Offshore wind to add £17bn to energy bills warn MPs

The new licensing system for bringing electricity from offshore wind farms onto the national grid could add £17bn to household energy bills, warns the Public Accounts Committee (PAC).

According to the PAC, this will require a large investment in offshore infrastructure, including around £8bn of investment in transmission assets (offshore platforms, cables and onshore substations) to bring electricity from offshore wind farms onshore to the national electricity grid.

The new system will pay around £17bn to companies which operate power transmission assets connecting offshore wind farms to the national grid.

Run by energy regulator Ofgem, the system awards licenses to companies which own and operate the infrastructure for 20 years and provides a guaranteed income.

Chair of PAC, Margaret Hodge, said: “Not only is it unlikely that this new licensing system for bringing electricity from offshore wind farms onto the national grid will deliver any savings for consumers, it could well lead to higher prices.

“Indeed the terms of the transmission licences appear to have been designed almost entirely to attract investors at the expense of securing a good deal for consumers.

“Future payments to licensees are estimated at around £17bn, and this will ultimately be funded by customers who could well end up paying higher electricity prices”.

According to Hodge, the most operators can be fined if their facilities are not available and working is 10% of their income in any one year.

Furthermore, investors do not have to share any gains made through debt refinancing or excessive equity profits.

“The Department and the Authority told us their aim was to develop a competitive market for offshore electricity transmission but the reality is that the first six licences were won by just two companies,” added Hodge.

The Department for Energy and Climate Change (DECC) estimates that offshore wind farms have the potential to contribute 8-15% of electricity by 2020.

Responding to the PAC’s warning, trade and professional body RenewableUK, representing the wind and marine energy sector, said the framework was established to attract the right level of investment needed to ensure the successful growth of the offshore sector, and to encourage competition among companies, leading to lower bills for consumers.

Ofgem stated in its Offshore Transmission Coordination Report that the OFTO framework has “delivered significant benefits through cost savings to consumers, attracting considerable investment into the sector.”

RenewableUK’s deputy chief executive Maf Smith said: “It’s regrettable that the Public Accounts Committee didn’t acknowledge the fact that the OFTO system has already achieved its primary aims of bringing in much-needed investment and creating competition for transmission licences.
Ofgem has stated that the system has already saved consumers £29m”.

“We are also concerned that the committee did not consult the industry fully when it compiled its short report. Unfortunately the PAC did not allow itself sufficient time to hear the most up-to-date evidence. We would welcome an opportunity to speak to committee members at greater length at the earliest opportunity, in the interests of accuracy and balance”.

“Given the level of misreporting of this complex subject, it’s also worth clarifying that offshore wind farm owners are not permitted to hold offshore transmission licenses – the two sectors are kept separate by law, to ensure competition and value for money for the consumer,” he added.

Leigh Stringer

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