How competitive tendering for wind farms benefits you
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Stephen Beel
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Generation and Wholesale Market
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Britain has some of the best natural resources for offshore wind in Europe, and Government has said it will keep supporting this through future Contracts for Difference auctions.
Subsea links connect offshore wind farms safely and securely to the national grid. These links cost hundreds of millions of pounds each to build. So it’s essential that we get the best value for money from this, as ultimately electricity consumers are paying for them.
For traditional onshore electricity networks, as in other utility sectors, we use price control regulation to set the maximum revenues they can earn. This is because they are monopolies. However, where we can, we introduce competition to get a better deal for consumers.
In 2009, with the Department for Energy and Climate Change, we launched a tender regime where bidders compete for the right to own and run links to offshore wind farms over a 20-year period. Ofgem appoints the most competitive bidder from each tender to become an Offshore Transmission Operator. The scheme is a world first. In other countries, monopoly transmission grid companies build and operate the links to offshore wind farms themselves.
Opening up these offshore links in GB to competition has had dramatic results. Analysis from independent consultants shows that the first three tender rounds will bring in savings of at least £700m over 20 years. Therefore competition for owning these links is delivering savings for consumers by driving down the costs of connecting offshore wind. The regime’s success is one of the reasons Ofgem has been shortlisted in the Government Public Private Partnership Promoter of the Year category for this year’s Partnerships Bulletin awards.
The savings result mostly from bidders competing against each other to offer a better deal on financing and operating costs compared with monopoly network companies. Also, bidding to operate the link for 20 years gives them stable long-term revenue. This lowers the financial risk they face, meaning they can offer a more competitive bid.
There are wider benefits too. The 15 tenders we have completed so far have resulted in £2.7bn investment in GB’s energy sector, mostly from new entrants into the GB market. They include new types of investors and funders such as infrastructure funds and transmission supply chain companies. They also include specialist owners of infrastructure in other countries or utility sectors, the European Investment Bank, UK life insurers and pension funds. This proves that the regime attracts new companies that can challenge monopoly businesses by bringing fresh approaches, technology and expertise. It’s good to see that many of these new entrants are now looking to invest in other UK energy infrastructure.
Next month we are launching the fourth tender round to run the link to the Burbo Bank Extension wind farm in the Bay of Liverpool. We also expect to launch a fifth tender round this autumn. We expect up to six projects tendered in these two rounds adding a further £2bn investment.
We now plan to introduce tendering for upgrades to onshore networks. From 2017 onshore projects of £100m will be tendered. They will be either be brand new overhead lines, cables or substations, or complete replacement of this sort of infrastructure.
We expect a lot of interest as there is high demand for grid upgrades. This is because GB’s electricity system is still adapting to the low carbon economy. So there is a steady stream of projects, particularly to connect locally based power generation like wind and solar power.
Visit the Ofgem website to find out more on Offshore Transmission.