Ofgem today closed the first tender round of its Offshore Transmission Owner (OFTO) regime. It granted Thanet OFTO Limited a licence to own and operate the £164 million transmission link to the Thanet offshore wind farm.
Thanet becomes the ninth and final offshore transmission project to reach financial close and licence grant in tender round one of the innovative regime. The first tender round has delivered over £1.1 billion of transmission assets, connecting 1.5 GW of offshore wind. Thanet offshore wind farm, located off the Kent coast, comprises 100 turbines with an installed capacity of 300MW.
The innovative approaches used by OFTOs for financing, operating and maintaining offshore transmission assets have also led to significant cost savings for consumers, between £200 million and £400 million in the first tender round alone. A key reason for this is the competitive pressure from the tender process, which results in efficient costs of financing and running the assets. With future projects being further from shore and more complex the competitive tendering approach is expected to achieve even greater savings in future.
Dermot Nolan, Ofgem chief executive, said: “With the licence granted for Thanet, we mark a major milestone for the offshore regime. The successful competitive process has saved consumers hundreds of millions of pounds. To date the regime has attracted over £1.9 billion of new investment into the UK transmission sector including £1.1 billion from the first tender round alone. Billions of pounds of further investment will be needed by 2020 to connect the wind farms under development.
“Introducing competition to offshore transmission has demonstrated the savings that can be achieved for consumers and we must now look at opportunities to introduce competition elsewhere. We have recently set out proposals to extend competition to new Strategic Wider Works projects onshore and to improve the OFTO built model offshore.”
Energy and Climate Change Secretary Ed Davey said: “We’ve secured £1.9 billion of investment, bringing new companies and sources of finance into the sector as a result of this new regime. The new competitive tender process is also giving better value for bill payers, delivering savings of up to £400 million, so it is proving to be hugely successful.”
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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