Eastern Green Link 1 (EGL1) – Project Assessment Consultation

What this is about

Ofgem consulted on its minded-to position for the project assessment of Eastern Green Link 1 under the Accelerated Strategic Transmission Investment (ASTI) framework. EGL1 is a 2 GW high-voltage direct current (HVDC) subsea cable running between Torness in southeast Scotland and Hawthorn Pit in northeast England, jointly developed by SP Energy Networks (SPEN) and National Grid Electricity Transmission (NGET). It is the first project to be assessed under ASTI — which makes this consultation less about one cable and more about how a new spending mechanism works in practice.

ASTI was introduced in December 2022 to accelerate strategic transmission investment that the standard RIIO process was too slow to deliver. The core innovation: transmission owners can begin pre-construction spending — land acquisition, consenting, detailed design, supply chain procurement — before Ofgem completes a full needs case assessment. The logic is that waiting for the standard regulatory process before starting early works adds years to delivery timescales for projects that are almost certain to be needed. The trade-off is that consumers begin paying for projects earlier, before Ofgem has confirmed that the project is justified, efficient, and appropriately costed.

This consultation set out Ofgem's initial view on whether EGL1 meets the criteria for proceeding under ASTI and what early spending should be approved. The consultation closed on 18 April 2024 and a decision has since been made.

Why it matters

EGL1 is the test case. Every decision Ofgem makes here — on cost allowances, risk sharing, efficiency benchmarks, consumer protection mechanisms — becomes the template for the remaining ASTI projects in the pipeline. The ASTI portfolio covers approximately £20 billion of transmission investment across 26 projects. How Ofgem handles the first one determines the framework's credibility.

Three things to watch:

Pre-commitment of consumer funds. Under the standard RIIO framework, transmission owners bear early development risk. Under ASTI, that risk shifts to consumers through TNUoS charges at an earlier stage. The economic justification is speed: if the project is genuinely strategic, the cost of delay exceeds the cost of pre-committing. But the mechanism creates a ratchet. Once early spending is approved, the sunk cost argument for continuing the project strengthens regardless of whether circumstances change. Ofgem's project assessment is the point at which it should be testing whether the need is robust, the costs are efficient, and the risk allocation is appropriate — because after this point, stopping becomes expensive.

Cost efficiency under a non-competitive framework. ASTI projects are not competitively tendered. They are allocated to incumbent transmission owners. The efficiency discipline therefore comes entirely from Ofgem's assessment, not from market pressure. For EGL1, that means Ofgem must benchmark SPEN and NGET's cost estimates against comparable HVDC projects (of which there are few in GB, though more in Scandinavia and continental Europe). The quality of this benchmarking determines whether consumers pay efficient costs or simply underwrite whatever the transmission owners propose.

Precedent for the ASTI portfolio. The remaining ASTI projects — including Eastern Green Link 2, the various offshore coordination links, and onshore reinforcements — will be assessed using whatever framework Ofgem establishes here. A permissive assessment that approves costs without rigorous challenge sets the tone for £20 billion of subsequent spending. A demanding assessment that holds costs to efficient benchmarks and imposes meaningful risk sharing creates a different incentive structure entirely.

The ASTI mechanism

ASTI operates alongside the existing RIIO-T2 price control but with a separate funding stream. The key features:

Accelerated timeline. Projects can proceed to early works before a full needs case is confirmed, on the basis that they are identified as strategic in the Electricity Ten Year Statement (ETYS) and the Holistic Network Design (HND). The needs case is assessed in parallel with, rather than before, early spending.

Project assessment. Ofgem assesses each ASTI project against three criteria: whether it is needed (the strategic case), whether the proposed solution is appropriate (the options assessment), and whether costs are efficient (the cost assessment). This consultation covered Ofgem's minded-to position on these three elements for EGL1.

Cost treatment. Approved ASTI costs are added to the transmission owners' regulatory asset base and recovered through TNUoS charges. The cost of capital, efficiency incentives, and risk sharing arrangements are set at the ASTI project level rather than through the standard RIIO mechanisms.

Consumer protection. ASTI includes provisions for cost reopeners if project costs exceed approved estimates, and for Ofgem to reassess whether the project should continue if circumstances change materially. The strength of these protections in practice — as opposed to on paper — is what the consultation tested.

What to watch for in the decision

The consultation is closed and a decision has been made. The key questions the decision should address:

What cost allowance was approved? The efficiency of the approved cost estimate relative to comparable HVDC projects (NordLink, North Sea Link, Viking Link) is the primary indicator of whether Ofgem's assessment was rigorous.

What risk sharing was imposed? If cost overruns are fully socialised to consumers, the transmission owners face no downside from under-estimating costs. If there is a meaningful sharing mechanism — where the TOs bear a proportion of overruns — the incentive structure is materially better.

What happens if the project is delayed or cancelled? The treatment of sunk costs if the project does not proceed determines whether ASTI genuinely accelerates delivery or simply accelerates spending. If consumers bear the full cost of early works even if the project is subsequently cancelled, the mechanism creates a one-way bet for transmission owners.

How were the joint venture arrangements assessed? EGL1 is a joint project between SPEN and NGET, which creates interface risks and coordination costs. How Ofgem treated these — and whether it imposed any efficiency adjustment for the overhead of a two-TO delivery model — matters for subsequent joint projects.

How to respond

This consultation closed on 18 April 2024. A decision has been made.

Responses were accepted by email to RIIOElectricityTransmission@ofgem.gov.uk, addressed to James Dunshea.

The main consultation document (EGL1 – PA Minded-to Consultation, 315 KB PDF) was published on 20 March 2024 on Ofgem's website.