Growth and Infrastructure Bill

Memorandum submitted by ESB International (GIB 48)

Subject: ESB International Submission to the Growth and Sustainability Bill Committee - Inflexibility in the Planning System

1. The purpose of this submission is to relay our concerns that there is insufficient flexibility in the new planning regime to facilitate new large-scale gas-fired generation, and that the rigid implementation of the Planning Act 2008 is impacting the ability of developers to successfully bring forward new projects. While some of these issues are currently addressed in terms of existing consents under the old Electricity Act (1989) (S36 consents), new consents are not effected as the Bill is currently drafted.

2. Engineering, Procurement and Construction (EPC) contracts are the most common form of contract used to undertake the construction of large Combined Cycle Gas Turbine’s (CCGTs). Under an EPC process a single contract is issued for the design, engineering, procurement, construction, commissioning and testing of the entire CCGT power plant, and a single contractor (‘EPC Contractor’) is responsible for delivering a complete power plant facility to the project developer.

3. This contract model is primarily driven by the requirement for project developers and financial institutions (lenders) to have certainty around key aspects of the project e.g. contract price, technology, performance guarantees and construction programme.

4. Only a small number of international companies have the capability to tender for the role of EPC Contractor and it is left to the contractor to propose his own detailed design for the CCGT power plant. Each will offer a different turbine technology and propose alternative designs which, although broadly similar, will vary in terms of overall site layout, electrical output, building sizes etc. Critically these designs may be considered ‘materially different’ under the Planning Act 2008, though as of yet no definition of materiality has been set out in corresponding legislation.

5. The current planning process requires developers to submit detailed designs with their application. The level of detailed required by the Planning Act 2008 is significantly greater than the previous regime under Section 36 of the Electricity Act 1989. If a Development Consent Order (DCO) is granted, the detailed designs submitted with the application are explicitly defined in the DCO.

6. Under the Infrastructure Planning (Changes to, and Revocation of Development Consent Orders) Regulations 2011, once a DCO has been awarded subsequent changes are either defined as ‘material’ or ‘non material’. No definition of materiality is given. For ‘non-material changes’ an explicit process for updating the DCO is described. For material changes no process for making changes exists and the developer must either proceed with the existing DCO as is, or re-start the entire planning process resulting in delays of three or more years. It is very possible that the variations in EPC designs might, in the absence of a suitable definition of materiality, be considered materially different to that which is consented in the DCO.

7. The cost of preparing and submitting an EPC tender is significant, and companies will not prepare a tender if they do not have sufficient confidence that the project will proceed. In our experience EPC Contractors will not submit tenders for projects that do not yet have planning permission.

8. Without a definition of materiality, nor a means in which to make changes which might be considered material, the planning system and the EPC procurement process are in conflict and create a ‘Catch 22’ situation. To gain a DCO the developer must submit detailed designs as part of their planning application, but an EPC contractor will not provide detailed designs until a DCO has been awarded.

9. Consequently developers are being forced to submit designs before the appointment of an EPC contractor. The subsequent DCO may then be incompatible with the available designs offered by the technology providers during the EPC process. In the best case this exposes developers to significant commercial risk as the number of EPC contractors available to them is diminished. In the worst case the DCO may exclude all manufacture’s entirely and render the DCO obsolete. The only alternative is for developers to appoint an EPC contractor before the entering into the planning process. This approach would remove developers’ ability to undertake a competitive tender process.

10. Additionally, between consent and construction the development of Best Availability Techniques (BAT) means that a developer may wish to modify their design in order to reduce the environmental impact or improve the efficiency of the electricity generating plant. These changes may be considered material, therefore requiring the plant to be re-consented or alternatively, built with a lower efficiency or more polluting technology option (if legally able). Given the speed of technical evolution this may create a cyclical barrier to investment.

11. ESB acknowledges recent consultation on draft guidance which closed on 6 July 2012 [1] . However the consultation made little attempt to present a defined test of materiality, or a means by which (and where appropriate) material change ought to be permitted without requiring full re-consent, if the change is in the interest of national benefit or environmental improvement. We therefore hope that the final version of any guidance provides some additional clarity.

12. Given that the underlying aim of the Growth and Infrastructure Bill is to provide flexibility in the system to allow developers to build plant that otherwise would not get built, ESBI would encourage the Bill Committee to make amendments to the Planning Act (2008) in a similar way to the changes it makes to the Electricity Act (1989). It would certainly seem strange to allow old permissions to be treated flexibly while forcing all new ones to be incredibly rigid. Specifically the DCO process needs to allow for justified and appropriate material changes to be made without re-starting the clock, and allow a pragmatic degree of design flexibility that is consistent with the overall intent of the consent. Such flexibility will enable developers to have a number of commercial options and bring forward proposals that are economic and efficient to construct and that can meet both the project developer's and the consenting authority's requirements. We strongly believe this is in the best interests of energy consumers as it assists in the delivery of much needed investment at least cost to customers. There is an urgent need for certainty and consistency on this issue.

November 2012

[1] Planning Act 2008: Consultation on proposed changes to the suite of guidance documents for major infrastructure planning regime .

Prepared 1st December 2012