National Grid criticises Ofgem over Hinkley Point C proposals

National Grid has hit out at Ofgem’s proposals over an £800m project to connect the Hinkley Point C power station to the electricity network, saying they put investment in the UK energy sector at risk.

The Hinkley Seabank plan is an essential overhaul of the power network to send electricity from the new plant in Somerset – which will meet 7% of the UK’s demand – to the rest of the country.

The 57km National Grid project involves new substations, underground cables and the new T-pylon design, which are intended to have less impact on the landscape.

Shares in the firm fell by 2% on the decision, which National Grid said was “very disappointing”.

The company said the regulator’s approach did not reflect the costs of financing and its estimate of £100m savings to consumers was too high.

“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 said in a statement.

On Tuesday, Ofgem said it was minded to impose a mechanism on National Grid that simulates the effect of the project being put out to competitive tender. That would be done by setting a lower rate of return than the regulated monopoly would usually face.

The model Ofgem has chosen is known as “competition proxy”, and is meant to simulate the cost savings the regulator has managed to achieve in the offshore wind sector, where grid connections are put out to tender.

Hinkley Seabank is one of several major power network upgrades that a new generation of nuclear power stations will require. The cost is expected to even higher for other regions – work for new reactors at Moorside in Cumbria has been estimated at £2.8bn.

Ofgem’s ruling is known as a “minded to” position; the regulator will make the final decision in the spring. The grid works are due to start 2019 ahead of Hinkley Point C coming online in 2025.