Offshore Electricity Transmission: A New Model for Delivering Infrastructure: Gas and Electricity Markets Authority, Department of Energy and Climate Change
HC 22, Report by the Comptroller and Auditor General, Session 2012-13
- National Audit Office (NAO)
- TSO (The Stationery Office)
The Government's renewable energy target aims to deliver 15% of the UK's energy from renewable sources by 2020. The cost of connecting off shore sites to the onshore grid is expected to be around £8 billion; 'Offshore Electricity Transmission: A New Model for Delivering Infrastructure: Gas and Electricity Markets Authority, Department of Energy and Climate Change (HC 22)' examines the use of competition to license the transmission of electricity from offshore wind farms to the onshore network.
The licensing model has already delivered benefits and has the potential to deliver more. There were good levels of interest in the first four licences, with competition holding the value of deals for assets worth £254 million.
In establishing this new market, however, the Authority guaranteed the licensees a 20 year inflation-proof income. This may help to attract interest from long-term investors, but it also protects licensees and generators of offshore electricity from reductions in usage of the transmission assets, leaving consumers with long-term inflation risk. In addition, transaction costs have been high and the extent of savings from the new arrangements is not clear.
Further work is needed to establish robust benchmarks to ensure the amounts paid for transmission construction costs are not excessive. For the initial four competitions, costs of debt were 2.1%, 2.2 % above the relevant rates offered by 15 year UK gilt yields, which represents a competitive deal.
The NAO highlights the scope for improving financing costs, with concern that there is no provision for claw-back in the event of refinancing gains.
|Format||Paperback||Published||22 Jun 2012|
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