Second wind farm transmission link tender round launched

This will see a further 2.8GW of capacity added to the transitional regime projects in a move aimed at encouraging cost effective investment in what is seen as an important network link, providing, among other advantages, a further step towards energy security for the UK.

It is estimated that over £20bn in investment will be required in offshore electricity transmission infrastructure if government targets for renewable energy are to be met, a challenge that will provide significant opportunities to, among others, the cable industry from design and manufacture through to installation and maintenance.

As reported previously (MJ October 2010), in a joint policy initiative between Ofgem E-Serve and the Department of Energy & Climate Change, tenders are being sought from companies seeking to become Offshore Transmission Owners (OFTOs) for the section of cabling between the offshore point of connection with the generator and the point of connection with the onshore transmission operator, generally known as the export cable.

Transmission links either already established or under construction will be subject to a transitional regime arrangement and eventually an enduring regime will see OFTOs design, build, finance and operate the transmission assets. This will apply to wind farm projects still at the planning stage. The OFTO will receive a revenue stream from National Grid Electricity Transmission in its capacity as the National Electricity Transmission System Operator, based on maintaining a minimum availability rather than utilisation.

This second round will contain two tranches of tenders. The process for Tranche A starts immediately for three wind farms, Lincs, Gwynt-y-Mor and London Array, whose capacity and estimated transfer values are respectively 250MW/£311m, 576MW/£306m and 630MW/£476m. Tranche B tender procedures are expected to commence in the spring of 2012 for Humber Gateway, Race Bank and West Duddon wind farms, with capacity and estimated transfer values of 300MW/£218m, up to 620MW/c£500m and 389MW/£255m respectively.

Savings of £350m were delivered from the first tender round, which attracted almost £4bn of investment appetite for links valued at £1.1bn for seven wind farms. A number of key investment highlights are listed by Ofgem, including strong political and regulatory support for renewable energy and the UK offshore transmission network, the rare opportunity to enter the GB regulated electricity transmission sector and become established before enduring regime projects, increasing familiarity with the regulatory regime for lenders, a regulated revenue stream for a 20 year period, limited interface and operational risk, robust and transparent competitive process and transitional regime construction risks taken by the developers.

The tender exercise involves a number of stages with the pre-qualification submission deadline in December 2010. A number of other key dates and deadlines will follow with the announcement of the preferred bidders expected in July 2011.

By Peter Barker