Offshore Transmission

Giles StevensHead of offshore electricity transmission

2 of 11

Contents

1. Regulatory approach

2. Attracting investment

3. User requirements & commitments

4. A potential scenario

3 of 11

Regulatory approach

Approach must ensure that sound investment decisions provide the best value to consumers and offshore transmission users

Sound investment decisions require:– Co-ordination– Minimising risk of stranded assets and ‘gold plating’

To deliver best value to consumers and network users, the regulatory approach must:– Enable necessary investment to deliver economically efficient,

fit for purpose, transmission infrastructure– Provide certainty to investors in offshore transmission

4 of 11

Attracting investment 1 Investors in offshore transmission will need certainty

What risks are private investors exposed to? Scope Timing Development Construction Financing Operation Returns

Price control can give certainty over: Regulated asset value Performance requirement Returns Incentive/penalty regime

5 of 11

Attracting investment 2

The following are likely to be required:

Fair and transparent selection process Competitive pressure Independent ownership of offshore transmission assets No unfair advantage to incumbents Clear definition of scope of work i.e. technical standards User commitment from generators Enduring regulatory structure, including mechanisms for

change

6 of 11

User requirements

Capacity

Location

Additional capacity

Performance

– Availability

– Time to repair

– Delivery date

7 of 11

User commitment

TO ensure offshore transmission networks are not stranded investments, need:

Commitment from generators for transmission build

Commitment to be in place before transmission investment

Most efficient investment will take place once all generators

committed

Scope of transmission work dependent on firm signal from

generators

8 of 11

Geographic areasThe following options were set out in the scoping document

1. Single zoneProsEasiest way to allocateEconomics of scale

2. Few ( 3 – 5)ProsReasonable investment scaleEconomics of scaleOpportunity for competition‘Spread the risk’

3. Many (17 zones)ProsPoint to point approachEasy to implement

Cons Scale (£1bn+) likely to deter all but largest players Less opportunity for competition ‘Eggs in one basket’ No comparison/benchmarking possible

Cons More complex regime Needs cooperation from generators

Cons Few opportunities for economies of sale More complex regime Investment may be too small to be attractive

9 of 11

One potential scenario (1) Geographic areas

– 3 or 5 (as projects of £2-500m maybe most attractive to investors)

Security standards– Present standard, single fault etc

Connection requirements– Generator provides up front commitment– Offshore TO responsible for providing most economic

and timely connection

Scope– Requirements defined by generators to get least cost

solution

10 of 11

One potential scenario (2) Selection of Offshore TO’s

– By competition

Price control– Provides long term RAV certainty– Regular efficiency reviews– Provides detailed arrangements for investment risks to

be managed:• Adoption• Changing scope• Offshore TO failure

11 of 11

Promoting choice and value for all gas and electricity customers