The Government and Ofgem have developed a regulatory framework to deliver the grid links from large offshore windfarms to the existing onshore National Grid network. This note comments on the impact of unbundling on the Offshore Transmission Owners (OFTOs) that will be appointed to carry out this role following competitive tender.
Offshore transmission assets operational after 9 September 2009 will have to be fully ownership unbundled under the EU Third Package. This means that generators building transmission assets under the OFTO "generator build" option will not be able to own and operate the assets themselves after the assets become operational. DECC and Ofgem have both consulted on the implementation of the Third Package and the applicability of the requirements to OFTOs. DECC published its response paper earlier this month.
OFTO as fully unbundled Transmission System Operator
In July 2010, DECC issued a consultation paper on the implementation of the Third Package, which confirmed that DECC considered OFTOs will need to meet the unbundling requirements of the Third Package. This is because offshore transmission is a transmission system for the purposes of the EU rules. OFTOs will be considered new and separate transmission entities and, except to the extent that they were fully operational by 9 September 2009 (the date required in order to qualify for a derogation), they will be subject to full ownership unbundling. Under full ownership unbundling, the owner of the transmission system (i.e. the OFTO) must also act as a Transmission System Operator (TSO). This role implies a number of responsibilities under the Third Package.
There is a question about whether an OFTO will need to meet all the requirements of the Third Package or whether they may be exempt from some. DECC's response paper noted that some respondents were concerned about the onerous nature of a TSO's role which might discourage investment. DECC responded that it is not necessary to require TSOs to carry out functions that are not relevant to their role. DECC recognises that the functions of an OFTO are different from the national transmission system operator (i.e. National Grid). On that reasoning, the paper confirmed that DECC is not proposing to require all TSOs to carry out all of the TSO tasks set out in the Third Package. Therefore, the OFTO licence will not include the same detailed responsibilities as apply to other TSOs such as National Grid.
Like other TSOs, Ofgem must certify each OFTO as being compliant with the requirements of the Third Package. Ofgem has consulted on how it will carry out this certification process and a response paper is expected shortly.
The certification process could take up to a maximum of ten months according to the timescales set out in the Third Package, though the actual time required will depend on how long Ofgem requires to consider a certification application in practice. The European Commission must also look at the certification decision and deliver an opinion for consideration by Ofgem.
Ofgem has confirmed that the tender process for OFTOs will be amended to include provision for the certification process that will have to be carried out in relation to unbundling. The timing for certification will have to be taken account of alongside other project timescales but it is not yet clear exactly how Ofgem will ensure that the certification process does not add to the already lengthy OFTO selection and appointment process. This is a key concern for developers who are now making decisions on their OFTO strategy and need to understand fully the timescale impact of the choices available to them.