The transmission sector is a key link in the chain that will deliver a net zero future. Mark Docherty and Simon Rawlinson of Arcadis summarise the current state of play, in the first half of our two-part special on the UK electricity network
01 / The opportunity of the UK鈥檚 grid upgrade
Long before the government committed to delivering a net zero electricity network by 2030, the UK鈥檚 third electricity revolution was well under way. Announcements made at the recent international investment summit, including Iberdrola鈥檚 pledge to double its UK capital expenditure through Scottish Power to 拢24bn, are the product of years of effort in the refinement of regulation, the development of project proposals and the raising of finance.
Great Britain鈥檚 transmission owners (TOs) plan to invest 拢20bn in 26 strategic projects under the regulator鈥檚 Accelerated Strategic Transmission Investment (ASTI) framework. The TOs will also continue to maintain and enhance the existing 8,600km grid, with a new price control period, RIIO-ET3, commencing in 2026. The period to 2040 will see investment of a further 拢58bn, according to the National Energy System Operator鈥檚 (NESO) Beyond 2030 report, published in March 2024.
Regulated network owners that have been focused on resilient and reliable network operation and efficient asset management are now leading some of the UK鈥檚 largest and most complex investment programmes. Their performance, alongside that of the regulator Ofgem, the Planning Inspectorate and the specialist electricity supply chain, will be a critical success factor in ensuring that the UK has the grid in place to transmit power from many new large-scale offshore wind farms. Delay will mean not only that net zero targets are missed, but also that consumers will pay curtailment costs to compensate generators for not being able to trade their output. Curtailment costs added 拢1bn to bills in 2023.
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Despite the climate change imperative, grid programmes must be delivered within a range of constraints, including those associated with the planning process, value for money and industry capacity. The new Labour government has wasted no time in moving to approve grid investments through the nationally significant infrastructure planning (NSIP) process, including a new Bramford-to-Twinstead 400kV transmission reinforcement. Work is in full swing to build the delivery enterprises needed to deliver a sixfold increase in workload.
The TOs鈥� procurement strategy highlights a special dimension to the UK鈥檚 grid upgrade, an extreme level of international competition for supply chain capacity. Bloomberg NEF calculates that 80 million km of cable will be needed for transmission and distribution grids by 2050. The production of high-voltage cable and switchgear continues to be a highly skilled process that is difficult to scale up. Similarly, demand for labour is set to be a problem, particularly for skills associated with high-voltage cable and equipment. With global demand outstripping capacity, TOs and Ofgem face difficult trade-offs when securing production slots to provide assurance around efficiency and value for money.
The NESO鈥檚 latest report, Clean Power 2030, published in November 2024, confirms that the net zero grid objective is deliverable, but only by doing things differently. TOs will need innovation in technology, process and organisation to ensure their enabling infrastructure is in place on time.
02 / The 2030 grid challenge
The transmission grid has a crucial role in enabling the net zero transition. Offshore wind farm developers depend on timely completion of new high-voltage DC (HVDC) converter stations to export their output. Additional super-grid expansion and reinforcement are required to tackle emerging capacity constraints, and new grid services from storage and stability providers will need transmission connections.
Issues that contribute to the complexity of the challenge include:
Complexity of a renewables-based network
The shift in electricity generation from gas to offshore wind has implications that go well beyond geography. Grids based on renewables are typically more complex, have a larger number of smaller transmission and distribution connections, and are less stable on account of production variability. Modern electricity networks are more reliant on ancillary services to maintain stability and resilience, such as the 鈥済reener grid park鈥� model, which combines multiple, standardised grid connections for a variety of energy sources, including battery storage, as well as large-scale inertia devices that maintain grid stability.
Geography also adds complexity. With new capacity being developed to the north and west of Scotland as well as in the North Sea, many schemes will be delivered in remote locations, creating additional logistical challenges including access provision, materials delivery and accommodation for a large, imported workforce.
The sheer scale of development also presents problems for the developers and stakeholders. The 400kV network extensions under development, often replacing existing 132kV infrastructure, typically require larger and more visible towers and substations. Similarly, the converter stations for high-capacity HVDC links are enormous 鈥� typically 200m long by 40m wide. All options 鈥� overhead line (OHL), underground cable and HVDC links 鈥� have visual and environmental impacts that can be hard to mitigate.
Diverse network solutions
Components of the grid have distinct functions which in turn can affect the regulatory model and the parties involved in development. The NESO鈥檚 Holistic Network Design document (2022) set out a range of transmission network developments to facilitate the connection of the 23GW of new offshore wind projects. The evolving transmission system will comprise significant enhancements to the legacy onshore transmission networks as well as the expansion of legacy networks with offshore HVDC links, including those between Scotland and England. Other additions will include dedicated offshore transmission wind farm connections, integrated offshore transmission solutions that connect multiple offshore generators, and HVDC interconnectors linking neighbouring European transmission grids that enable the efficient transfer of energy surpluses and deficits. As a result, a range of parties are involved in the delivery of different components of the future transmission system, with the potential to disaggregate demand for cable, equipment and contractors.
Simultaneous demand
With the world racing towards a single net zero transition date, every grid requires transformation. Although the transformation has been anticipated for at least a decade, in practice actual demand only crystallised from 2019 onwards. Equipment manufacturers (OEMs) serve other markets including distribution networks and must allocate investment across all voltage levels. Without a visible pipeline, equipment and cable OEMs chose to invest incrementally into new HV capacity and were caught out by a three- to fourfold increase in demand. Lead times for equipment such as transmission voltage transformers are up from 30-60 weeks to 120-210 weeks, according to Wood McKenzie.
High demand affects the wider delivery model. Whereas previously OEMs offered a turnkey solution for converter stations and other major works, they are focusing their operations now mainly on the manufacture and installation of equipment. As a result, civils contractors are being contracted directly to undertake the building and balance-of-plant (BOP) works.
Supply chain constraints will also affect the pace of installation. Ground investigations require a significant increase in availability of mobile drilling rigs, and marine cable laying is dependent on access to scarce specialist vessels. An explosion in demand could result in TOs competing to secure capacity.
Consolidated programmes and regulatory models that permit early procurement to secure capacity are a key aspect of comparative advantage in energy markets. Ofgem鈥檚 ASTI model facilitates this by allocating pre鈥慶onstruction and early construction funding.
Concentrated supply chains
The cable and equipment markets are highly concentrated and have extremely high barriers to entry, meaning new sources of competition are rare. Three manufacturers each separately dominate the UK and European cable and transformer markets, with a 75% market share.
It is forecast that by 2025 there will be a 1,000km annual shortfall in HVDC cable manufacture. TOs and their regulators have had to adapt their procurement strategy in response 鈥� for example, by funding early payments to secure manufacturing slots. As an illustration of an extreme response to the constrained supply chain, the UK-Morocco power project X Links proposes to develop its own manufacturing facility in Scotland to deliver 4,000km of HVDC cable to the project before serving the wider interconnection market.
Stakeholder buy-in
Stakeholder buy-in to proposals through the planning process is of course a major blocker. Planning reform is a key element of the changes identified in the 2023 Winser review to reduce project durations to an average of seven years. The review highlights multiple issues in the planning system, including a lack of guidance for trade-offs and the need for rules on public benefit and compensation.
Reform to the planning system continues to accelerate with the upcoming Planning and Infrastructure Bill and updates to the energy national policy statements (NPSs). The EU has already adopted a presumption of overriding public interest to simplify the approvals processes for grids, and in the UK the grid is defined as critical national infrastructure. Following the Banner review, limits on the use of judicial review could be the next reform.
Specialist skills
Construction鈥檚 transmission sector has a well-known skills shortage that could be difficult to resolve. The critical skills requirements, design engineering, field engineering, tower erection, OHL stringing and electromechanical engineering require relatively few specialists compared with the wider, general workforce, but are all under high demand and have a long lead-in period for training and skills acquisition.
Arcadis undertook a labour market study in 2022 with contractor Murphy which highlighted that an industry-wide response, including the provision of training opportunities and mid-career development, would be needed to ensure growth in the workforce in line with demand. A particular problem is the supervisory constraint on on-site training, especially in live environments.
One option available to delivery organisations will be to access an overseas labour force. Currently the UK鈥檚 points-based system supports this based on qualifications and earnings thresholds. TOs in Europe are already exploiting open borders in the EU to access specialist labour, and UK employers will need a compelling offer to attract the best people while building a domestic workforce.
Critical trade-offs in grid design
Transmission grids can be visually intrusive and inevitably generate opposition from local populations who are affected by the new infrastructure. In general, the GB TOs confirmed that HVAC overhead line would be their preferred network expansion and reinforcement approach in 2023, which has helped to provide some clarity to the planning process.
In the context of the GB network, HVAC OHL networks provide an optimum combination of whole-life cost, efficiency, reliability and maintainability.
Buried cables are also used in locations that are visually sensitive, although the installation process can be disruptive. A double-circuit transmission cable swathe can be 60m wide. Although there will be some access structures and potentially some legacy limitations on planting, underground installations are usually hard to spot after vegetation is re-established.
Other options include OHL reconductoring using higher-capacity/temperature conductors on existing towers and voltage upgrades. Such reconductoring can provide some additional capacity, but in the context of the scale of the energy transition may only represent a short-term solution.
Affected stakeholders have also argued for the use of HVDC undersea cables, but these are uneconomic over shorter distances and can be difficult to integrate into an existing grid without creating additional capacity constraints.
The scale and impact of modern transmission networks and the strong economic case for OHL circuits mean that stakeholders may find it harder to successfully object to new infrastructure. The planning process is still time-consuming and risky 鈥� particularly given that alternative proposals including underground options must be examined in detail. The rapid development of an acceptable compensation scheme is now a critical enabler for the 2030 net zero deadline.
03 / Procurement 鈥� finding the best fit option
For transmission, procurement strategy must address three key objectives:
- Access to critical supply chain capacity
- Development of a commercial model that assures timely delivery and achieves an optimum risk allocation
- Achievement and demonstration of efficiency and value for money to protect customer interests and to assure returns on investment.
Procurement does not take place in a vacuum, and the GB TOs are competing with public and private sector utilities across Europe for the same equipment and cable supply chain. Although all work is let using public procurement processes, some utilities have a head start, such as TenneT in the Netherlands (see below).
Reliable long-term access to OEM capacity can be secured through advance payment for manufacturing and project slots. TOs with the flexibility to procure at scale have a significant source of comparative advantage, but at present the GB TOs take some commercial risk when purchasing ahead of final programme approval.
The optimum commercial model brings together the civils works programmes alongside the OEMs. All GB TOs are putting in place frameworks to secure access to capacity, but the contract model varies, ranging from a single-point EPC (engineering, procurement and construction) arrangement to a more disaggregated mega-package whereby the client鈥檚 management team undertake the package co鈥憃rdination. The contract model in turn has implications for the management capability of the TO and its capacity to co鈥憃rdinate and manage multiple contractors on multiple, parallel programmes.
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Demonstrating efficiency and value for money is a core function of the UK鈥檚 regulatory model. Public procurement regulations differ between Scotland, England and Wales, and these determine options for competition. Regulation influences procurement strategy, and the regulatory model used for the grid upgrade has been modified to support TOs in their programme development, to contract early for capacity and speed up turnaround. Ofgem is typically engaged earlier, but final approval under the ASTI framework ideally requires key milestones to have been achieved, such as development orders granted, main works contractors appointed and a demonstrable basis for efficient project costs shown.
Demonstrating efficiency is much harder in a hot market, and TOs are exposed to a long-term revenue risk if they cannot demonstrate value for money. Ofgem and the TOs both recognise this problem. A suite of tools including should-cost benchmarking, best-practice open-book estimating, competition where available and effective governance and controls will support the demonstration of efficiency. Typically, OEMs responsible for cable and equipment bid on a closed-book basis, so much of the focus on value sits with the civils packages and BOP works where bottom-up estimates are subject to detailed assessment.
Achieving cost certainty is the final part of the jigsaw, but given the scale of the programmes and the level of competition for resources, the TOs have limited leverage on their supply chain. To some extent, TOs can secure allowances for additional costs through price adjustment mechanisms for market-driven changes such as increases in commodity and labour costs. Given that the transmission sector needs to remain investable to attract investment, TOs and the regulator will need to work together very closely to ensure that projects remain deliverable and viable.
Experience from Europe
Arcadis has a prominent role in the design and delivery of transmission grids in Europe, including delivery via EPCM (engineering, procurement, construction and management) of new grid infrastructure for TO TenneT in Germany and the Netherlands. Our experience highlights the shared challenges faced by all TOs, as well as some of the comparative advantages that some countries have because of ownership or regulation.
Commonalities between TOs include a lack of common standards between the grids within a country as well as the universal challenge of securing access to equipment and cable OEMs.
Public procurement regulations are another common factor. TenneT is owned by the Dutch state and is the country鈥檚 sole transmission and system operator (TSO). However, the legacy grid was developed on a regional basis by multiple network operators and, as a result, is subject to similar levels of variation in standards seen across Germany.
As a state-owned entity, TenneT is publicly accountable but it is not subject to the same level of competition regulation seen in the UK and Germany. This creates some freedoms, such as the ability to set technical standards and to pre-purchase cable and equipment in advance of production. For example, over 5,000km of HVAC cable has been secured at a cost of 鈧�4.8bn. As a single entity, TenneT in the Netherlands is also able to standardise new requirements 鈥� particularly with respect to the technical and civils design for new connections to wind parks in the North Sea.
By contrast, TenneT in Germany is one of four TSOs operating in Germany, and its programme is subject to more extensive economic regulation. The regulatory model is being adapted to facilitate bigger programmes delivered by strategic partnerships, benefiting from private sector innovation. Competition between TSOs, combined with the workings of the approvals process, limits opportunities for early contractor engagement, bulk procurement and, to a lesser extent, standardisation.
Although both the Netherlands and Germany have applied an EU-sponsored critical infrastructure planning presumption, which simplifies environmental assessment requirements, permitting processes inevitably remain contentious.
04 / Conclusions
The transmission sector is a key link in the chain that will deliver a net zero future. The UK鈥檚 current investment push aims to decarbonise the existing grid, but that is only the first step in the challenge. Transmission grids will continue to expand to accommodate the increases in power generation capacity required for heating, EV charging and industrial processes. Electricity distribution grids will also require extensive reinforcement over time to cope with new loads and new connections.
In line with the 2050 net zero target, this process will happen everywhere 鈥� the resource shortages seen today are the new normal, not a one-off blip. Lessons learnt through this first phase of grid expansion will continue to be essential, long into the future.
Acknowledgments
We would like to thank Carlo Borri, Marjolein Duijf, Heike Hackemesser, Stephen Millar, Caroline Pallister, Matt Philpott, David Porter and Roger Sherrard.
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