31 March 2006 – The drive to increase Britain’s offshore wind energy was given a boost yesterday as details were announced of how their connection to the electricity network onshore would be funded and operated.
Following a joint consultation with energy regulator Ofgem, the Energy Minister, Malcolm Wicks, has extended the existing principles of onshore electricity transmission to offshore. “This is an important step for Britain’s offshore wind energy industry as the measures I am announcing will increase its viability by spreading grid connection costs over a number of years,” said Wicks.
“My decision also gives developers vital certainty and ensures consistency with the onshore arrangements”
“We are aiming for ten per cent of our electricity to come from renewable sources by 2010 and windfarm projects such as those planned for the Greater Wash, off the North West coast and in the Thames Estuary can potentially make a significant contribution to that target.
“These projects alone have the potential to produce between 5.4 and 7.2 GW, which is enough electricity for more than one in six UK households.
“This regulatory framework can also benefit the future development of wave and tidal marine technologies.”
Whilst the majority of the costs of building the offshore connections will ultimately be met by wind developers, they will be staggered over several years and will be funded by a regulated rate of return – still to be determined – which is likely to be lower than the market rate.
Ofgem will ensure that the investments in the connections are economic and efficient. This is the system that applies to the connection of onshore generation assets.
Extending the onshore-regulated price control approach to offshore electricity transmission has a number of clear advantages for offshore wind farm developers and the efficient operation of the transmission system as a whole:
* it will ensure consistency with the regulatory arrangements onshore;
* it will provide a financial benefit to offshore developers by spreading the costs they face to connect to the onshore electricity system through annual transmission charges recovered over a number of years and means that the responsibility for developing the offshore transmission network will be shared by the System Operator and the Transmission Asset Owners;
* this approach will help to deliver the Government’s renewable energy targets;
* the regulated price control approach will also have additional environmental benefits, as it will help to ensure a co-ordinated approach to the development of the offshore network, which will reduce unnecessary duplication of transmission assets; and,
* this was the option that was favoured by the majority of respondents to the consultation exercise – including all the offshore developers that responded.