substation:

We consider that our work on need, scope and timing of the Western HVDC link is

also valid for this project.

Having reviewed the specific plans for this project, we agree that this project should

go ahead at this stage.

Funding decision – We have determined a TII funding allowance for 2012-13 in

line with SPTL‟s latest cost forecast for that year (allowance of £2.6m).

NGET: Harker-Hutton-Quernmore reconductoring:

We consider that the needs case, scope and timing of the overarching Anglo-

Scottish Incremental scheme has been established from previous assessments.



Funding decision - We have determined a TII funding allowance for 2012-13 in

line with NGET‟s latest cost forecast for that year (allowance of £25.0m).

NGET: Trawsfynydd-Treuddyn reconductoring:

Although there is doubt surrounding the needs case and timing of the overarching

North Wales scheme, we note that this sub-project provides incremental capacity in

its own right and that there is further merit in considering it separately because of

asset condition and the imminent need for refurbishment. We agree with our

consultants‟ view that carrying out reconductoring at the same time as

refurbishment represents the „least-regret‟ option.



However, we note that funding for the refurbishment that would otherwise be

required has been previously provided under TPCR4 (£17.5m in 2009-10 prices16),

but that these works did not go ahead. Further, TII is only intended to provide

funding for works not already funded as part of the main price control settlement.


line with NGET‟s latest cost forecast for that year less an adjustment to net off the

allowance previously included in the TPCR4 settlement (£20.2m less £17.5m gives

an allowance of £2.6m)17. We have made this adjustment to protect consumers

from paying twice for a single set of works.

Works with existing TII funding via January 2010 decisions:

NGET: Deeside / Connah’s Quay:

We consider that the changes in design and programme and associated cost

changes are reasonable; and relate to factors not taken into account in the original

decision.


line with NGET‟s request to reflect increased costs over the period from 2010-11 to

2012-13 relative to the cost forecasts on which the January 2010 decisions were

based (allowance of £65.7m in place of default allowance of £24.5m).

NGET: Eastern HVDC link pre-construction:

We share our consultants‟ concerns about the lack of detail and rationale for the

potential changes in scope and timing of the overall Eastern HVDC link scheme, and

the apparent lack of coordination between NGET, SHETL and SPTL in taking this

work forward. It is therefore difficult at this stage to reach a view on the case for

taking forward a multi-terminal design for potential delivery one year earlier than

previously proposed for a point-to-point link.

16 Converted from source data in 2004-05 prices. 17 This is derived using more accurate values - any inconsistencies to one decimal place are due to rounding.



Noting the under-spend against existing TII funding allowances, and in the absence

of more detailed cost information and associated activities, we also have concerns

that some of the cost increases relate to aspects of works already in scope of the

original funding decision.

Overall, we consider that insufficient evidence has been provided in the timescales

for our assessment to enable us to determine any additional funding under TII.

However, this is not to say that the proposed works and associated costs cannot be

justified in light of new evidence and we expect to review this matter further in the

context of RIIO-T1 to the extent that we receive such evidence. We expect this

evidence to include a qualitative and quantitative Cost Benefit Analysis (CBA)

comparing the respective merits of a point-to-point solution (as originally proposed)

versus alternative options including a multi-terminal solution, for a range of

potential delivery dates. We also expect this to include a detailed breakdown of the

works and associated costs that are necessary to finalise the design.

We note that the revenue determined for 2012-13 under the rollover baseline takes

account of aggregate provisional TII allowances (see below) which, for both NGET

and SHETL, incorporate the TOs‟ latest cost forecasts for the Eastern HVDC link.

Therefore both TOs will have sufficient revenue to progress any necessary works in

2012-13 to develop their plans in more detail, in line with their licence obligations,

pending further review in the context of RIIO-T1.

Funding decision - We have determined a 2012-13 funding allowance under TII in

line with the cost forecasts on which the January 2010 decisions were based

(maintaining the default allowance of £0.2m), i.e. no additional TII funding has

been provided over and above the default allowance.

Impact on allowed revenues

As outlined in our November 2011 policy decision, there are interactions between TII and

our TPCR4 Rollover Final Proposals18. We have incorporated an aggregate provisional TII

allowance (based on the TO‟s latest business plan forecasts) as part of setting the baseline

allowances for 2012-13 under the TPCR4 Rollover Final Proposals, and these will form the

basis for revenues in 2012-13.

Any resulting difference in revenue provided via the aggregate provisional TII allowance

compared to final TII allowances across all projects will be „trued-up‟ in RIIO-T1. The

funding allowances set out above under our January 2012 funding decisions will not feed

directly into the revenue calculation for 2012-13, and instead will be reflected in the

adjustment made in RIIO-T1. A further revenue adjustment will be made at a later stage to

reflect the outcome of our capex efficiency review of TII funding.

Any works not funded under TII or the TPCR4 Rollover will be considered in the context of

RIIO-T1. In the meantime we expect the TOs to proceed with the work they consider

appropriate during the rollover year, 2012-13, in line with their general licence obligation19

to develop their networks in an efficient manner. Provided the TOs are able to justify this

work, we will allow efficient cost recovery under RIIO-T1, via funding allowances to be

specified from 2013-14 onwards.

Given the interim nature of TII funding, any differences between the specified deliverables

set out in the TII funding provisions and the actual work undertaken by the TO will be

taken into account alongside any associated differences between funding allowances and

actual spend under TII both within our capex efficiency review of TII funding and in our

consideration of further funding requirements under RIIO-T1. Provided the TO is able, in

18 Transmission Price Control Review 4 (TPCR4) Rollover: Final Proposals - (Ref: 162/11) 28/11/11: http://www.ofgem.gov.uk/Pages/MoreInformation.aspx?docid=75&refer=NETWORKS/TRANS/PRICECONTROLS/TPCR4ROLL-OVER 19 Under the Electricity Act 1989 (“the Act”) the general duties of transmission licensees include the duty, set out in Section 9 of the Act, to “develop and maintain an efficient, co-ordinated and economical system of electricity transmission”.

http://www.ofgem.gov.uk/Pages/MoreInformation.aspx?docid=75&refer=NETWORKS/TRANS/PRICECONTROLS/TPCR4ROLL-OVER

http://www.ofgem.gov.uk/Pages/MoreInformation.aspx?docid=75&refer=NETWORKS/TRANS/PRICECONTROLS/TPCR4ROLL-OVER



that context, to justify any changes in its plans, the TO is not bound to delivering a given

project in the exact manner specified in the relevant TII funding provisions.

We therefore do not think that the context or timing of our funding decision on works

proposed by the TOs should impact on the timely delivery of efficient investment.

Next steps

To reflect this decision, it will be necessary make appropriate changes to the transmission

licence. As discussed above, we will take this forward as part of our licence changes to

extend the TII framework to 2012-13 for which our statutory consultation is currently

planned for February 2012.

As discussed above, we expect the TOs to progress any necessary works in 2012-13 in line

with their general licence obligation to develop their networks in an efficient manner.

Provided the TOs are able to justify this work, we will allow efficient cost recovery via

funding allowances from 2013-14. We expect to review further the Eastern HVDC link in the

context of RIIO-T1, in light of any further evidence provided by the TOs to justify any

additional costs incurred in 2012-13 that are associated with activities beyond the scope of

the TII allowance determined above.

Any questions on this document should be directed, in the first instance, to Cheryl Mundie

(e-mail: [email protected], tel: 0141 331 6003) or to Simon Cran-McGreehin

(e-mail: [email protected], tel: 020 7901 7440).

Yours faithfully,

Hannah Nixon

Acting Senior Partner – Smarter Grids & Governance: Transmission

mailto:[email protected]

mailto:[email protected]



Appendix 1 – Responses to our November 2011 consultation

We received three responses to our November 2011 consultation, all of which are non-

confidential. This appendix summarises these responses.

TII framework and current assessment process

All three responses commented on aspects of our TII framework or current assessment

process; two had favourable views. One of these commented that Ofgem‟s approach

appeared reasonable and commensurate with requests being made, whilst ensuring

projects are not delayed. Another respondent welcomed Ofgem‟s approach to funding

these decisions, by providing a provisional allowance in the TPCR4 rollover and making

adjustments in RIIO-T1 line with final TII decisions.

One respondent commented on the process for provision of information to consultants.

This respondent also requested clarity on when a final decision would be published.

Specific project assessment

Two respondents commented specifically on the current assessment. One respondent

commented that Ofgem and Pöyry were in the best position to identify whether the funding

requests are economic and efficient, and so deferred to Ofgem‟s recommendations in this

area. The other had specific comments on our assessment of four funding requests.

This respondent supported the views of our consultants on all aspects of two of the funding

requests (Harker-Hutton-Quernmore and Deeside/Connah‟s Quay). They supported Pöyry‟s

views on aspects of the two other projects on which they commented (Trawsfynydd-

Treuddyn and Eastern HVDC pre-construction). With respect to Trawsfynydd-Treuddyn,

they noted the potential overlap between TII and TPCR4 funding. They also noted Pöyry‟s

concerns in respect to Eastern HVDC pre-construction. They stated their belief that the

work proposed to be undertaken in 2012-13 is designed to resolve the uncertainty around

the scope of the overall scheme.

Other issues

One respondent commented on other issues related to TII and interactions with RIIO-T1.

These views are not directly relevant to the decisions contained in this letter. We have

noted these views, and will ensure these are considered in developing policy relevant to

these issues.



Appendix 2 – Consultant views

This Appendix sets out our consultants‟ assessment of the current funding requests. We

have published Pöyry‟s report alongside this decision letter.

As discussed in our November 2011 consultation, in line with previous consultancy reviews

under TII20, we asked Pöyry to provide a detailed assessment (deliverability, design, costs)

of the specific works for which funding is requested, as well as strategic assessment (need

case, scope and timing) of the overall scheme of which those works are a component part.

For requests relating to works with existing TII funding, we also asked Pöyry to review the

justification for the material changes in scope and the associated changes in costs.

Taking into account the relevant past and current assessment set out in our November

consultation, we considered that for certain of the current funding requests some of these

criteria did not require further review by Pöyry. We therefore asked Pöyry to focus their

assessment on the following issues:

The following sections set out Pöyry’s views based on information received as of end

November 2011. Pöyry‟s views on each of the criteria are summarised by a “traffic light”

system, as in previous TII assessments. Pöyry has also introduced an additional criterion

(“value for money”) which considers issues that might sit between the other criteria and

also any interactions between the criteria. For each of the criteria, “green” represents

“high/strong” and “red” represents “low/weak”.

The following table sets out the assessment criteria for the strategic assessment of the

overall project (including all components):

20 See Appendix 3 of our March 2011 document.



The following table sets out the assessment criteria for the detailed project assessment of

specific components for which funding is requested by the TO within the next year:

Works planned to commence in 2012-13

Hunterston East Substation

We asked Pöyry to consider the appropriateness of the design, deliverability assumptions

and cost estimates for the Hunterston East project. Their findings are summarised below:

Pöyry had raised some slight issues around risks to deliverability relating to a detailed

aspect of the scheme design, which SPTL have now addressed sufficiently in response to

relevant questions Pöyry raised. Pöyry‟s view is that the scheme is deliverable. In

addition, Pöyry‟s view is that the design has progressed in a consistent and comprehensive

manner, with due consideration given for potential future expansion. In addition, the

costings are detailed and seem consistent with the scope of work.

Based on its assessment, Pöyry recommend that funding be provided under TII in line with

SPTL‟s cost forecast.

Harker-Hutton-Quernmore reconductoring

We asked Pöyry to focus their assessment on the deliverability, design and cost of this

specific project. Specifically, we asked them to consider whether the proposed solution is

optimal, the assumptions around the project plan are reasonable and the costs are

appropriate. We also asked them to consider interactions between this work and routine

refurbishment. Their findings are summarised below:

Pöyry are satisfied that the project is deliverable, and NGET have confirmed that their

delivery partner has the necessary resources to carry out the planned works. Pöyry think

the assumptions around the project plan are reasonable. The design is considered



appropriate, the proposed solution is optimal and any residual risks are being acceptably

managed by NGET. In Pöyry‟s view, the construction costs are appropriate and sufficiently

well quantified at this stage.

In terms of value for money, given that part of the route is due for refurbishment by 2014,

Pöyry had raised concerns that there may be overlap between this funding request and

funding for routine refurbishment under TPCR4 including rollover year (which should fall

outside of TII), given that NGET indicates that based on asset condition, 57km of the

115km route requires refurbishment within 0-2years. However, NGET requested no explicit

funding for refurbishment in its TPCR4 submission and have not spent any funds as yet.


NGET‟s cost forecasts.

Trawsfynydd – Treuddyn reconductoring

We asked Pöyry to review the needs case, scope and timing of the overarching North Wales

scheme. In particular, we asked them to consider whether work is justified now given

anticipated future generation connections, and whether the scope is reasonable to meet the

need. Their findings are summarised below:

Pöyry have raised questions over the needs case and timing for the scheme as a whole,

linked to the assumptions around future generation development, and hence had concerns

about value for money. Pöyry are satisfied that the scope of the scheme represents an

entirely reasonable approach to the expansion of transfer capacity from North Wales should

the need arise. However, the Pöyry‟s view, the timing of the full scheme is too early, given

the latest views on future generation development.

However, Pöyry acknowledges that concerns around the overall scheme do not preclude

proceeding with works on the Trawsfynydd-Treuddyn Tee project which may be the “least

regret” decision in light of the need for refurbishment given the poor condition of the

existing fittings along the route and taking into account the optionality that reconductoring

would provide to accommodate potential future generation developments in North Wales

and the adjacent area.

We also asked Pöyry to assess the deliverability, design and cost of the particular

Trawsfynydd – Treuddyn works. Specifically, we asked them to consider whether the

proposed solution is optimal, the assumptions around the project plan are reasonable and

the costs are appropriate. We also asked them to consider interactions between this work

and routine refurbishment. Their findings are summarised below:

Pöyry are satisfied with the deliverability of the works, given the confirmation that NGET‟s

delivery partner has adequate resources available. Pöyry also think that the assumptions

around the project plan are reasonable. The design is considered appropriate and the

proposed solution is considered optimal. Pöyry‟s view is that the costing is appropriate

based on the programme and design details.

However, Pöyry raised strong concerns around the potential for overlap between funding

for routine refurbishment (due by 2014) under TPCR4 and this TII funding request, and

recommended that any TII funding cover incremental costs only.




NGET‟s cost forecasts but that this should net off the funding already provided under

TPCR4.

Works with existing TII funding via January 2010 decisions

Deeside/Connah’s Quay Substation

We asked Pöyry to assess NGET‟s submission and recommend the appropriate level of

funding for 2012-13. The key focus of this assessment is identifying the material changes in

circumstances and determining the efficient costs that should be attributed to these

changes. We did not ask Pöyry to review deliverability of the scheme as the works are

already underway and the increased costs have already been incurred. Their findings are

summarised below:

Pöyry‟s assessment is that the design has progressed in a consistent manner, and should

be adequate to cope with additional generation in the region. Pöyry agrees that material

changes in circumstances have occurred since the previous funding decision, and consider

that sufficient justification has been provided for these. Based on a NGET response to a

question raised in the Q&A process, Pöyry also believe that the design is suitable to

accommodate potential future additional direct connections to the substation.

Pöyry are satisfied that the costs appear to be appropriate and reasonable, and that there

is no duplication between funding requests for Deeside/Connah‟s Quay and Western HVDC

link. They are satisfied that the cost increases are sufficiently justified by the changes in

design scope. Regarding value for money, they commented that the scope and associated

costs and funding are generally considered consistent and appropriate. They note that any

future savings from the reuse of one Super Grid Transformer (SGT) as a spare will be

immaterial and so there is no need for any adjustment to funding.

Based on its assessment, Pöyry recommend that additional funding be provided under TII,

over and above the default allowance, to take account of additional costs incurred over the

period to end 2011-12.

Eastern HVDC link

We asked Pöyry to consider the need, scope and timing of the Eastern HVDC scheme as a

whole. In particular, we asked them to focus on whether there is a case for considering a

multi-terminal option and what works are required to take this forward. We also asked

them to consider whether there is a need to commit additional expenditure now for the

additional works proposed to be undertaken in 2012-13 in order to deliver the Eastern

HVDC link by 2017-18. Their findings are summarised below:

Pöyry‟s view is that there is general uncertainty regarding the Eastern HVDC scheme,

although the proposed pre-construction work arguably aims to address this to some extent.

Assuming continuing GB commitment to delivery of renewable targets for 2020 and

beyond, Pöyry‟s view is that there is a clear underlying future need for an overarching

scheme based on an Eastern HVDC link. However, Pöyry notes there is uncertainty as to

the optimal scope (ie point-to-point or multi-terminal link) and timing, which is dependent



on cost-benefit analysis yet to be completed. As a result, it is unclear whether there is a

case for considering a multi-terminal option or for advancing the completion date. Given

uncertainty over timing, Pöyry also questions whether there is a need to commit additional

expenditure now.

In addition, we asked Pöyry to assess the deliverability, design and cost of the pre-

construction works captured by NGET‟s funding request, particularly whether the costs are

reasonable. We also asked them to consider review the justification for the material

changes in circumstances and associated changes in cost. Their findings are summarised

below:

Pöyry raised concerns about deliverability of the pre-construction works, given an apparent

lack of co-ordination – as evidenced by the lack of cohesive submissions, and delays to the

original programme. Pöyry also notes uncertainty around design of the pre-construction

works, as detailed work on a multi-terminal solution will be redundant if a point-to-point

connection is chosen. Pöyry also have significant concerns that the submission is not clear

on overall project scope and cost and hence division of costs between TOs, as well as

concerns around value for money given the apparent lack of co-ordination.

Overall, Pöyry‟s concerns stem from a lack of sufficient information provided within the

timescales of this assessment to enable them to identify the extent to which the additional

costs relate to additional works beyond the original scope, and in turn to reach a firm view

on the justification for those additional works and the reasonableness of the associated

costs.

Based on its assessment, Pöyry recommend that no additional funding be provided under

TII, over and above the default allowance.

Documents

The Transmission Investment Incentives · The TII framework3 was introduced in April 2010 to provide funding within the current price control period (TPCR4, which runs to 31 March