In support of the UK Government’s offshore wind and net zero ambitions, the Offshore Transmission Network Review (the “OTNR”) aims to deliver improvements in the way that offshore generation is connected to the onshore transmission network and facilitate a more supportive approach for multi-purpose interconnectors that combine market-to-market interconnectors with offshore transmission. The OTNR contains four workstreams with the following objectives:
Early opportunities – to identify and facilitate opportunities for increased coordination in the near term, with a focus on “in-flight” projects.
Pathway to 2030 – to drive coordination of offshore projects progressing through current ScotWind and Crown Estate Leasing Round 4, connecting before 2030.
Enduring Regime – to develop a new post-2030 framework that drives coordination from the earliest stages of an offshore project, with changes being driven across multiple Government departments.
Multi-purpose interconnectors (“MPIs”) – to make tactical changes to facilitate early opportunity MPIs and to develop an enduring MPI regime for 2030 onwards.
The remit of change in the Early Opportunities and Pathway to 2030 workstreams is primarily led by Ofgem, while the Enduring Regime and MPI workstreams are primarily led by BEIS. The latter two workstreams are the subject of the most recent OTNR consultation published by the Department for Business, Energy and Industrial Strategy (“BEIS”) on 28 September 2021 (the “Consultation”).
The purpose of the Consultation is to seek stakeholder views on possible approaches for an enduring regime to plan, develop and deliver offshore transmission. The new regime would primarily apply to projects (and associated infrastructure) developed following future seabed leasing rounds (the Crown Estate leasing rounds beyond Offshore Leasing Round 4 plus Crown Estate Scotland leasing rounds beyond ScotWind).
The benefits of a more integrated approach to offshore transmission
At present, the offshore transmission regime takes a developer-led approach to designing and delivering offshore transmission, resulting in individual point-to-point connections for each windfarm. However, BEIS considers that the current approach will not, in the future, be fit for purpose because of its cumulative impact on the environment and local communities as well as the scope for cost reduction through shared infrastructure and coordination. Therefore, BEIS proposes to take a more strategic approach to network infrastructure, which would consider the offshore transmission system holistically with the onshore network to deliver a more coordinated approach and reduce the cumulative impacts of transmission.
Towards a strategic plan
Wind farm locations are currently determined through a combination of seabed leasing rounds and developer choice, but BEIS highlights that a more strategic approach would consider the role that offshore wind and transmission can play in the delivery of net zero in an efficient way, such as by planning the deployment of offshore wind, taking account of network considerations, interactions with other developments, activities and uses of the marine and coastal environment. A strategic approach would also inform the geographic areas for wind farm development and indicative cable corridor routes.
Holistic network design
The Consultation highlights that there are likely to be benefits from a centralised approach that could consider location, capacity and timing of offshore wind developments and translate this into a holistic network design which integrates the offshore transmission network with onshore transmission, carbon capture utilisation and storage and potentially hydrogen as an energy vector. BEIS sees this benefit irrespective of whether the location, capacity and timing of the generation could in the future be determined by a strategic plan or developers’ decisions.
BEIS considers that a move to holistic network design could mean:
The ESO extending its current remit towards the role of a strategic network planner or another party taking on this role. This is being considered as part of the workstream on the future of the System Operator; and
Changing the approach to offering financial support, for example by combining this with seabed leasing and offshore transmission (see further below).
The Consultation seeks views on who is best placed to undertake which activity in the process of delivering offshore transmission and at what point it is most appropriate to include competition, considering seven possible offshore transmission delivery models as follows:
There are obvious parallels between this workstream and the recent consultation on competition in onshore electricity networks.
Approaches in other jurisdictions
BEIS notes that the UK model is one of the most decentralised approaches to offshore transmission used, so it is helpful to compare this model with more centralised approaches to consider the relative merits.
The German system, for example, takes a more centralised approach; seabed leasing is combined with a competitive process for government support, in the long run increasing competition at auction by giving the same level of information, as well as being cost-effective for potential developers as they spend less money upfront to gather the site information required for the calculation of their financial support bids. In contrast to the UK model, the connection to the onshore grid is constructed, owned, and operated by the German TOs who are responsible for taking the transmission through the planning and consenting process.
A range of options
The Consultation identifies two broad categories of options: 1) those that retain the developer-led approach but make incremental changes to incentivise coordination, and 2) those that introduce centralised holistic network design and delivery for offshore transmission, as follows:
Option 1: Incremental change – introduces market incentives for coordination and is closest to a non-regulatory option.
Option 2a: Holistic network design and delivery – more centralised models involving a holistic network design and the potential for early delivery of transmission infrastructure.
Option 2b: Holistic network design with combined seabed lease and financial support – by combining the seabed leasing, connection process and CfD auction into a single process, this would reduce uncertainty when conducting the holistic network design. This approach would require significant changes to both the seabed leasing process and the CfD regime but would avoid the challenge of having two consecutive competitive processes and the need to maintain competition in both, which makes it difficult to plan the transmission network efficiently.
Benefits of MPIs
In considering the role of MPIs in achieving net zero through combining offshore wind connections with links to neighbouring markets, BEIS recognises some of the potential benefits in facilitating the deployment of MPIs. This notably includes reducing:
The number of landfall points of onshore grid connections;
Environmental and local community impacts;
Capital and operational costs; and
Curtailment of wind.
BEIS is considering whether legislative changes would help remove barriers to MPIs and is working closely with Ofgem regarding the MPI workstream and the best approach to facilitate an enduring regime for MPIs.
Comment and next steps
There is an emerging consensus among market participants for a higher degree of centralised design and delivery to meet the Consultation’s objectives. Strategic planning will be central to the delivery of the objectives of the Consultation, considering the challenges to delivering coordinated transmission in an efficient manner without exposing the consumer to undue risk of anticipatory investment.
The Consultation also concludes that commercial barriers to competing projects working efficiently together are high and that a developer-led approach is unlikely to deliver the degree of coordination that would realise the objectives of the Consultation, even if supported by new incentives. Therefore, it appears that direction of travel is towards greater holistic network design with coordinated delivery, building on the approach being developed for the Pathway to 2030.
Focussing on projects expected to connect to the onshore network after 2030, the objectives of the long-term enduring regime workstream are to minimise costs, as well as facilitating any possible coordination with and/or development of MPIs, with the potential to reduce the costs of interconnection with electricity systems in other countries.
The two-stage approach proposed in the Consultation is intended to bring about change as soon as possible, including facilitating any legislative change is that is required for implementation (as would be required for their preferred approach).
The deadline for responses to the Consultation is 23 November 2021.