National Grid : responds to Ofgem

23 January 2018

National Grid plc

National Grid responds to Ofgem's Hinkley Consultation

Ofgem today published their 'minded-to' consultation on the delivery model for the Hinkley-Seabank project (HSB), in which they propose the Competition Proxy model.

Whilst we anticipated that the HSB consultation may include a lower range on cost of capital than RIIO-T1, since under the proxy competition the project would be financed on a standalone basis over 25 years, National Grid is very disappointed with the proxy competition proposal which includes financial parameters proposed for the delivery of this complex and major infrastructure project. We have prepared for a number of financial scenarios however we do not believe that the proposed ranges for cost of debt and cost of equity included in the consultation reflect either the actual cost of financing this project or the risk being taken for construction of this complex project. We also believe that Ofgem has significantly overestimated the potential consumer savings in their consultation.

These parameters do not, in our view, offer the level of returns that would allow sustainable investment in the UK energy sector needed to deliver good outcomes for both customers and investors.

National Grid intends to work constructively with Ofgem in the coming weeks and submit our detailed views to progress towards achieving a fair and timely outcome for customers and investors. However, we will also consider all other options available to us if we are not able to progress this satisfactorily.

Ofgem has clearly stated that HSB should be seen as a standalone project with an independent, 25-year arrangement with a financial package that should not be read as an indication of the likely applicable rates for RIIO-T2, which has a significantly different risk and return profile, as recognised by Ofgem.

The HSB project is expected to have a total cost of around £650m, with the majority forecast spend by National Grid Electricity Transmission plc in the RIIO-T2 price control period from April 2021 onwards.

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