Electricity Transmission Advanced Procurement Mechanism

Electricity Transmission Advanced Procurement Mechanism | Ofgem Please enable JavaScript in your web browser to get the best experience. BETA This site is currently in BETA. Help us improve by giving us your feedback . Close alert: Electricity Transmission Advanced Procurement Mechanism Publication type: Consultation Publication date: 20 November 2024 Closed date: 19 December 2024 Status: Closed (with decision) Decision: Electricity Transmission Advanced Procurement Mechanism Print this page Related links SSMD announcing the Advanced Procurement Mechanism Share the page Share on Facebook Share on Twitter Share on LinkedIn We are consulting on introducing an Advanced Procurement Mechanism into the electricity transmission price control which would fund transmission owners to book supply chain capacity in advance of certainty regarding project need. Respond name Margaret Riach Respond email RIIO3@ofgem.gov.uk Main document Electricity Transmission Advanced Procurement Mechanism [PDF, 579.06KB] Response documents APM Responses [ZIP, 7.85MB] Print this page Related links SSMD announcing the Advanced Procurement Mechanism Share the page Share on Facebook Share on Twitter Share on LinkedIn Close Decision RIIO-3 Sector Specific Methodology Decision – ET Annex Publication date: 18 July 2024 Contact: RIIO-3 Team Team: Network Price Controls Email: RIIO3@ofgem.gov.uk This is our decision on the methodologies we will apply for the electricity and gas transmission and gas distribution sectors in the RIIO-3 price control, which will run from 1 April 2026. Decision –RIIO-3 Sector Specific Methodology Decision – ET Annex 2 © Crown copyright 2024 The text of this document may be reproduced (excluding logos) under and in accordance with the terms of the Open Government Licence. Without prejudice to the generality of the terms of the Open Government Licence the material that is reproduced must be acknowledged as Crown copyright and the document title of this document must be specified in that acknowledgement. Any enquiries related to the text of this publication should be sent to Ofgem at: 10 South Colonnade, Canary Wharf, London, E14 4PU. This publication is available at www.ofgem.gov.uk. Any enquiries regarding the use and re-use of this information resource should be sent to: psi@nationalarchives.gsi.gov.uk Decision –RIIO-3 Sector Specific Methodology Decision – ET Annex 3 Contents 1. Introduction ....................................................................................... 5 Structure of this document and associated documents ........................... 5 What is electricity transmission? ............................................................ 5 Challenges for RIIO-ET3 ......................................................................... 6 Delivering networks for net zero ............................................................ 9 Delivering a service that consumers value ............................................. 10 Operating at an efficient cost ............................................................... 10 2. Infrastructure fit for a low-cost transition to net zero ..................... 12 Introduction .......................................................................................... 12 Background ....................................................................................... 12 RIIO-ET3 Load Related Expenditure package .......................................... 17 Development funding ............................................................................ 19 Approach under CSNP-F and wider LRE package ..................................... 19 CSNP-F .................................................................................................. 25 Importance of the CSNP for the CSNP-F ................................................ 26 Eligibility criteria, including materiality threshold .................................... 28 Role of the ITA .................................................................................. 32 Delivery incentive .............................................................................. 42 Cost assessment ................................................................................ 47 CSNP co-ordination ............................................................................... 49 Facilitating effective collaboration ......................................................... 49 Load Related Expenditure outside of the CSNP ..................................... 51 LRE in RIIO-ET3 ................................................................................. 51 Other LRE issues raised in SSMC responses ........................................... 61 Minimising networks’ impacts on the environment ............................... 64 Introduction ...................................................................................... 64 Insulation and Interruption Gas Leakage ODI-F ...................................... 65 Visual Amenity PCD and Re-opener ....................................................... 69 Landscape Enhancement Initiative (LEI) ................................................ 71 Losses .............................................................................................. 71 Bespoke environmental outputs in RIIO-ET2 .......................................... 72 3. Secure and resilient supplies ............................................................ 76 RIIO-ET3 secure and resilient supplies outputs .................................... 76 Compliance with safety regulations ....................................................... 76 Network Access Policy (NAP) LO ........................................................... 77 RIIO-2 mechanisms not referenced in this chapter ............................... 78 4. High quality of service from regulated firms .................................... 81 Decision –RIIO-3 Sector Specific Methodology Decision – ET Annex 4 Strength of the RIIO-ET3 incentive package ......................................... 81 Energy Not Supplied (ENS) ODI-F ......................................................... 82 Retaining ODI-F or minimum obligation ................................................. 82 Setting baseline targets ...................................................................... 83 Incentive value .................................................................................. 85 Definition of excluded or exceptional events ........................................... 86 Monitoring individual circuit availability ................................................. 87 ENS compensatory scheme (SHET only) ................................................ 89 Connections incentives ......................................................................... 89 A new approach to RIIO-ET3 connections incentives ............................... 89 SO:TO Optimisation ODI-F .................................................................... 92 Overview .......................................................................................... 92 Refining BAU Activities ........................................................................ 93 Incentive value .................................................................................. 94 Wider SO:TO – CSNP interactions ......................................................... 95 New Infrastructure Stakeholder Engagement Survey ODI-R ................. 96 RIIO-ET3 approach ............................................................................. 96 5. Cost of Service ................................................................................. 98 Load and non-load capex .................................................................... 99 Non-operational capex ...................................................................... 101 Network Operating Costs (NOCs) ........................................................ 103 Indirect costs .................................................................................. 105 Other costs ..................................................................................... 108 Market volatility and supply chain challenges ....................................... 108 UMs in RIIO-ET2 .............................................................................. 110 ET Business Plan Data Templates ....................................................... 112 Next Steps ...................................................................................... 114 Decision –RIIO-3 Sector Specific Methodology Decision – ET Annex 5 1. Introduction Structure of this document and associated documents 1.1 In December 2023 we published our RIIO-3 Sector Specific Methodology Consultation (SSMC), which followed our October 2023 decision on frameworks for future systems and network regulation (this is referred to as our 'Framework Decision'). 1.2 We are now publishing our Sector Specific Methodology Decision (SSMD) for RIIO-3, following further engagement with key stakeholders and a detailed review of the 59 responses to our SSMC. Our SSMD is comprised of an Overview Document, a Regulatory Finance annex (Finance Annex), and sector specific annex documents for gas distribution (GD), gas transmission (GT) and electricity transmission (ET). 1.3 The Overview Document provides detail on how we will apply the Framework Decision to areas that are relevant across the sectors. The decisions in the Overview Document apply across the GD, GT and ET network companies. 1.4 This document is focused on the application of the RIIO-3 framework to ET- specific issues. It sets out our sector specific views on the aspects of the RIIO-3 price control that electricity transmission network companies need to understand to be able to put together their business plans. What is electricity transmission? 1.5 Great Britain’s (GB) ET network transmits high-voltage electricity from where it is produced to where it is needed throughout GB. 1.6 Transmission assets consist of high-voltage electricity wires which extend across GB and nearby offshore waters, transporting electricity between power stations, interconnectors with external systems, large users, and interfaces with electricity distribution (ED) networks. Three Transmission Owners (TOs) own, maintain, and develop a high-voltage system within their own distinct transmission areas across GB. These are National Grid Electricity Transmission plc (NGET) for England and Wales, Scottish Power Transmission limited (SPT) for southern Scotland and Scottish Hydro Electric Transmission plc (SHET) for northern Scotland and the Scottish islands. Decision –RIIO-3 Sector Specific Methodology Decision – ET Annex 6 1.7 The transmission system is operated by the Electricity System Operator (ESO). The ESO is responsible for ensuring the stable and secure operation of the transmission system, from the day-to-day operation, through to managing the commercial terms of connecting to and using the network and longer-term network planning. Work is ongoing to transition the ESO to the National Energy System Operator (NESO) as an expert, impartial body with a duty to facilitate net zero while also maintaining a resilient and affordable system. The NESO will be operational in advance of the start of RIIO-ET3. Challenges for RIIO-ET3 1.8 The vast majority of the GB electricity transmission grid was built in the post-war period up until the 1970s, and we now must repeat the same scale of build in roughly ten years - potentially less - to reach the goal of a decarbonised power system. 1.9 While we enable this transformation, we must ensure that a secure, uninterrupted supply of electricity to homes and businesses is maintained. The system must also be resilient to changing physical, financial, and cyber risks. Above all, we must ensure the transition is delivered in a way that meets consumers’ interests: that they receive a high-quality service at a reasonable cost, and that new connections are facilitated as electrification of the system increases. 1.10 RIIO-ET2 (2021-2026) has continued the progress made during RIIO-ET1 (2013- 2021) in incentivising improvements in TOs' performance, including in relation to the quality of service provided to network users and the progressive build-out of the network. 1.11 However, consistent with the Electricity Networks Commissioner's report on accelerating electricity transmission network build (ENC Report)1 and subsequent publication of the Transmission Acceleration Action Plan (TAAP),2 the pace of network investment delivered in recent years is insufficient to connect the required level of low-carbon generation and technologies that facilitate the net zero transition. This also means that consumers are paying more for congestion costs as a result of having to constrain generation (largely renewables) that cannot be transported by the network, as it is over capacity, to where the 1 Accelerating electricity transmission network deployment: Electricity Networks Commissioner’s recommendations - GOV.UK (www.gov.uk) 2 Electricity networks: transmission acceleration action plan - GOV.UK (www.gov.uk) Decision –RIIO-3 Sector Specific Methodology Decision – ET Annex 7 demand is occurring.3 For example, annual constraint costs on the network rose from £293m in 2014/15 to £1.78bn in 2022/23.4 1.12 There is strong consensus that significant new investment will be needed during RIIO-ET3, likely running into the tens of billions of pounds. The major challenge for RIIO-ET3 will be enabling TOs to deliver the step-change in volumes of new and upgraded electricity infrastructure in the right place, at the right time and efficiently, while protecting the interests of existing and future consumers. To provide confidence that this investment is delivered, we plan to create a supportive and adaptable investment regime that recognises the benefits of 'future proofing' the network but provides strong incentives around timely delivery of clearly defined outputs to keep the TOs accountable. A key part of this is to provide TOs the opportunity to request funding for Strategic Investment5 to add more capacity or capability into the network in an economic, low-regret manner. As part of this supportive and adaptable regime, we will also seek to use onshore competition to deliver consumer savings where possible. 1.13 Strategically planning this vast investment in new ET infrastructure will be central to ensuring consumer value for money. To support a more strategic approach to planning, we are working with government to introduce the NESO.6 The NESO will be required to develop a Strategic Spatial Energy Plan (SSEP) in coordination with the government, and this SSEP will then feed into a Centralised Strategic Network Plan (CSNP) that identifies Strategic Investment required across the GB energy transmission networks. To ensure coordination at a regional level, the NESO will also adopt the Regional Energy Strategic Planner (RESP) role.7 The methodology that we set out in this decision will ensure that RIIO-ET3 is sufficiently agile to fund the implementation of these plans in a manner which removes regulatory approval from the critical path for projects, such that the sector can attract significant investment at the required pace. 1.14 RIIO-ET2 included the Large Onshore Transmission Investment (LOTI) Re-opener to approve and fund large onshore transmission projects that arise during the 3 “Congestion” occurs when the flow of electricity on the grid directed by trading in the wholesale market exceeds the thermal limits of wires connecting demand and supply locations (such as between Scotland and England). 4 Data taken from ESO's website: Monthly Balancing Services summary (MBSS) | ESO (nationalgrideso.com) 5 For RIIO-ET3 we are defining Strategic Investment as proactive investment that helps to manage uncertainty for future load and non-load requirements on TOs’ local networks. 6 Decision on the framework for the Future System Operator’s Centralised Strategic Network Plan (ofgem.gov.uk) 7 Chapter 3, paragraph 2.3, page 10: Decision on future of local energy institutions and governance | Ofgem Decision –RIIO-3 Sector Specific Methodology Decision – ET Annex 8 course of the price control. With the April 2022 announcement of the government’s new target for 50GW of offshore wind by 2030, there was a need to offer a faster ET approvals route to projects that could facilitate this ambition. In December 2022, we published our decision to introduce the Accelerated Strategic Transmission Investment (ASTI) framework.8 1.15 Through ASTI we accelerated approval of at least £20bn of new, strategically planned ET investment. To further speed up delivery of these projects, we: • introduced a financial delivery incentive to reward timely delivery and penalise late delivery; • offered the TOs early development funding to allow them to bring forward activities such as reserving factory slots and procuring land; and • developed a streamlined cost assessment process to speed up our assessment of the TOs' cost submissions for the ASTI projects. 1.16 RIIO-ET3 will progressively build on the principles of ASTI by incorporating an evolution of this mechanism into the enduring price control framework. The RIIO- ET3 mechanism will need to allow investments to be approved in line with future CSNP updates, outside of the typical five-year Business plan cycles. 1.17 These approaches to Strategic Investment are being complemented by a regulatory finance regime that provides confidence for investors to increase their investment in the sector, meaning that the TOs can continue to raise the required level of capital efficiently to keep costs low for consumers. The interplay between the regulatory finance regime and the wider outputs and incentive regime means that we are actively reviewing the risk/reward proposition for RIIO-ET3 (as well as under the adjacent ASTI regime) and the allocation of risk between consumers and investors. We consider that keeping the sector investable is key to delivering best value for money for consumers as well as enabling the volumes of investment to be delivered for net zero. 1.18 In November 2023 we and government published the Connections Action Plan (CAP),9 setting out a framework for the reforms needed to reduce electricity connection timescales for viable projects. These reforms are aimed at reducing the average delay a project faces in connecting to the ET network from the current level of five years back to the historical level of six months, so that most projects can connect in line with their realistic project requirements. The CAP sets 8 Decision on accelerating onshore electricity transmission investment (ofgem.gov.uk) 9 Ofgem and DESNZ announce joint Connections Action Plan | Ofgem Decision –RIIO-3 Sector Specific Methodology Decision – ET Annex 9 out actions to be taken by various parties, with our actions focused on managing the connections queue and facilitating the network investments that are vital to enable connections to take place in a timely manner. RIIO-ET3 and connections reform are therefore being developed in alignment to drive the right incentives to invest in, and deliver, the network build needed to enable faster connections for projects that are ready and meet system needs. 1.19 In developing our approach to RIIO-ET3 we are conscious of the global supply chain and workforce constraints currently being experienced by infrastructure companies, including the TOs. Some of the factors influencing this are beyond the control of the network companies or Ofgem, but nonetheless we are shaping RIIO-ET3 to mitigate the impact on GB electricity consumers as far as possible without placing undue risk on the TOs. 1.20 This new ET network investment must not come at the expense of network reliability or the environment. As such we will continue to drive the TOs to deliver a high-quality service for their customers, maintain their existing assets to the required standard and minimise their impact on the environment. All of this will need to be done with a constant eye on cost efficiency. Delivering networks for net zero 1.21 The energy system transition is underway and being driven by the United Kingdom (UK), Scottish and Welsh governments’ legislative commitments to net zero, carbon budgets, and the policies underpinning these. The depth and speed of elements of the transition are uncertain, which translates into challenges in managing the energy system as we see changes to the location of electricity generation, increased electricity demand, a decline in natural gas demand and a role for hydrogen to support decarbonisation. 1.22 There will be large amounts of new and differently located sources of electricity supply to meet existing and potential new government targets to decarbonise the power sector. Electricity demand will also increase as it continues to replace other fuels (eg in vehicles and heating buildings). The changes in demand volumes and location will be driven and shaped by consumers' choices and behaviour, businesses, local communities, regional councils, and new technologies. New ET infrastructure will need to be ready to meet these evolving - and potentially accelerating - demands. 1.23 The TAAP recommendations have featured heavily in our considerations around designing our approach to RIIO-ET3, particularly the recommendations that relate to removing Ofgem from the critical path for project development, enabling early Decision –RIIO-3 Sector Specific Methodology Decision – ET Annex 10 supply chain engagement and using competitive tendering where it will not cause delays to project delivery. 1.24 RIIO-ET3 will need to ensure that the TOs can access funding to deliver on the UK's net zero ambitions, the establishment of new strategic network plans, and network plans of their own. This will need to be done in a manner which avoids delaying investment decisions, attracts significant investment into the sector at pace, appropriately considers communities affected by the infrastructure and enables effective engagement with the supply chain that will maximise value for money for consumers. Our proposals on this are in Chapter 2. Delivering a service that consumers value 1.25 To derive maximum value from the investments that are needed on the ET network, the TOs will need to provide a better service to their customers. This includes higher standards of network availability, stretching targets in relation to connections processes and ambitious environmental goals for the TOs themselves. 1.26 The last section of Chapter 2 sets out how we intend to push the TOs to further minimise their impact on the environment, including through better performance in the reduction of their Business Carbon Footprint (BCF), the management of leakages of sulphur hexafluoride (SF6) and ensuring biodiversity recovery. 1.27 Security of supply is key for consumers, so RIIO-ET3 will need to ensure the ET network's ongoing resilience to factors such as climate change, asset deterioration, and physical and cyber security threats. As these are cross sectoral challenges, they are primarily addressed in Chapter 6 of the Overview Document, but Chapter 3 of this document briefly covers some ET-specific resilience factors. 1.28 Chapter 4 describes the key areas of focus for improving the quality of service provided by the TOs in RIIO-ET3. This will include, in the medium-term, more stretching targets around the speed at which the TOs provide connections, given the criticality of this in the drive towards net zero and the existing substantial length of the connections queue. Operating at an efficient cost 1.29 It is important that the transition to net zero comes at a low cost for existing and future consumers. As described above, we are also conscious that keeping the overall, long-term cost of the transition to net zero as low as possible will require significant network investment in the short- and medium-term, and that there Decision –RIIO-3 Sector Specific Methodology Decision – ET Annex 11 may be a benefit in 'future proofing' the network through investing ahead of demand or in a way that increases optionality for future solutions. 1.30 We expect the TOs to deliver services and investments as efficiently as possible. In this respect, it is important to establish the cost assessment toolkit that will enable us to determine the efficient level of costs at which the TOs can carry out their activities. Together with maintaining a stable financial framework (see the Finance Annex for more detail), this is in line with the RIIO-3 outcome 'system efficiency and long-term value for money'. Chapter 5 provides an overview of the approach to cost assessment we intend to develop for RIIO-ET3. Decision –RIIO-3 Sector Specific Methodology Decision – ET Annex 12 2. Infrastructure fit for a low-cost transition to net zero Introduction Background 2.1 The GB electricity networks will require significant reinforcement and new network build over the coming years to help facilitate the UK achieving net zero. The original GB super-grid (ie 275kV and above) was built in the post-war period up until the 1970s, as shown by the peak in Figure 1 below, and we now must repeat the same scale of build in roughly ten years, or less, to reach the goal of a decarbonised power system. To link new power sources, mainly offshore wind and nuclear, to the GB ET networks we need to invest roughly five times more in the next seven years than in the last 30 years. Figure 1: ET asset investment, 1940-2024 Source: CEPA (2024), RIIO-ET3: Economic Lives of Electricity Transmission Network Assets. 2.2 To achieve this, RIIO-ET3 will support improved coordination of investment plans, a more strategic approach to new network build, and a streamlined and consolidated regulatory process which ensures Ofgem approval is not on the 'critical path'. 2.3 During RIIO-ET2, we have developed bespoke funding regimes to enable the TOs to deliver the required new network investment at pace in advance of the RIIO- 0 500 1,000 1,500 2,000 2,500 3,000 3,500 4,000 4,500 1940 1950 1960 1970 1980 1990 2000 2010 2020 Modern Equivalent Asset Value (£m, 2023/24 prices) Year of Installation Decision –RIIO-3 Sector Specific Methodology Decision – ET Annex 13 ET3 price control. In RIIO-ET3 we will consolidate these mechanisms, including the flexibility to expand and adapt, to develop an enduring regime that can enable us and the TOs to react more quickly to changing requirements throughout the course of the price control. 2.4 Figure 2 summarises the timing and magnitude these mechanisms. We set out more detail on the CSNP, transitional CSNPs, and ASTI in paragraphs 2.6- 2.152.22. The remainder of Chapter 2 sets out our decisions on how RIIO-ET3 will deliver this investment while ensuring delivery at pace, a high-quality and resilient service, and efficient cost. Figure 2: Use of bespoke funding mechanisms alongside TOs’ Business plans 2.5 This chapter sets out our decisions on how RIIO-ET3 will deliver this investment while ensuring delivery at pace, a high-quality and resilient service, and efficient cost. Centralised Strategic Network Plan (CSNP) 2.6 A crucial part of the NESO’s role, once it is established, will be the creation of the CSNP. The CSNP will act as an independent, coordinated and long-term approach to wider energy transmission network planning in GB. It will identify the key Strategic Investments needed on the transmission network through robust independent analysis. 2.7 The CSNP will help us to make quicker investment funding decisions to allow the TOs to more quickly proceed with anticipatory investment in the network – ie in preparation for local developments such as the connection of low-carbon energy sources and low-carbon demand. By creating a well-developed strategic network plan, the NESO should enable funding to be released at pace. This approach will RIIO-ET2 (2021-2025) RIIO-ET3 (2026-2031) Future price controls Non-Load Related & Other £6.4bn Load Related £2.7bn LOTI [£1.2bn] MSIP [£1.5bn] ASTI (2023-c.2031) [£20+bn] tCSNP2 (2024-c.2040) [£20bn] Non-Load Related & Other £?bn Non-CSNP (LRE) £?bn CSNP-driven (CSNP-F) £[tens]bn Numbers in square brackets are high-level indicative estimates and may change. Decision –RIIO-3 Sector Specific Methodology Decision – ET Annex 14 help to coordinate decision making, minimise investor uncertainty and keep costs down. 2.8 The first CSNP, due to be published in 2026, will identify a firm delivery pipeline of load related work for the ET network for the next 12 years, which will be updated annually. The first CSNP will also include a 25-year view to provide a longer-term pathway, which will be updated every three years. These plans will be iterative and cyclical, adapting to future scenarios while giving sufficient certainty for the investment needed to meet future need. 2.9 The load related work set out in the 12- and 25-year CSNP pipelines will inform the activities that the TOs seek to receive funding for through the price control. As the first CSNP will be published after the start of RIIO-ET3, CSNP related expenditure will not be reflected in the RIIO-ET3 baseline allowances. Funding for the TOs' load related expenditure announced in the first CSNP will therefore be provided through an uncertainty mechanism (UM). Having set out our proposals in our SSMC and reviewed stakeholder responses and discussions at working groups, paragraphs 2.60-2.215 of this chapter set out how these projects will be provided with regulatory funding. 2.10 We recognise that the CSNP methodology (process for identifying system needs and system investments) is being developed by the ESO/NESO and will continue to evolve prior to its first use and beyond. Ahead of our Final Determinations, we will ensure that RIIO-ET3 is able to adapt to changes to the scope or use of the CSNP. Transitional arrangements 2.11 The ESO has published two "transitional" CSNPs as pre-cursors to the full CSNP: tCSNP1 in 2022 and tCSNP2 in 2024. These tCSNPs represent a move towards a more coordinated approach to planning ET network reinforcements, while we await the first CSNP in 2026. 2.12 In 2022 the ESO published two reports that we now refer to collectively as tCSNP1: the Holistic Network Design (HND)10 and the 2021/2022 Networks Options Assessment (NOA) 7 refresh.11 The HND set out a coordinated approach to connecting 24GW of offshore wind to enable the GB ET network to meet the government's objective of 50GW of offshore wind by 2030. This was then 10 The Pathway to 2030 Holistic Network Design | ESO (nationalgrideso.com) 11 Network Options Assessment (NOA) | ESO (nationalgrideso.com) Decision –RIIO-3 Sector Specific Methodology Decision – ET Annex 15 complemented by the 2021/22 NOA 7 refresh, which sets out options for achieving the required onshore ET network reinforcement set out in the HND.12 2.13 The tCSNP1 has given the TOs greater certainty on the need for reinforcement projects than was typically achieved through the previous annual NOA reports. Under the NOA a project that had been given a 'proceed' signal in one NOA could be indicated to pause in a subsequent NOA, whereas the needs case for projects recommended in tCSNP1 will not be revisited (ie they are not at risk of cancellation). This certainty allows the TOs to proceed with activities to prepare for these projects. To ensure that required onshore projects are delivered at pace, we introduced the ASTI mechanism that will accelerate funding for HND projects.13 2.14 In 2024 the ESO published tCSNP2, the "Beyond 2030" report.14 This is a holistic onshore and offshore ET network plan which comprises: • the Holistic Network Design Follow-Up Exercise (HND FUE) to connect 21GW offshore wind generation from the ScotWind leasing round; and • wider network reinforcements determined through the NOA process to meet the requirements of the next 10-15 years to facilitate connections of new low- carbon demand and generation, paving the way to meet the target to decarbonise electricity by 2035. 2.15 We expect the tCSNP2 to inform a large proportion of the TOs' load related business plans for the next price control period and will work with the TOs and industry throughout 2024 on the funding arrangements for these projects. Our intention is to learn from ASTI as quickly as possible to inform our treatment of tCSNP2 projects. We will formally consult on this in 2024. Government's Transmission Acceleration Action Plan 2.16 In November 2023 the government published its TAAP in response to the ENC Report on accelerating electricity transmission network build. 2.17 Since the publication of the ENC Report, we have worked closely with government, the ESO and industry to consider its implications for the ET sector. We are supportive of the TAAP and we will continue to support the government and the ESO to take forward their actions. 12 NOA 2021/22 refresh 13 Decision on accelerating onshore electricity transmission investment | Ofgem 14 Beyond 2030 | ESO (nationalgrideso.com) Decision –RIIO-3 Sector Specific Methodology Decision – ET Annex 16 2.18 The actions set out in the TAAP will support the delivery of the CSNP, which will: • confirm the needs case for new ET infrastructure; • endorse the design solution and make an early recommendation of whether to pursue competitive tender; • remove these tasks from the critical path; and • provide early certainty to the network companies to allow them to focus on delivery. 2.19 This is supported by the wider TAAP recommendations on the supply chain which are broadly aligned with our decisions in this document. We highlight RIIO-ET3 interactions with the ENC Report and TAAP in Table 1. Table 1: Interlinkages between the SSMD and government’s TAAP Area TAAP reference Reference in SSMD Acceleration of ET build RA1: Regulatory approval process should be removed from the critical path within the end-to- end process. CSNP-F, Chapter 2 Supporting the supply chain SS5: The longer-term CSNP should be used to support TO engagement with the supply chain and evidence the scale of investment required over a longer time-period. Development funding, Chapter 2 Supporting the supply chain SC1: TOs should form long-term relationships with the supply chain and look to book slots and bulk purchase equipment when possible. TO delivery, Chapter 2 Onshore competition CT1: Onshore network contestability should be delivered in phases when certain criteria have been met. Role of competition, Chapter 2 Standardisation in ET SE1: A forum should be created between the NESO, TOs, equipment manufacturers and Ofgem to review and update equipment standards used within GB. Standardisation, Chapter 2 Role of competition 2.20 Our SSMC set out that we will identify the first ET projects eligible for competition in 2024, announcing the launch of a competitive process as soon as possible once the relevant competition models have been sufficiently developed. To ensure that this is deliverable, throughout 2024 we are focused on developing a suitable design for a working competition model for such projects. Once developed, this model will continue to be considered for projects identified during the RIIO-ET3 period. 2.21 The NESO is due to publish its first CSNP in 2026, which falls during RIIO-ET3. In the CSNP, the NESO is expected to highlight projects that might be suitable for Decision –RIIO-3 Sector Specific Methodology Decision – ET Annex 17 delivery by a third party to be chosen through competitive tender (ie not by the relevant TO). The ESO is preparing to consult on a methodology for the NESO's development of the CSNP outputs, which will include setting out the decision- making process for determining whether a project should be considered for third- party delivery. This process will consider the potential benefit of third-party delivery as compared to delivery by the relevant TO, including the potential impact on the timeline for commissioning of the network assets. 2.22 However, we expect that a large number of projects will continue to be designed and procured by the existing TOs during RIIO-ET3. RIIO-ET3 Load Related Expenditure package 2.23 In our SSMC we set out our definition of Load Related Expenditure (LRE) which refers to the costs of reinforcing the network to meet changing customer and consumer requirements. We recognise how critical this area of investment is for enabling the network build - and associated pace - required for net zero, and we have taken onboard extensive considerations and feedback from stakeholders. 2.24 In this chapter we outline the decisions we have made in relation to LRE, setting out how it will be funded in RIIO-ET3. Figure 3 sets out a decision tree showing which types of projects fit into various mechanisms. Some of these mechanisms are evolutions or continuations of those implemented in RIIO-ET2, such as the NOA pathfinders and the baseline allowances. However, our overall aim has been to consolidate (and learn from) the array of investment regimes that exist under RIIO-ET2 into a set of purpose-built, enduring regimes that can span multiple price controls in the future. This is important for two related reasons: • Transmission investment horizons tend to be longer than typical five-year price control cycles15 and certainty over project approval is needed for the lifespan of a project, which also helps to give the providers of capital - both supply chain and investors - greater certainty. • The planning cycle is becoming increasingly centralised and accelerated to enable maximum system benefits to be delivered, which means flexible in- period reopeners for project approvals become increasingly valuable to consumers. 2.25 Within this context, we are introducing the following changes for RIIO-ET3: 15 Historically 12-14 years, albeit there is a policy consensus to reduce these towards 7 years following the ENC Report. Decision –RIIO-3 Sector Specific Methodology Decision – ET Annex 18 • New: CSNP Funding Mechanism (CSNP-F). This will be used to fund projects that are set out in the CSNP as necessary for addressing system needs. • New: A Load Related Re-opener (LRR). This re-opener has two tracks: (1) Where the needs case is not known at the time of final Business plans, this will enable us to assess the need for and cost of additional investment requests that have not been agreed in RIIO-ET3 baseline allowances or set out in the CSNP. (2) Where the needs case is well established in the TO's business plan, we can approve the need at our Final Determinations and assess optioneering and project costs later, once available, through the LRR. • New: A use it or lose it (UIOLI) allowance to fund specific types of projects that have a financial materiality below the LRR and sit outside the scope of the Generation and Demand Volume Drivers. • Removing the LOTI Re-opener, Medium Sized Investment Projects (MSIP) Re- opener and Shared-Drivers Price Control Deliverable (PCD), as relevant projects will now be covered by a combination of CSNP-F and the two-track LRR. • Removing the Incremental Wider Works (IWW) Volume Driver that applies to NGET, as it is replaced by the LRR. Figure 3: Decision tree for funding TO-delivered LRE in RIIO-ET3 Is the project/scheme captured in the CSNP? Yes Is the project to address wider system needs? Yes CSNP-F No NOA pathfinders (competitive procurement) No Can need be established ahead of price control? Yes Can costs be determined before the price control/before work starts? Yes Ex ante RIIO-ET3 funding No LRR – cost assessment track No Can costs be determined before the price control/before work starts? Yes Generation and demand volume driver No Is the project above the threshold (minded-to £25m threshold)? Yes LRR – need and cost assessment track No UIOLI Question Retained mechanism New RIIO-ET3 mechanism Decision –RIIO-3 Sector Specific Methodology Decision – ET Annex 19 Development funding Approach under CSNP-F and wider LRE package SSMC summary 2.26 Our SSMC set out our view that early project development funding (eg Pre- Construction Funding (PCF) and Early Construction Funding (ECF)) can play an important role in the development of new infrastructure. 2.27 PCF (used in both LOTI and ASTI), and ECF (introduced for ASTI), have been effective mechanisms for the TOs, enabling them to expedite project delivery. Our SSMC asked stakeholders for views on how PCF and ECF might be best used in RIIO-ET3. 2.28 In the SSMC we welcomed views on whether the operational aspects of PCF and ECF (as set out in ASTI) work effectively, whether they should be retained for future projects and whether changes to the form of cost assessment would be appropriate. This included the scope of PCF and ECF, the materiality of PCF and ECF and the cost assessment approach. 2.29 Activities in scope of PCF proposed in our SSMC included: • surveys, assessments and studies that inform environmental, consenting and design feasibility decision making; • stakeholder engagement and consultation which will be key to informing project design and progressing through the consenting process; • project design and engineering development that move that project from being ‘lines on a map’ to a detailed project proposal that can be taken to the market for procurement; and • tasks associated with wayleaves and planning applications. 2.30 Activities in scope of ECF proposed in the SSMC included: • market engagement activities that are key to building market interest in tendering for the project; • ordering equipment; • strategic land purchases and early procurement commitments; and • early enabling works. Summary of consultation responses 2.31 SSMC ETQ2 asked for views on our proposed approach to setting PCF and ECF, the scope of PCF and ECF, and continuing the 'operational aspects' of PCF and Decision –RIIO-3 Sector Specific Methodology Decision – ET Annex 20 ECF introduced under ASTI. We received seven SSMC responses to ETQ2 in relation to all LRE. 2.32 Three respondents, including two TOs, agreed with the principles and scope of PCF and ECF as proposed. Two TOs were keen to explore expanding the scope of PCF and ECF. 2.33 One TO set out that the scope of PCF was too specific to overhead line work and should be updated so that it is appropriate for other projects, such as substation upgrades. This TO also suggested it was important to specifically include easements in PCF funding as they can provide greater land rights security compared with wayleaves. 2.34 One TO said that securing of land options should be included under ECF so that the TOs are not restricted to acquiring the freehold of land. Another TO suggested that where strategic land purchases would be required, the ECF cap would need to be revised to take into consideration the additional costs. It highlighted that land purchases made up a significant proportion of their ECF allocation when present. 2.35 Recognising the benefits of both PCF and ECF, one TO argued that both sets of funding should be available to all projects, regardless of project cost or its route through the price control framework. Another stakeholder, by contrast, stated that the funding available is set at a high level and therefore should be limited to specific circumstances and be subject to scrutiny from stakeholders. 2.36 The ESO set out that a cost pass through approach for PCF and ECF costs may be appropriate given the complexity of the projects and believe a reasonableness test is appropriate if this approach is taken forward. 2.37 Another respondent felt that ex ante guidance on the application of PCF and ECF, and eligibility of costs, should be sufficiently clear to avoid any disallowance risk that could have unintended consequences. 2.38 Two TOs suggested that the percentages for both PCF and ECF are set too low based on the current cost of PCF and ECF activities. One TO suggested that ECF be increased to 40% of estimated project cost (half of which would be automatic, half of which the TO would need additional approval for) and that PCF should be increased to 5%. A consumer group argued that the combined percentage was already too high. 2.39 One TO suggested it would be beneficial to have an ECF route which would be additional to any project specific provisions that works at a portfolio level to Decision –RIIO-3 Sector Specific Methodology Decision – ET Annex 21 enable the delivery of a programme of works. It suggested this would be beneficial to the current supply chain constraints. SSMD decision and rationale 2.40 There will be two elements to the development funding for RIIO-ET3: • PCF, as proposed in our SSMC; and • a mechanism for the advanced procurement of equipment. 2.41 We will not provide an ASTI-style ECF in RIIO-ET3, a change from the proposal in our SSMC. Equipment procurement, included within ECF under the ASTI framework, will instead be provided through a standalone mechanism in RIIO-ET3 as it is the area that can most benefit from this advanced funding. Early enabling works, also included within ECF under the ASTI framework, might be included within PCF for RIIO-ECF, but we are awaiting information on spending in this area under ASTI before making a final decision. 2.42 Further detail on the two proposed mechanisms is in the two subsections below. 2.43 All projects arising from the CSNP will be automatically eligible for PCF and eligible for the TO to apply for funding for the advanced procurement of equipment. This broad eligibility is to recognise the value that this funding can bring to time-critical strategic projects. 2.44 There will be non-CSNP projects that will also benefit from early access to funding for development activities, and so we intend to also make development funding available to other areas of LRE as appropriate. Pre-Construction Funding 2.45 PCF will be set on a portfolio basis, as is the case under ASTI. We consider that this approach will be crucial to provide TOs the ability to progress the projects at pace, a view shared by all respondents to ETQ2. 2.46 Two TOs suggested slight changes to the scope of the PCF activities as proposed in our SSMC: one suggested adding tender activities, specification development and market engagement; and the other suggested including tasks associated with easements. One consumer group suggested that any PCF in RIIO-ET3 should be limited to specific circumstances but did not explicitly suggest a scope change. 2.47 We consider that, on balance, the scope of PCF as proposed in our SSMC is suitable to apply across a broad selection of activities to enable effective network development. Therefore, we retain our SSMC position and the activities in scope of PCF are: Decision –RIIO-3 Sector Specific Methodology Decision – ET Annex 22 • surveys, assessments and studies that inform environmental, consenting and design feasibility decision making; • stakeholder engagement and consultation which will be key to informing project design and progressing through the consenting process; • project design and engineering development that move the project to a detailed proposal that can be taken to the market for procurement; and • tasks associated with wayleaves and planning applications. 2.48 We have yet to determine whether to expand PCF to include funding for early enabling works (ie site preparation costs). We are keen to better understand the extent to which the TOs are using ECF for early enabling works under ASTI, including the amount of expenditure required for these works, through further engagement with TOs ahead of draft determinations. We intend to make a decision in our Draft Determinations on whether early enabling works sit within the scope of PCF, assuming more data is available for consideration. 2.49 We are not determining the level of PCF yet, partially as a result of the uncertainty around whether to include early enabling works. We will make a decision on this in our Draft Determinations, once more information around the use of PCF under ASTI is available. 2.50 We recognise that there may be a need for in-period adjustments to PCF and will continue to work with TOs on an appropriate approach for this. This will most likely take the form of a PCF re-opener, which would offer an opportunity for TOs to request changes to their allowed PCF, ie where the costs are in excess of an automatic level of PCF, on a case-by-case basis. We will finalise the details of any such re-opener alongside our confirmation of the final scope and level of PCF. Advanced procurement of equipment 2.51 We are working with TOs to introduce an equipment procurement mechanism during RIIO-ET2, to be implemented around early 2025, to help TOs to de-risk their delivery of projects relating to RIIO-ET3. The intention is to create an enduring policy mechanism that can be carried into RIIO-ET3 and future price controls and flexibly deployed if similar supply chain constraints arise in the future. 2.52 Our primary intended scope is to provide suitable funding for TOs to book multiple factory slots for agreed equipment classes (ie those with long lead times and/or very high demand) years in advance, even if the exact project detail or need is not yet certain. We are seeking to find an appropriate balance between Decision –RIIO-3 Sector Specific Methodology Decision – ET Annex 23 allowing TOs to transact and secure supply chain capacity in advance of our Final Determinations (which also helps to stimulate supply) and not prejudicing our ability to take appropriate decisions on those projects, both in setting RIIO-ET3 and in-period. 2.53 The volumes booked should reflect a high-level view of known projects, but this mechanism will not confirm the needs case for those projects. If some projects fall away the intent would be to use the booked slots for different projects that need similar equipment. This will require an initial degree of flexibility in how the slots are booked, which is then firmed up later, which is what we understand to be common practice based on our discussions with the TOs. 2.54 Wherever possible TOs should be standardising equipment, in line with the recommendations of the TAAP. This will aid with redeploying booked factory slots from one project to another. 2.55 We will develop the detailed design of the mechanism working with the TOs during 2024, including by sourcing extensive market feedback. It will likely have the following design characteristics: • It will be relevant for booking factory slots for equipment with long lead times and/or very high demand. The exact scope of equipment covered in the remit of this mechanism is yet to be decided and we are working closely with the TOs on this. • It will operate on an enduring basis (exact cadence to be determined), starting in RIIO-ET2 but transitioning to RIIO-ET3 and beyond, allowing us to track the booking and usage of factory slots long term. • It will apply to all price control areas relevant to the equipment procured, not just CSNP-F and tCSNP2, and would be tracked across the price control to avoid double-counting and to facilitate ex post true-ups to RAV. We consider that ASTI projects are already covered by ASTI ECF. • Funding will be released in line with when TOs are required to make financial commitments with suppliers (eg deposits), subject to us being satisfied that economic and efficient terms have been achieved. This will be in the form of an allowance (assumed to be all or predominantly slow money) that is agreed ex ante for inclusion in the RAV, with actual spend used to true up the RAV. 2.56 We are also open to exploring how this mechanism can be used to facilitate entry into contracts with known contractors with an unspecified project output ('party Decision –RIIO-3 Sector Specific Methodology Decision – ET Annex 24 contracts'), as we recognise that different TOs have different contracting structures. 2.57 The mechanism is intended to be designed and implemented by early 2025 with the aim of issuing a licence consultation in late 2024. This will require TOs and supply chain market participants to move at pace so that the benefits of advanced procurement ahead of final determinations can be maximised. 2.58 We consider that the introduction of this mechanism will mean that the TOs no longer require ECF as it was described in our SSMC. This is because: • The bulk of ECF funding can be split into three key categories: procurement, land acquisition and early enabling works. • All procurement related activities will be covered by the new advanced procurement mechanism. • TOs will be able to request funding for land acquisition and purchase in cost assessments as has been the case previously under Strategic Wider Works, LOTI and MSIP. We do not consider that land purchase should be within the scope of development funding on an enduring basis because TOs are best placed to manage any risk associated with the purchase (eg optimal timing) and the ability to conduct the future sale of the land largely insulates the TO from any potential risk associated with a stranded purchase. • We are still considering the best course of action to handle activities that previously fell under the category of early enabling works. We have recently worked with the TOs to understand where the PCF and ECF assessments and processes diverge. However, our current working assumption is that much of the work considered under the heading of early enabling works can also be referred to as site preparation and that this may be a small enough category to include within the scope of PCF. • TOs should plan on the basis that early enabling works will be operational under PCF moving forward, but we are open to alternative suggestions in the business plans on this matter. 2.59 We consider this approach is appropriate given the reflections and indicated priorities of the TOs and other stakeholders, both in consultation responses and at workshops. Given the importance of ensuring the effective and timely delivery of net zero we believe a robust procurement mechanism will enable the TOs to tackle the issues the supply chain is presenting whilst the PCF continues to Decision –RIIO-3 Sector Specific Methodology Decision – ET Annex 25 complement in offering accelerated funding to facilitate the early development of infrastructure. CSNP-F 2.60 We set out in our Framework Decision and SSMC that for RIIO-ET3 we are introducing the CSNP-F to fund projects that are included in the CSNP as important for addressing system needs. This mechanism is to ensure timely funding and facilitation of CSNP-generated projects that arise during the RIIO- ET3 period. This is to recognise that the CSNP will be published after the TOs have submitted their business plans and we have set our Final Determinations for RIIO-ET3. 2.61 There are four components to this mechanism, as proposed in the SSMC: • Early development funding: TOs can apply for funding for the costs of early development work; • Independent Technical Adviser (ITA): appointment of an ITA to provide us with assurance that there are effective design decisions, effective procurement and delivery; • Delivery incentives: strong delivery incentives will be implemented to facilitate timely delivery of critical infrastructure; and • Cost assessment: a proportionate cost assessment approach that reduces the time that the TOs spend waiting for the outcome of our assessment. 2.62 Figure 4 shows how these four components will fit alongside a typical project development timeline. Early development funding is discussed earlier in Chapter 2 as it applies to LRE across other elements of RIIO-ET3, not just CSNP-F. Further detail on the remaining three areas is included in the subsections that follow. Decision –RIIO-3 Sector Specific Methodology Decision – ET Annex 26 Figure 4: High-level overview of timing of the CSNP-F components in a project timeline Importance of the CSNP for the CSNP-F 2.63 The CSNP-F, as set out in this decision, relies on the NESO providing high-quality CSNP outputs. Below we set out our assumption of what will be included in the CSNP in five key areas. These assumptions are based on the expectations set out in our December 2023 decision16 and on subsequent discussions with the government and the ESO. 2.64 Should the CSNP not include these critical outputs, or should they not meet our assumed standard, we may need to adjust the CSNP-F. Assumption 1: Final decision on project need 2.65 We assume that projects identified in the CSNP will be sufficiently mature to give us confidence that they should proceed. This assumes that, in developing the CSNP, the NESO has carried out any necessary governance, including with us, to ensure that there is no dispute or uncertainty over the project need and practicality. 16 Decision on the framework for the Future System Operator’s Centralised Strategic Network Plan (ofgem.gov.uk) Decision –RIIO-3 Sector Specific Methodology Decision – ET Annex 27 2.66 This is required so that the TOs (or competitively appointed party) can proceed with project delivery with full confidence across a portfolio of projects. Having a few projects proceed at once will create a sufficient volume of procurement that may help the TO in securing the supply chain. It will also allow us to begin applying the CSNP-F. Assumption 2: Recommendation of which projects will be competitively tendered 2.67 Under the Criteria Regulations,17 NESO as the delivery body for early model competition will be responsible for carrying out a competition-specific cost benefit analysis. This will inform its recommendations to us on which projects it considers should be delivered through onshore competitive tenders. 2.68 Our assumption is that this assessment process will form part of the NESO’s CSNP development, and so will be included in the CSNP outputs. It can then provide the TOs with a clear signal of how to proceed (or not to proceed) with any individual CSNP-developed project. Assumption 3: Minimum level of project design 2.69 We assume that projects included in the CSNP outputs will be developed to a suitable minimum level of project design. It should be at a level of development that allows the TO to understand what pre-construction activities are required to be completed beyond desktop studies - eg surveys, assessment studies and planning applications. Such a design would be at least an equivalent to “Stage 2” design as set out in our RIIO-ET2 reporting guidance.18 2.70 We anticipate that the minimum level of project design will enable us to allocate PCF funding to TOs for project development up to a stage where they can apply for both development consent and full project funding, via the CSNP-F. 2.71 Meeting this minimum level of project design will make it more likely that the CSNP outputs will meet our other requirements for the CSNP-F as set out in this section. Assumption 4: Optimal delivery date 2.72 We assume that the CSNP will include an optimal delivery date for each project, indicating when the NESO has identified that the project can (and should) be delivered to maximise consumer benefit of the project. We require this to 17 The Electricity (Criteria for Relevant Electricity Projects) (Transmission) Regulations 2024 (legislation.gov.uk) 18 RIIO-T2 Electricity Transmission Price Control –Regulatory Instructions and Guidance on Data Templates: Version 1.8 (ofgem.gov.uk) p.166 Decision –RIIO-3 Sector Specific Methodology Decision – ET Annex 28 determine the target delivery date that will be used to decide if, and how, to apply the CSNP-F delivery incentive. 2.73 We may use the CSNP's optimal delivery date when determining the target delivery date, but we recognise that there may be instances in which that date cannot be applied directly in a delivery incentive. For example, we may choose an alternative date if we consider the CSNP’s optimal delivery date is too early and could put the TO at a disproportionately high risk of a late delivery penalty, or if we consider that an earlier date is achievable and in consumers’ best interests. 2.74 Our focus when determining the target delivery date will be on ensuring that, in the round, the delivery incentive is calibrated to adequately incentivise timely delivery without increasing the TOs' risk exposure such that it brings a net reduction in consumer benefit. 2.75 In general, if the NESO develops the CSNP projects in line with our minimum project design requirements, the optimal delivery date should be sufficiently robust and reliable. Once the CSNP methodology is finalised and the first CSNP is under development, we will have a clearer idea of whether we can use the optimal delivery date as the target delivery date for the delivery incentive or just as an input to our determining an alternative date. Assumption 5: Indicative project cost 2.76 We assume that projects in the CSNP outputs will each be accompanied by an indicative view of the totex required to deliver the project. This is required as an important input to determine if, and how, we apply the CNSP-F delivery incentive, ITA involvement, and development funding. 2.77 While we recognise that it is normal for project cost estimates to change as a project progresses, the CSNP estimate of cost should be reliable enough that it provides a meaningful indicator of scale. This will enable us to use it as the basis to make efficient decisions. If the NESO is able to develop the CSNP projects in line with our requirements for a minimum level of project design, as set out above, this should give us confidence to apply the various elements of the CSNP- F to the project as given. Eligibility criteria, including materiality threshold 2.78 In this section, we outline the eligibility criteria that will apply for the four separate elements of the CSNP-F. Decision –RIIO-3 Sector Specific Methodology Decision – ET Annex 29 SSMC summary 2.79 In the SSMC we proposed a materiality threshold of £100m to determine which projects from the CSNP fall under the CSNP-F. This would be a continuation of the threshold used by the LOTI re-opener in RIIO-ET2. We highlighted the potential for this approach to provide consistency between price controls and invited other considerations. 2.80 We proposed that our treatment of sub-£100m projects would differ in that they: • would not be eligible for ITA involvement; and • would not be eligible for the CSNP-F delivery incentive. 2.81 We proposed that sub-£100m projects would be treated the same as projects above the threshold with regards to: • project need being wholly determined by the CSNP; • eligibility for PCF and to apply for ECF; and • a proportionate cost assessment process. 2.82 We invited views on the treatment of sub-£100m projects, particularly on appropriate ways to hold the TOs to account for timely delivery in the absence of a delivery incentive. Summary of consultation responses 2.83 ETQ1 invited views on the materiality threshold for the CSNP-F, and ETQ6 asked for views on how we treat CSNP projects that fall below this threshold. We received five responses to ETQ1 and seven responses to ETQ6, both including the three TOs. 2.84 All five respondents to ETQ1 suggested a change to the proposed approach for setting the materiality threshold. Many respondents stated that a £100m threshold is too low given the level of scrutiny and amount of work involved in the application of the CSNP-F (ie through the ITA and delivery incentive), with one TO highlighting that the £100m threshold would encompass all of its projects currently included in the tCSNP2. One TO suggested that a threshold as high as £750m could be needed to focus the ITA and delivery incentive on the few largest projects. 2.85 Many respondents, including the three TOs, also suggested that we include other eligibility criteria alongside, or instead of, a cost-based materiality threshold. Several respondents, including two TOs, stated that non-cost criteria could Decision –RIIO-3 Sector Specific Methodology Decision – ET Annex 30 include the level of complexity of a project and whether a project is critical for the network or achieving net zero. 2.86 Respondents agreed in general with our proposal to treat all TO projects the same for PCF, ECF and cost assessment. One TO suggested that projects that do not need the CSNP-F mechanisms (ie development funding, the ITA, and the delivery incentive) could be fast-tracked using a volume driver or a cost-only re-opener. SSMD decision and rationale 2.87 We have decided that the CSNP-F should only be used for projects that are included in the NESO’s CSNP. 2.88 We have decided that eligibility for each component will be assessed individually on a project-by-project basis. For instance, we may decide that a CSNP project is eligible for development funding but not the ITA. While this will require further oversight and action by us, this approach recognises stakeholder feedback that a more tailored approach to eligibility is appropriate given the diversity, size and complexity of projects likely to be identified in the CSNP. 2.89 At a high level, in relation to other stakeholder feedback: • We will not seek to apply a single set of eligibility criteria across all four CSNP- F components (ie the £100m materiality threshold proposed in our SSMC), instead tailoring the approach in each component to recognise that each has its own objectives. • Where we do apply a cost-based materiality threshold, we agree with stakeholders that it is necessary to reassess the £100m level we proposed in our SSMC. We will determine the appropriate threshold(s) once there is a clearer idea of the project pipeline from the NESO. • We also agree with stakeholders that non-cost criteria can be valuable in determining eligibility, so will also include a consideration of the technical complexity or the importance of timeliness for the delivery of consumer benefit (including avoiding constraint costs) in the eligibility criteria for each component. 2.90 We discuss how we will apply these criteria to