Offshore Transmission Giles Stevens Head of offshore electricity

Offshore Transmission Giles Stevens Head of offshore electricity transmission

Contents 1. Regulatory approach 2. Attracting investment 3. User requirements & commitments 4. A potential scenario 2 of 11

Regulatory approach § Approach must ensure that sound investment decisions provide the best value to consumers and offshore transmission users § Sound investment decisions require: – Co-ordination – Minimising risk of stranded assets and ‘gold plating’ § To deliver best value to consumers and network users, the regulatory approach must: – Enable necessary investment to deliver economically efficient, fit for purpose, transmission infrastructure – Provide certainty to investors in offshore transmission 3 of 11

Attracting investment 1 § Investors in offshore transmission will need certainty § What risks are private investors exposed to? § § § § Scope Timing Development Construction Financing Operation Returns Price control can give certainty over: § § Regulated asset value Performance requirement Returns Incentive/penalty regime 4 of 11

Attracting investment 2 § The following are likely to be required: § § § § Fair and transparent selection process Competitive pressure Independent ownership of offshore transmission assets No unfair advantage to incumbents Clear definition of scope of work i. e. technical standards User commitment from generators Enduring regulatory structure, including mechanisms for change 5 of 11

User requirements § Capacity § Location § Additional capacity § Performance – Availability – Time to repair – Delivery date 6 of 11

User commitment TO ensure offshore transmission networks are not stranded investments, need: § Commitment from generators for transmission build § Commitment to be in place before transmission investment § Most efficient investment will take place once all generators committed § Scope of transmission work dependent on firm signal from generators 7 of 11

Geographic areas The following options were set out in the scoping document 1. Single zone Pros Easiest way to allocate Economics of scale Cons - Scale (£ 1 bn+) likely to deter all but largest players - Less opportunity for competition - ‘Eggs in one basket’ - No comparison/benchmarking possible 2. Few ( 3 – 5) Pros Cons Reasonable investment scale- More complex regime Economics of scale - Needs cooperation from generators Opportunity for competition ‘Spread the risk’ 3. Many (17 zones) Pros Point to point approach Easy to implement Cons - Few opportunities for economies of sale - More complex regime - Investment may be too small to be attractive 8 of 11

One potential scenario (1) § Geographic areas – 3 or 5 (as projects of £ 2 -500 m maybe most attractive to investors) § Security standards – Present standard, single fault etc § Connection requirements – Generator provides up front commitment – Offshore TO responsible for providing most economic and timely connection § Scope – Requirements defined by generators to get least cost solution 9 of 11

One potential scenario (2) § Selection of Offshore TO’s – By competition § Price control – Provides long term RAV certainty – Regular efficiency reviews – Provides detailed arrangements for investment risks to be managed: • Adoption • Changing scope • Offshore TO failure 10 of 11

Promoting choice and value for all gas and electricity customers 11 of 11