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UK: Consultation on increased coordination of offshore transmission and interconnection

  • Global
  • Energy and infrastructure - Clean energy

15-07-2021

On 14 July 2021, Ofgem published a consultation on its proposed changes to bring about greater coordination in the development of offshore energy networks.

Simon Davies, Principal Associate, comments: To date, all offshore wind farms have been developed with “radial” or “point-to-point” connections, i.e. where each wind farm has its own dedicated offshore grid cable. In order to achieve the UK’s target of 40GW of offshore wind by 2030 in a manner that takes into account environmental and societal impacts, it is essential that offshore transmission and interconnection is co-ordinated between offshore wind assets which are within the same region. This could impact the entire regulatory framework in this area, including the OFTO regulations, industry codes, licences and network charging arrangements. Developers of offshore wind farms and their investors will be particularly keen to understand the proposals contained within the consultation in relation to management of “anticipatory investment” (AI) risk, i.e. where one developer is required to “invest” in transmission assets which may be for the benefit of future project(s).

Set out below are the key proposals in the consultation.

Temporal Approach

The consultation has been published as part of the wider industry Offshore Transmission Network Review (OTNR) and focusses on three temporal workstreams, each of which represent projects at different stages of the development journey: i) “Early Opportunities”, i.e. in-flight projects which can be co-ordinated, ii) “Pathway to 2030”, i.e. projects connecting before 2030, and iii) “Enduring Regime” (post-2030).

The regulatory scope of the changes for each workstream is varied, with the Early Opportunities projects working within the confines of the existing regulatory framework, including secondary legislation. For the Pathway to 2030 workstream, changes to primary legislation are potentially in scope and for the Enduring Regime workstream, changes to primary legislation are expected. BEIS will be consulting on the Enduring Regime later in the year, which will also consider multi- purpose interconnectors (MPIs), whereby interconnectors could accommodate direct connections to offshore wind farms.

Early Opportunities

Ofgem recognises that there may be a need to change policy to better enable and reflect an efficient level of AI in the current regulatory frameworks. For such purposes, it considers AI to be expenditure for a “known future project” (e.g. an offshore wind developer with a seabed lease) and there is a reasonable expectation that it will connect. Ofgem is proposing that AI risk should be shared between the consumers and developers. Ultimately this means that when the OFTO tender process is concluded, the developer that has incurred the AI could receive funds from three sources, i.e. the OFTO (via the final transfer value process), the subsequent developer(s) (via user commitment, i.e. security arrangements) and the consumer (via use of system charges). Ofgem expects any risk that is shared between a developer(s) and consumers would be proportionate to the benefits that developers might receive if and when they do connect to the system and the support provided from the consumer should be the minimum required to secure developer investment.

Ofgem’s proposals under this workstream will be optional for developers, rather than enforcing coordination.

Pathway to 2030

The proposals outlined in this section consider a more holistic approach to how offshore infrastructure is designed and delivered under a number of largely competitive delivery models. This workstream could result in a significant change in how offshore transmission infrastructure is developed and represents a shift in the reliance on a developer-led model in favour of a more centralised approach, but also retains optionality for the existing developer-led model to be retained where radial connections are appropriate. This section focusses on three areas:

  • the development of a generation map showing where offshore wind projects are expected to be sited and when they are expected to connect to the system
  • the production of a design for network infrastructure which is based on the generation map and other relevant information
  • based on the proposed network infrastructure, options for the efficient delivery of the coordinated infrastructure required to connect offshore generation

Multi-Purpose Interconnectors

The consultation also considers the classification, licencing, and ownership of MPIs within the current legal framework in GB, as well as the potential application of the cap and floor regime, and the impact of market arrangements.

Next Steps

The response deadline for providing any comments or feedback in response to the proposals in the consultation is 8 September 2021 and Ofgem will be conducting a webinar and stakeholder engagement during the consultation window. This consultation marks a first stage in the process and Ofgem’s “minded-to” proposals following the consultation are intended to be published by January 2022.