DTI/Ofgem call for industry views on licensing of offshore electricity transmission

United Kingdom

Earlier this week, the DTI and Ofgem published a joint consultation document detailing two possible options for the licensing of offshore transmission owner (“TO”) activities, and other issues relevant to establishing the related regulatory regime.

The regime is being developed to allow electricity generated from offshore renewable sources to be transferred to customers via high voltage transmission connections (greater than 132kV) to the GB Grid in the most efficient manner to ensure that users of the system are not saddled with excessive charges. The consultation focuses on electricity generated from wind power, but will potentially be applicable to wave, tidal and other renewable technologies in the future.

It follows the Government’s decision in March 2006 to regulate offshore transmission activities under the Energy Act 2004 through licensed price controls, and the subsequent Ofgem document outlining the scope of work for implementing the Government’s regulatory framework.

One option is to give a single TO responsibility for offshore transmission connection requests within geographic zones. In the alternative, non-exclusive offshore TO licences would be granted to anyone who satisfies pre-set tender evaluation criteria, and parties compete for the right to build, own and operate such connections. Ofgem has indicated an initial preference for the latter option while Government currently reserves its position. The consultation also deals with the practicalities of the licensing process, particularly in relation to the non-exclusive approach.

In addition, Government is seeking views as to how to manage the consequences of construction of offshore transmission lines by developers prior to the implementation of the new regulatory arrangements. It is expected that such assets will be “adopted” by the licenced offshore transmission owner. In short, there are two main areas of concern to developers:

  • The “legal issue” that developers may commence an activity that they know will become regulated / prohibited when the regime comes into force.
  • The “price issue” of determination of a regulated price in the new market and how this translates into an acquisition price for the assets.

Responses to the consultation are requested by 8 January 2007.

Further interim consultations on price control, modifications to licences, codes and security and supply standards are anticipated. Government is expected to make a final decision on the format for the new licensing regime in 2008.