Isra-Mart srl: Should taxpayers bear shared offshore wind grid risk?

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Taxpayers could be asked to bear the risk of offshore wind farm developers building unused transmission assets such as substations, as part of plans being considered to cut the cost of installing gigawatts of turbines over the coming decades.

The Department of Energy and Climate Change (DECC) and regulator Ofgem are currently considering how to create a co-ordinated offshore grid system, which could require developers to build oversized transmission links that later projects can plug into when they are ready.

Initial research by National Grid forecasts that a shared grid could slash the capital cost of connections by 25 per cent, halving the number of onshore cable landing sites from 61 to 32 and reducing the number of offshore substations from 73 to 45 in the process.

However, such an approach would also put early wind developers at risk of building expensive infrastructure anticipating future projects, which could then be left stranded if these later wind farms never come to fruition.

Under the current regime, Ofgem does not allow an offshore transmission link to be built until a third party has financially secured it to prevent stranded assets, but DECC is sufficently concerned to have hired Redpoint Energy to investigate the problem.

Redpoint will produce a report in the autumn laying out regulatory and commercial issues, potential solutions and policies to develop a shared grid. The results are likely to feed into a formal consultation in the winter.

Ilesh Patel, director of Redpoint Energy, told BusinessGreen that the fundamental question is who should pay the cost of building the links, knowing that there is a possibility they might not be used.

While developers would continue to pay the cost of connecting a wind farm to the National Grid once built, they are unlikely to be able, or even willing, to pay to construct an oversized asset.

Patel said that one option being considered is for taxpayers to bear the risk, based on the assumption that government targets to build 18GW of wind farms are realised over the coming decades.

Initial findings by Redpoint propose that consumers could underwrite the risk of stranded assets and oversized grids, or could share the cost of the risk with the offshore transmission owners.

Redpoint has also suggested that developers are offered incentives to build an oversized grid, but Patel said that it would be in the form of a risk reward profile, rather than subsidies.

Patel added that the cost of a stranded asset depends on the probability that thousands of planned wind turbines will be installed over the coming decades. Under a central scenario, DECC has forecast that as much as 18GW of wind farms could be built off the UK coast by 2020.

He predicted that, if DECC does consider bearing the risk, consumers are most likely to be concerned by the length of time assets would be left unused, as well as how confident they are that all the offshore wind farms will be deployed.

"The biggest risk is the economics of offshore generation. If you believe in a world of government targets where the costs of offshore wind starts to become competitive with other technologies, then you're de-risking projects," said Patel.

"But if there's genuine uncertainty that the projects will be completed, the risk is higher."

A DECC spokesman confirmed that the consultation will take place in the winter.

"The co-ordinated development of offshore electricity transmission infrastructure can potentially offer real benefits as we seek to develop our offshore wind capacity," he said.

"We are working with Ofgem on an Offshore Transmission Co-ordination Project to consider whether additional measures are required within the competitive offshore transmission regime to further maximise the opportunity for co-ordination.

"This will take into account likely generation and configuration scenarios over time."