UK is betting big on offshore wind to meet it ambitious target of reaching net-zero emissions by 2050. The sector has gained greater significance in the post-COVID era investments. Offshore wind is UK’s fastest growing source of electricity, with a potential of over 75 GW by 2050. Considering the role it can play in the country’s decarbonisation plan, in December 2019 the UK government revised its 2030 target upwards to 40 GW from 30 GW.
In view of the enlarged role for offshore wind in the energy mix in the long run, UK’s policymakers and regulator have been contemplating a change in the current approach to designing and building offshore wind transmission (OWT).
In a recent development, on July 15, 2020, the UK Energy Minister launched a review into the existing offshore transmission regime to address the impediments it presents to further significant deployment of offshore wind. Earlier, the energy regulator, Office of Gas and Electricity Markets (Ofgem), in its decarbonisation action plan released in February 2020, indicated that it will work closely with the government and other stakeholders to explore whether a more coordinated offshore transmission system could reduce both financial and environmental costs.
“With the UK’s increasingly ambitious targets for offshore wind, constructing individual radial connections for each offshore wind farm may not provide the most efficient approach and could become a major barrier to delivery.”
The policymakers acknowledge that this review is overdue as the existing point-to-point offshore transmission connection approach was developed when offshore wind was a nascent sector and industry expectations were as low as 10 GW by 2030. Under the current enduring regime, the wind farm developer builds the transmission component and transfers the transmission assets to a third party called an offshore transmission operator (OFTO) upon project completion. OFTOs are selected in competitive tenders run by Ofgem. The regime allows for the OFTO-build model, but the generator-build model continues to be followed till date.
With the UK’s increasingly ambitious targets for offshore wind, constructing individual radial connections for each offshore wind farm may not provide the most efficient approach and could become a major barrier to delivery given the considerable environmental and local impacts, particularly from the associated onshore infrastructure required to connect to the national transmission network.
Keeping this in mind, the Committee for Climate Change (CCC) [formed under the Climate Change Act to advise the UK government on tackling and preparing for climate change], in its report to the Parliament (Reducing UK emissions Progress Report to Parliament, June 2020) called upon the government to develop a strategy to coordinate interconnectors and offshore networks for wind farms and their connections to the onshore network and bring forward any legislation necessary to enable coordination. Further, it recommended that the Department of Business, Energy and Industrial Strategy (BEIS) should develop such a strategy.
In line with this, the government has nominated the BEIS to lead the review, with support from a range of government and industry bodies and an industry expert group. The BEIS review will be split into two main workstreams.
In the medium-term workstream, it will seek to:
— identify and implement changes to the existing regime to facilitate coordination;
— assess the feasibility and costs/benefits of centrally delivered, enabling infrastructure to facilitate the connection of increased levels of offshore wind by 2030;
— explore early opportunities for coordination through pathfinder projects, considering regulatory flexibility to allow developers to test innovative approaches; and
— focus on projects expected to connect to the onshore network after 2025.
The longer-term strategic review will seek to:
— conduct a holistic review of the current offshore transmission regime and design and implement a new enduring regime that enables and incentivises coordination while seeking to minimise environmental, social and economic costs;
— consider the role of multipurpose hybrid interconnectors in meeting net-zero emissions through combining offshore wind connections with links to neighbouring markets and analyse how the enduring offshore transmission regime can support the delivery of such projects; and
— focus on projects expected to connect to the onshore network after 2030.
BEIS will publish an update on the review by end-2020, with a view to providing clarity for an enduring approach in 2021. Moreover, the policy recommendations and proposed changes to the existing regime will be delivered via the usual consultation process.
On its part, the government has been proactively promoting offshore wind. Contracts to construct 6 GW of offshore wind were awarded at record low prices in the last year. This has been possible due to the government policy that has reduced risk and cut finance costs by providing long-term contracts for renewable power, for example. The government indicated its desire for offshore wind to play a large part in the country’s energy transition and announced a date for the phase-out of coal-fired generation (preponed to 2024 from 2025 originally). The Green Investment Bank was set up to plug potential gaps in financing low-carbon technologies such as offshore wind and to crowd in private investors, while making commercial returns.
“A centrally delivered grid is not a new concept for offshore wind in Europe with countries such as Germany, Denmark, Belgium and the Netherlands adopting this model.”
The policymakers are now playing a proactive role in addressing network issues that could arise under the current approach, which could result in a chaotic offshore grid with multiple cables crossing each other and lack of holistic planning and coordination in the design of grid connections. A centrally delivered grid is not a new concept for offshore wind in Europe with countries such as Germany, Denmark, Belgium and the Netherlands adopting this model (either from the start or switching to it for future offshore wind connections). However, its feasibility and economics has to be assessed in UK’s context, which will be facilitated by the review.
As seen in terms of the review, the new approach is likely to be applied from 2025 onwards. Some of the key issues that would need to be addressed in the proposal of the new enduring regime include the approach to sharing risks and investments by the developers and network operators; whether the future networks will be built through competitive bidding or a designated central coordinator; the treatment of the revenue regime; coordination and harmonisation among the existing physical and contractual arrangements among developers, OFTOs, networks and interconnectors; and dealing with technological risks, among other things.
The results of the review will determine the future course of OWT in the UK. Although the outcome remains uncertain, the latest developments are expected to encourage the UK’s vibrant offshore wind sector as well as boost investor confidence.
The article has been sourced from Global Transmission