London Array’s transmission assets sold

Following a competitive tender, Blue Transmission London Array Ltd was selected as preferred bidder for London Array’s high voltage offshore transmission licence in September 2012 (London Array Phase 1). A year later London Array’s owners: DONG Energy, E.ON and Masdar have announced the asset’s sale to Blue Transmission.

Blue Transmission London Array Ltd is the licensee entity incorporated by the consortium of Barclays Infrastructure Funds Management Limited and Diamond UK Transmission Corporation (a wholly owned subsidiary of Mitsubishi Corporation), advised by Macquarie Capital.

London Array windfarm, off the Kent and Essex coasts, consists of 175 Siemens 3.6MW turbines with a combined capacity of 630MW, the transmission assets valued at £459m. The sale is the largest transaction to date in the OFTO regime. At the same time it was also announced that London Array had been selected by Blue Transmission London Array Ltd to provide operations and maintenance services to the transmission link connecting the windfarm to the onshore grid at Richborough in Kent.

Lord Mogg, Ofgem Chairman, said: “This is a significant milestone. With a value of £459m, these are the highest value assets to have been tendered under the offshore regime to date, bringing the total value of new investment attracted into the sector to over £1bn. This competitive approach is also benefitting energy consumers. Running the link will cost consumers a quarter less than previous projects. I also welcome ongoing EU support through the European Investment Bank. Their financial support in terms of this project is a further endorsement of the competitive approach that is delivering offshore transmission investment”.

NEW SYSTEM

The new regime of owning and operating offshore wind transmission assets was developed by Government and Ofgem in 2009, covering the licencing of offshore electricity transmission assets, employing competitive tendering to ensure cable connections are delivered on time and at reasonable cost. The first phase involves two transitional tender rounds allowing licensees to own and operate transmission assets for offshore renewable projects.

Subsequent tenders are undertaken under an enduring regulatory regime enabling Ofgem to run transmission investment tenders which provide two options. The first option permits OFTOs to design, build, operate and maintain the transmission assets. The second option involves energy generators building the transmission assets and then transferring them to OFTOs once construction is completed.

Ofgem determines a provisional transfer value of the assets that bidders pay to the developer to acquire links that have already been installed. OFTOs receive a steady income stream for 20 years, collected by the Offshore System Operator based on asset availability irrespective of the quantity of energy produced.