The UK’s most ambitious energy transmission project has seen its costs soar by £1.3 billion, yet approval has been granted.
- A significant increase in the budget, from a projected £2.1 billion to £3.45 billion, was sanctioned by Ofgem.
- Originally hindered by rampant inflation and lack of supplier interest, EGL2 is set to advance with enhanced funding.
- Joint ventures faced challenges from supply chain constraints and global energy demands, impacting cost structures.
- Completion is anticipated by 2029, powering two million homes with the 436km undersea cable from Scotland to England.
The UK’s largest energy transmission initiative, known as the Eastern Green Link 2 (EGL2), has received approval for a substantial budget increase. The project, initially estimated to cost £2.1 billion as per 2018/19 prices, will now require £3.45 billion. This decision, made by the energy regulator Ofgem, endorses the augmented funding despite prior challenges posed by escalating costs and reduced supplier bids.
Inflationary pressures have notably discouraged suppliers from participating, resulting in a marked increase in the project’s financial demands. The developers, SSEN Transmission and National Grid Energy Transmission, argued that high inflation and project risks led to supplier hesitation and necessitated the revised budget.
Compounding the issue, the joint venture revealed that the niche market of high-voltage direct current (HVDC) supply is characterised by a limited number of capable suppliers, aggravating procurement difficulties. Ofgem noted that the original cost assessments were rendered obsolete due to market innovations and evolving conditions, necessitating a comprehensive financial reassessment.
Additionally, the construction involves laying 436km of HVDC cable connecting Peterhead in Scotland to Drax in England. The approval, part of the Accelerated Strategic Transmission Investment (ASTI) framework, ensures continuation despite hurdles in material costs. Notably, volatile copper, aluminium, and oil prices have necessitated flexible contract terms to accommodate potential cost changes.
Significant adjustments were also made concerning regulatory mechanisms; the threshold for a cost and output adjustment event (COAE) was notably reduced to facilitate better adaptation to budget fluctuations. This allows the joint venture to seek further discussions if costs exceed the allowance by £25 million, enabling dynamic project management.
The approval of EGL2 underscores Ofgem’s commitment to advancing vital infrastructure amidst challenging economic conditions.
