Companies that have invested in the cable infrastructure linking UK offshore wind farms with the land-based electricity network have been guaranteed excessive returns whilst not being required to take on sufficient risk for asset failure, argues a cross-party group of British parliamentarians.
Following a brief investigation last autumn into what it calls the UK's "elaborate regime" for licensing offshore electricity transmission assets, the House of Commons public accounts select committee has published a highly-critical report about the existing rules.
The committee describes the rules as "heavily skewed towards attracting investors rather than securing a good deal for consumers".
Citing return on investment (ROI) rates for the initial tranche of offshore licenses awarded by the UK government as "extremely generous", at 10-11%, the committee also notes that offshore transmission operators (OFTOs) only risk losing 10% of "expected income" in any given year due to asset failure. Their earnings are also fully protected from inflation for a period of twenty years.
Interestingly, the parliamentarians fail to identify a key potential flaw in the UK offshore wind cable industry, which is the substantial financial risks that face offshore wind farm owners in the not-unlikely event that export cables fail, but are not repaired quickly by the OFTO in question. The cost of cable failure to wind farm owners can be sizeable, with Vattenfall acknowledging to Windpower Offshore last year that problems with the cable linking its Thanet project to the grid cost it about €5m.
Windpower Offshore understands that at least one UK wind farm owner maintains stocks of some spare parts in order to facilitate rapid repair of export cable infrastructure despite it not being legally responsible for the maintenance of the assets in question.
A small number of consortia have, thus far, won licenses to own and operate UK offshore wind transmission cables. They include Blue Transmission, which last year won the lease for London Array's first export cable, and Transmission Capital Partners, which has secured four licences, the most recent of which links Ormonde wind farm to the grid. Many more such licenses will be auctioned by the UK government in coming years, and the public accounts committee is calling for rules to be revised in order to:
- reduce ROI rates and/or undermine the predictability of returns by removing or reducing protection against inflation
- increase competition for licenses
- provide a financial windfall to taxpayers when assets are sold or refinanced
- and consider increasing the financial risks that OFTOs must shoulder in return for licenses.
Environmental NGO Greenpeace UK has defended the existing regime, arguing that the cost to consumers is and will continue to be lower than reported by some media outlets, and that, as the offshore grid industry matures, the 10-11% ROI may not "remain so high".
The UK's world-leading position in the offshore wind market – with far greater installed capacity than any other nation – is, in part, due to its success in ensuring that offshore cables are installed without undue delay. Germany's offshore wind industry has been largely paralysed due to cable delays and a similar problem may be on the horizon in both France and China.