OFTO solution remains elusive

Offshore developers are struggling to sign up complex integrated connection offers received from National Grid (NG).

6 February 2012

Offshore developers are struggling to sign up complex integrated connection offers received from National Grid (NG). The connection agreement that gives access to the grid is a key plank in the evolution of any project but the regulatory uncertainty in this area is proving hugely challenging for developers and NG alike.

In a pre-Christmas rush, a number of papers were issued. Firstly the Redpoint and TNEI/PPA Energy reports on greater coordination in offshore transmission and secondly, a fresh Ofgem consultation (on 16 December 2011) on offshore tender processes for the enduring regime (the regime that will apply to Round 3, Scottish Territorial Waters and several other projects).

After a hiatus of a full year during which developers have continued to invest heavily in their projects we should have more to show for the wait. While it is genuinely good news that more is to come soon on this topic from Ofgem and DECC the piecemeal approach to regulatory reform makes true progress elusive.

The early consenting and development of an efficient offshore (and onshore) grid network is essential for offshore wind to be successful in the UK – both in terms of beating competition for valuable developer investment (and jobs) from other countries and in meeting the UK’s binding EU 2020 renewables targets. Is anyone counting the cost of failure to achieve these outcomes?

The regulatory framework allows the generator to choose one of two main options:

  • To build the offshore transmission assets themselves and hand them over to an offshore transmission owner (OFTO) after commissioning (generator build); or
  • To have an OFTO appointed in time to procure, construct, finance, operate and maintain the grid assets (OFTO build).

Practical issues

  1. What has happened in the past year?

    NG is increasingly making connection offers to some offshore developers that are “co-ordinated”. This can mean covering how different projects within a single zone will be interconnected, how offshore reinforcements might be used to avoid onshore reinforcements or how differently owned projects might be interconnected.

    NG has decided that this is the only way in which they can fulfil their licence duty to develop the transmission network in an efficient, coordinated and economic manner.

    On the basis of market information to date, however, none of these heavily integrated offers has been accepted by developers.

  2. Why is a signed connection agreement important to a developer?

    The signing of an offer is a major milestone - reasons include:
    (i) Creating some certainty over onshore route allowing the developer to start work securing onshore land rights for cable laying and converter stations
    (ii) It clarifies the extent of the project for consenting and consultation purposes
    (iii) Taken with other factors, it allows developers to attract external investment into their projects – this at a time where development costs are high and access to pre consent funding is constrained.

  3. So why are integrated offers unlikely to be accepted at present?

    There are many reasons but the key one is regulatory uncertainty. We still do not know who will consent what parts of the integrated offshore grid, who will fund and build it or how it will be paid for.

  4. Has the new consultation changed this?

    In short – no. The new consultation has been issued before the anticipated DECC/Ofgem paper on coordinated networks. The new consultation has a number of helpful clarifications about the OFTO process for generator and OFTO build but it fails to address some key points.

    For example:
    - Consultation on any integrated aspects of the connection process are carved out into the anticipated DECC/Ofgem paper to be published early in 2012;
    - Confirmation of compulsory purchase powers needed by generators to carry out essential pre-construction works are carved out with Ofgem and DECC working to provide clarity on the issue in early 2012;
    - Confirmation of how a generator can commission transmission assets without falling foul of unbundling requirements is still being considered by Ofgem and DECC;
    - Transmission charging is being dealt with separately under Project TransmiT but has not, to date, considered the issues raised by increasing coordination in the offshore transmission network.

As each developer faces up daily to the decisions needed to procure a viable consent and sensible landowner arrangements for their projects, they are finding that anything other than a simple radial connection offer is virtually impossible.

As Ofgem and DECC continue to progress the regulatory framework in this area everything possible needs to be done to speed up both the decision making process and the scope of the framework put in place to give developers a stable backdrop to build out UK’s offshore wind ambitions.