OFGEM and DECC are consulting on giving developers the right to build the transmission assets needed to connect offshore wind projects and then handing those assets over to the offshore transmission owner (OFTO) on comissioning. This is a long awaited and much needed twist in the tale of the (now six year long) OFTO regulatory process. It has taken years of industry lobbying to get here but the new proposals will hopefully bring some much needed additional flexibility into the development process for offshore wind.
The current consultation "(Offshore Electricity Transmission): Further consultation on the enduring regulatory regime" closed on 29 September with some 20 companies making responses. It is clear from the tone and content of the majority of responses that developers favour the generator build option and are keen to see the detail hammered out quickly and effectively.
We are not quite there yet, however, as the joint DECC and OFGEM paper throws up a number of perceived difficulties with the generator build option and seeks views on these. OFGEM clearly remains uncomfortable with the generator build approach and they perceive that a number of barriers exist to achieve a quick implementation of the regime.
Stepping back, we think it is important to focus on the bigger picture - what exactly does the board of an offshore developer need assurance on both now and at the point when they finally opt for the OFTO or generator build route? We suggest there is a small number of key points and these should be the focus for DECC/OFGEM in drawing conclusions from the consultation and implementing those:
- What assets are capable of transfer to the OFTO - are there any exceptions, where are the boundaries between generation and transmission?
- How will OFGEM value those assets and how will OFGEM apply its "economic and efficiently incurred" costs test?
- What is the worst case scenario in terms of transfer valuation of assets?
- Confirmation that the OFTO appointment process will run in parallel with the developer building out the assets such that the OFTO is on board in time to participate actively in commissioning.
- Confirmation there is a quick and effective solution to a failed OFTO tender process, meaningful OFTO of last resort arrangements that ensure there is no lengthy hiatus in this scenario.
We are concerned that the paper has far too much additional detail in it, much of which relates to issues within OFGEM's control in its running of the OFTO tender process. Also, the consultation fails to address some of these key points properly. For example, there is no guidance available on the economic and efficient test nor on how OFGEM will apply that and value the assets transferring - there is, therefore, a risk that the likely DECC use of Energy Act powers by 19 December could be similarly unfocussed.
There are issues of detail that need to be addressed, but if these key points can be the focus for use of the DECC powers by 19 December, developers will have a framework that is viable and that gives real meaning to the generator build option. Developers, above all, want certainty and stability now around these few key areas.