SSEN Transmission responds to Ofgem’s RIIO-T3 Draft Determination consultation

SSEN Transmission has formally responded to Ofgem’s Draft Determination for the RIIO-T3 price control period, setting out the changes required to unlock the unprecedented level of investment required to meet the country’s energy ambitions.

Investment in the electricity transmission network is the key enabler to achieving UK and Scottish Government energy security, clean power and net zero ambitions.

Extensive analysis included in SSEN Transmission’s Business Plan confirms this investment is also expected to bring down consumer costs by enabling the rapid deployment of homegrown, low-carbon, electricity generation.

SSEN Transmission welcomes Ofgem’s recognition of the criticality and unprecedented nature of the RIIO-T3 period in delivering these national objectives and notes there has been some positive movement on Ofgem’s proposed financial parameters, alongside welcoming Ofgem’s approval of need for the majority of investments proposed.

However, Ofgem's Draft Determination does not go far enough to deliver the investible, financeable and ambitious framework required to realise these benefits.

In a detailed and evidence-based response, SSEN Transmission has called for changes in four key areas to deliver clean power, energy security and lower bills for current and future generations:

1. An appropriate and investable financial framework

• An Investable framework: To meet investor expectations, Ofgem must raise the baseline Cost of Equity to at least 6.5%, ensuring a credible pathway to 9-10% nominal equity returns competitive with global markets and investor requirements.
• Strengthened cash flow measures: This includes aggregate capitalisation rates of no more than 80% and asset lives of 35 years for new assets to comply with Ofgem’s previously stated investability commitment.

2. A meaningful incentive framework:

• Credible Incentives: A more robust incentive package is needed to provide a credible opportunity for well-performing networks, otherwise the baseline return will need to be increased accordingly to meet investor expectations and support investability of the overall price control.

• Business Plan Incentive (BPI): Ofgem has incorrectly applied the BPI to overheads and used unreliable models for comparisons. Ofgem must standardise how it assesses indirect costs before introducing penalties or rewards.

3. A fully funded plan:

• Ofgem must address funding shortfalls to baseline total expenditure and ensure that indirect resources are properly aligned with Clean Power 2030 and net zero objectives.

• Benchmarking methods should reflect the scale of growth to 2031 with less emphasis on historic trends. Ofgem should revise its cost assessment models and their application to account for company-specific circumstances and unprecedented growth.

4. Rapid regulatory decision making

• To avoid missing Clean Power Action Plan and Net Zero targets, Ofgem should streamline and automate approvals for all Clean Power 2030 aligned schemes and the associated enabling works.

• Release of Funding. Ofgem should move away from reopeners and automate funding to match actual project demands, with funding for preconstruction and early enabling works released in full.

SSEN Transmission will continue to work constructively with Ofgem to ensure the regulator’s Final Determination delivers an investible, financeable and ambitious price control settlement which underpins the unprecedented levels of investment required.