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Renewables Round 3 – an update

Given the ageing nature of our power generating fleet and the fact that some coal and oil fired power stations as well as nuclear stations are due to close, the Government is seeking alternative ways of providing power.

Renewables is a great candidate and the UK has made good progress and generates more power from offshore wind than the rest of Europe combined but that offshore wind capacity still needs to grow.

In order for that generating capacity to grow offshore generation assets in the form of wind farms and infrastructure to transmit the energy into the national grid need to grow.  The Government and OFGEM developed a regulatory regime to ensure wind farms located offshore are connected to the grid in a cost effective and efficient manner.  The purpose of developing this was to provide certainty and aid investment in the offshore wind industry.

Offshore transmission regime licences are granted by OFGEM through competitive tender and the successful offshore transmission owner is entitled to a default 20 year revenue stream in return for providing the necessary transmission services.

The mechanics of the regime mean that the offshore generating assets are owned and operated by a generator whilst from licence grant the transmission system will be owned and operated by the successful offshore transmission owner.

The regulatory regime is introduced in two parts simplifying a transitional and an enduring tender round.

Projects under the enduring regime are likely to comprise assets which are much further offshore, in deeper waters, with significant higher sea state and weather risks as well as difficult seabed conditions.

The Electricity (Competitive Tenders for Offshore Transmission) Regulations 2013 incorporate greater flexibility into the regime.  One of the most notable changes from the transitional tender rounds is the option for generators to select either a generator build or an offshore transmission owner model.

The generator build model is based on the approach adopted under the Transitional Regime were the generator constructs the transmission assets which are then transferred to the offshore transmission owner to operate, maintain and decommission the assets.

Under the offshore transmission owner model the generator requires to obtain connection agreement and undertake high level design and preliminary works.  The offshore transmission owner will then undertake detailed design work and procurement and deliver the build programme as well as being responsible for the operation and maintenance and the decommissioning of the assets.

For the enduring regime it is anticipated that generators will continue to enter into commercial arrangements in respect of transmission assets.

The generator build option has been designed under a principle of no construction risk.  During the previous transitional tender round bidders were expected to undertake and satisfactorily complete technical due diligence of offshore generation assets including commissioning prior to asset transfer and finalise grounds.

The challenges for tenders in round 3 remain dealing with emerging technologies, infrastructure provision, inter connectivity between on and offshore projects, supply chain capability and economic viability in order to encourage investment in the future provision of assets.

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