- Publication date
- 10th June 2014
- Information type
- Policy area
- Changes to the regime clarify legal framework for developers and investors
- 18-month period to complete commissioning of transmission assets
- It’s already attracted £1.4 billion of investment, leading to significant savings for consumers
Today marks a milestone, as the offshore transmission regime set up by Ofgem and the Department of Energy and Climate Change (DECC) fully commences. Full commencement means that from today the laws supporting the regime take full effect. Ofgem now regulates and licenses the transmission of electricity generated in Britain’s territorial waters at 132kV or above.
The Generator Commissioning Clause gives greater certainty to wind farm developers that choose to build the transmission systems themselves. It gives them an 18-month period to legally test transmission systems before transferring them to an offshore transmission owner. This will reassure offshore transmission owners and investors that the transmission assets they are buying have been fully tested.
The changes will enable Ofgem to attract further investment and achieve significant savings for consumers. £1.4bn of investment has already been attracted from a variety of new sources and £1.5bn is currently in the tender process. Developers recovering the capital invested through the tender process will be able to reinvest in future projects, promoting economic growth.
Ofgem is currently consulting on an independent report that estimates that through competition and appropriate allocation of risks, the regime has already saved consumers between £200m and £400m. As future projects will be further from shore and more complex, Ofgem’s competitive tendering approach could achieve further savings.
Notes to editors:
- The offshore regulatory regime, developed by DECC and Ofgem, was launched in 2009 and uses competitive tendering for licensing offshore electricity transmission. The regime is flexible, allowing Ofgem to run tenders for projects where:
- Offshore Transmission Owners (OFTOs) design, build, operate and maintain the transmission assets; or
- Generators build the transmission assets and then transfer them to OFTOs at construction completion.
- For more information on offshore transmission see the offshore section of our website. For more information on the new features designed to keep the cost of transmission investment as low as possible for consumers, please see our recent consultation.
- For more information on the pipeline of offshore wind power, see the DECC Renewable Energy Roadmap.
- Ofgem are currently consulting on an independent evaluation of the benefits of Offshore Transmission Tender Round 1 (TR1), by CEPA and BDO. CEPA and BDO’s report estimates that Ofgem’s competitive tendering of offshore transmission assets has saved consumers between £200m and £400m to date. CEPA/BDO also estimate that if the same cost benefit analysis methodology used to evaluate the TR1 projects was applied to projects in Tender Round 2 (TR2), the cost savings could be considerable. For example, the cost savings (as a percentage of asset value) for London Array (the first project in TR2 to have reached financial close) could be 20-30% higher than for the TR1 projects. The consultation is open until the 1st August.
The Full Commencement Orders for the regime can be found here:
- The Energy Act 2008 (Commencement No. 6) Order 2014 No. 1461
- The Energy Act 2004 (Commencement No. 11) Order 2014 No.1460
6. The Generator Commissioning Clause was consulted on widely by Ofgem before its implementation. It provides developers that build their own transmission systems with an 18 month period in which they can legally build and test them for exporting electricity. The Clause applies within the ‘commissioning period’ which extends from tender qualification to 18 months after a Completion Notice is issued for the transmission system. Further information is available in the consultation document and in the document setting our Decision on implementation of the Generator Commissioning Clause in the Energy Act 2013.
Ofgem is the Office of the Gas and Electricity Markets, which supports the Gas and Electricity Markets Authority, the regulator of the gas and electricity industries in Great Britain. The Authority's functions are set out mainly in the Gas Act 1986, the Electricity Act 1989, the Competition Act 1998 and the Utilities Act 2000. In this note, the functions of the Authority under all the relevant Acts are, for simplicity, described as the functions of Ofgem.
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