UK’s Offshore Transmission · PDF file• Offshore Transmission Owner (OFTO) ... What...
Transcript of UK’s Offshore Transmission · PDF file• Offshore Transmission Owner (OFTO) ... What...
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Stephanie McGregorDirector Offshore Transmission
June 2011
UK’s Offshore Transmission Regime:
A case study for financing a low carbon future
www.ofgem.gov.uk
Today’s presentation
1. Big picture
2. The OFTO
3. Making the opportunity real (aka fundable)
4. Opportunities/challenges ahead
All you can see in 30 mins!
www.ofgem.gov.uk
Critical developments & debates…
Climate change targets
Electricity Market Reform
Retail Market Review
European Intergration
EU Renewable
Energy Directive
RO review
Significant challenges ahead
www.ofgem.gov.uk
…grand ambitions…
Similar aspirations across Europe
UK energy policy aspirations:
• Meeting the 2020 Renewable energy commitment;
• Decarbonisation of electricity by 2030;• 2050 carbon pathways;• Marine renewable generation – potentially up to
67GW installed by 2030;• Nuclear – could have a significant role in
decarbonisation.
This will require significant new transmission infrastructure.
www.ofgem.gov.uk
….and a universal challenge for a low carbon future…
Xx
www.ofgem.gov.uk
….securing investment!
Estimates - £200bn +
Market players seeking certainty(investors, funders, developers, operators,
suppliers….)
Capital markets fragile
Challenges & opportunities ahead
www.ofgem.gov.uk
OFTO regimeImplementing a model which
is…
...attracting/delivering investment
Xx
www.ofgem.gov.uk
What is the OFTO opportunity?
• So what is an OFTO again?
• How do we select an OFTO?
• How does the OFTO licence work?
• Market activity to date
• Offshore Transmission Owner (OFTO)
• An entity licensed to provide transmission services
• The owner and operator of the assets relevant to provide the transmission services
www.ofgem.gov.uk
What is an OFTO (2)?
Offshore SubstationPlatform
Offshore Transmission Owner (OFTO)Licencee
Onshore TO
Generator
Connection to onshore network
Subsea cable132 kV 33 kV Inter Array Cables
Onshore Substation
How do we appoint an OFTO ?
www.ofgem.gov.uk
Pre-qualification (PQ) Pass/fail
Long list of bidders
Qualification to Tender (QTT) Scored
Short list of 3-5 bidders
Invitation to tender
(ITT) Scored
LicenceGrant
Preferred Bidder & Successful Bidder
• Developer project qualified by Ofgem
˜ financial commitment˜ detailed data provision
• Ofgem run a competitive process - defined stages & requirements
• Project specific & revenue (20 year) based bidding
• Identified project, known transfer value & clear licence obligations
• Accessible to range of funding approaches
The OFTO Licence - how does it work?
www.ofgem.gov.uk
1. ObligationsOFTOs are required to:
• achieve the broad obligation to operate assets in line with industry best practice to minimise the effect and duration of any transmission outage
• report details of any service reduction over 21 days
• provide written statement of compliance with best practice if availability below 75% in a year or 80% over two years
This creates an obligation to repair assets
If does not comply, enforcement action could be significant - licence revocation
OFTO Licence - how does it work?
Xx
www.ofgem.gov.uk
2. Incentives
• Not to compensate generator for lost revenue – disproportionate
• Incentive designed to encourage behaviour to maintain availability
• OFTO faces reduced revenue if it fails to meet availability target
• Incentive significantly reduces equity returns in case of major outage – does not put OFTO at risk of breaking minimum cover ratios
• Availability target set at 98%
• Revenue uplift for good performance
• Monthly weighting
• 50% of OFTO revenue is at risk for performance below the target in a year
• Revenue impact is spread over five years
Design
OFTO Licence - how does it work?
www.ofgem.gov.uk
3. Enforcement
Authority can take enforcement action against licensees that:
• Contravene licence conditions• Are likely to contravene licence conditions
Enforcement actions can include:
• Enforcement orders• Fines• Licence revocation
Therefore up to 100% of revenue is at risk!
www.ofgem.gov.uk
Making the opportunity real (aka fundable)
• Clear commercial & regulatory structure
• Transparent & clear process
• Accessible to different funding approaches
• Project pipeline
KEY = CERTAINTY
www.ofgem.gov.uk
Commercial & regulatory structure
OFTO
NETSOO&M
Contract
Government Ofgem
Offshore Generator
Crown Estate
Lease
Generation Licence
Consents
Codes
Sale & Purchase
Agreement
Lease
Transmission Licence
Licence
www.ofgem.gov.uk
Key investment features
Attractive investment sector
Strong UK political & regulatory support
Rare opportunity for new entrants to UK transmission sector
Relatively low risk asset class
Transparent competitive process
Well defined tender process,
Structured to ensure level playing field & transparency
2 qualification stages followed by ITT stage with M&A data rooms
Long term opportunity
A number of phases over several years: potentially £15 bn of assets
Early participation will provide valuable experience
Enduring regime offers design & construction opportunities
Robust new regulatory regime
20 year revenue stream with limited regulatory intervention
Pass through of certain key costs
OFTO protected from wind farm operating risk & risk of stranding
Upside potential: opex, non-regulated services, increased capacity
www.ofgem.gov.uk
Project pipeline
• Linked to Crown Estates R1, R2 & R3 Zones • Early tender rounds transitional rounds (TR1, 2a & 2b)• Under enduring regime it will be developer/generator
requirements & choices that influence timing & model for opportunities come to market.
• Enduring regime = generator choice of generator build or ofto build.
• Extensive engagement with generation developers on developing plans
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Final Consultation
First TransitionalTender Process (£1bn+)
2nd Transitional Tender (up to £2bn+)
2009 20202011
Go-Active
Go-Live
Enduring Regime Tender Process(£12bn+)
2010
Cumulative UK Offshore
Wind Capacity
(GW)
OFTO pipeline
www.ofgem.gov.uk
Tender Round 1
Project Preferred Bidder/OFTORobin Rigg (FC/Licensed March ‘11)
• Transmission Capital Partners (TCP)
G.Sands (S.8A con closed June ‘11)BarrowOrmonde
Thanet • Balfour BeattyWalney 1
• MacquarieWalney 2Sheringham ShoalGreater Gabbard • Green Energy Transmission
(Equitix, Balfour Beatty, AMP)
Value = £1.1bn & circa 2GW Savings forecasts positive
www.ofgem.gov.uk
Tender Round 2
London Array(630MW £476m)
Gwynt-y-Mor(576MW £306m)
West of Duddon Sands(389MW £255m)
Race Bank(up to 620MW c.£500m)
Lincs(250MW £311m)
Humber Gateway(300MW £218m)
Tranche 2a Projects(1.5GW & £975m est. value)
Expected Tranche 2b Projects(1.3GW & £1m+ est. value)
TR2a bidders:• TCP• Blue Transmission
(Macquarie/Mitsubishi)
• Green Energy Transmission (Balfour Beatty & Equitix)
• National Grid Offshore Ltd
www.ofgem.gov.uk
Opportunities & challenges ahead
• Rapid market development
• Moving into the enduring regime – generator choices
• Co-ordination – enhancement
• Wider policy landscape
www.ofgem.gov.uk
Market development
• Market evolving rapidly on bidder & developer sides
• Interest strong to date
• Bidder/consortium configurations evolving
• Market awareness & understanding increasing, breadth & depth in growing
phase – bidders & generators
• Particular interest in larger asset opportunities – interest expressed from
potential future new entrants
• Bidder/partnering approach may need to evolve for enduring depending on
how projects come to market
• Understanding of technology options, innovations & constraints
www.ofgem.gov.uk
Coordinated offshore transmission development
• Ofgem/DECC announced coordination workstream in August 2010 to focus on opportunities for enhancing co-ordination within the offshore transmission regime
• Offshore Transmission Coordination Advisory Group (OTCG) established & work underway with inputs from Stakeholder Community
• Ofgem/DECC conclusions to be informed by a range of evidence & analysis
• Assessment of options which emerge will relate to how they perform against Ofgem & Government objectives & statutory obligations
• Any proposals that are set out in our conclusions report would be subject to public consultation
www.ofgem.gov.uk
Investment challenge:• Significant capital requirement - £200 billion+ over the next decade to meet our
aspirations;• Capital markets fragile;• Investors need certainty and stability
• Impact on developers?• Impact on supply chain?
Future still very uncertain:• Political uncertainty – eg impact of EMR proposals;• Scale and timing of onshore development – what role will nuclear play;• Scale and timing of offshore development – ODIS scenarios has a broad range 25-
67GW.
Network development:• Long lead time to deliver new capacity;• Supply chain readiness – volume of new tech.
What is the appropriate network configuration?
…and there are major challenges ahead
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THANK YOU