Policy background Part 7: Market Reform and Consumer Protection Competitive tendering for electricity projects
In order for the UK to reach net zero by 2050 and achieve independence from imported fossil fuels the Government will fully decarbonise the electricity system by 2035, subject to security of supply. Alongside this, the Government also expects a doubling of electricity demand by 2050, as sectors like transport and heat switch to electricity as a fuel source. To accommodate this, there needs to be a significant increase in the amount of electricity network infrastructure in Great Britain.
	Under the current system, privately-owned electricity network companies build, own and operate electricity network infrastructure across Great Britain. These companies are regional monopolies, regulated by Ofgem, the independent energy regulator, to undertake their network owner role in an efficient way in the interest of consumers. Ofgem does this through benchmarking the network companies against one another to set their allowed revenues. There is an inherent information asymmetry in this process due to the closed nature of the market, and as such regulation may not fully realise benefits to consumers when setting allowed costs. In addition, as only a few network companies have access to and control over the electricity network, innovation can be limited by not allowing third parties to contribute to new ideas and develop them on the network.
	There is an existing competition regime in place for offshore transmission assets which has saved consumers over £800 million to date. The measures in the Act will amend the Electricity Act 1989 to extend this competitive process to enable competition to identify onshore network solutions, including smart and flexible options as well as traditional wire-based solutions.
	Creating new competitive markets in this way will provide new opportunities to invest in networks and should improve efficiency in investment, foster innovative solutions to network needs, including increasing the opportunities for smart and flexible solutions, as well as reducing costs to consumers. This is also expected to encourage greater levels of inward investment to help provide sufficient additional electricity network capacity to meet growing demand in Great Britain.