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UK’s Key Grid Initiatives: Upcoming opportunities for investors [free access]

November 14, 2017

In the last decade, the government of the United Kingdom (UK) has taken several initiatives to encourage investor participation in the power transmission sector. The aim has been to achieve a cost-effective and timely delivery of transmission assets in the sector. Alongside, it has partnered with several neighbouring countries to boost its cross-border renewable transmission capacity for an energy secured and carbon-free future. Some of the key initiatives that have witnessed significant progress in the sector are the Offshore Transmission System Owner (OFTO) regime; competitively appointed transmission owners (CATO) regime for onshore transmission assets; and the cross-border projects with various European countries such as France, Spain, Ireland and Iceland.

 

Global Transmission Research highlights recent developments and future opportunities for these initiatives.

 

OFTO: Offshore transmission plays an integral part in attaining the government’s target to provide 15 per cent of the country’s energy needs from renewable sources by 2020. Efficient delivery of transmission assets for offshore wind energy projects forms a core part of the strategy for reaching this objective in the most cost-effective manner.

 

In this regard, UK’s OFTO regime to own and maintain offshore transmission assets through a competitive tender process has met with significant success, with the sector attracting around GBP3.03 billion worth of investments since its launch in 2009. Through the regime, the government aims to boost competition, thereby lowering asset costs and encouraging new entrants with innovative solutions and funding options. Since its launch, OFTO assets have attracted significant interest from the investor community by offering solid returns on a relatively low risk profile, underwritten by a stable regulatory framework overseen by the Office of Gas and Electricity Markets (Ofgem).

 

The latest tender round 5 (TR5) launched on October 10, 2016 by Ofgem was another step in this direction. Under this, the winning bidders will own and operate five proposed transmission links to offshore sites over a 20-year period. The five offshore wind farms are the 402 MW Dudgeon, the 340 MW Galloper, the 573 MW Race Bank, the 400 MW Rampion and the 660 MW Walney Extension farms. The five transmission links will have a total capacity of 2.3 GW. TR5 is expected to attract an investment of over GBP2.5 billion.

 

Table 1: TR5 projects under bidding

Project

Shortlisted bidders

Voltage

(kV)

Line length (km)

Initial transfer value

Dudgeon offshore wind farm

Balfour Beatty Investments, Equitix, Diamond Transmission Partners and Mari Energy Transmission

132

89.60

GBP377.20 million

Race Bank offshore wind farm

Balfour Beatty Investments, Equitix, and Diamond Transmission Partners

220

85.75

GBP530.40 million

Rampion offshore wind farm

Balfour Beatty Investments, Equitix, Diamond Transmission Partners and Mari Energy Transmission

150

45.00

GBP313.10 million

Walney Extension offshore wind farm

Diamond Transmission Partners, Mari Energy Transmission and Transmission Capital Partners 

220

72.00

GBP517.00 million

Galloper offshore wind farm

Diamond Transmission Partners, Mari Energy Transmission and Transmission Capital Partners 

132

46.13

GBP329.10 million

Note: Initial transfer value represents the initial estimate of how much it will cost the wind farm developer to develop and construct the offshore transmission system.

Source: Ofgem

 

Following suit, the regime is expected to ensure even higher returns for future investors and consumers. Some of the upcoming opportunities for OFTO licences are summarised below:

 

Beatrice offshore wind farm: The 220 kV transmission project will connect Beatrice Offshore Windfarm Ltd's (BOWL) 588 MW Beatrice offshore wind farm located off the coast of Scotland to the Blackhillock substation. The project comprises two 33/220 kV offshore substations, two 90-km-long, 220 kV alternating current (AC) export cables and one 220/400 kV onshore substation. It is expected to be commissioned by 2021.

 

Neart Na Gaoithe offshore wind farm: The 220 kV transmission project will connect Mainstream Renewable Power's (MRP) 450 MW Neart na Gaoithe offshore wind farm to the transmission network of National Grid. It is expected to be commissioned by 2022.

 

Hornsea One offshore wind farm: The 132-400 kV transmission project to connect DONG's 1.2 GW Hornsea One offshore wind farm located off the coast of Yorkshire in the UK will comprise a reactive compensation platform; up to four subsea 132-400 kV, AC export circuits, each up to 140 km long, running from the offshore substations to landfall in the vicinity of Horseshoe Point, south of Grimsby; and an onshore substation, which will be located adjacent to the National Grid Killingholme substation. If a high voltage direct current (HVDC) solution is chosen, the onshore substation site will house a convertor station, and will likely consist of the 1,200 MW bi-pole voltage source converter (VSC) HVDC convertor station and high voltage gas-insulated switchgear (GIS) systems. It is expected to be commissioned by 2021.

 

East Anglia ONE (EA1) offshore wind farm: The 220 kV transmission project will connect ScottishPower Renewables’s 714 MW EA1 offshore wind farm located about 43 km off the Suffolk coast in the southern North Sea. It comprises an offshore substation platform; two seabed export cables, each around 73 km long; up to six onshore underground cables, each around 37 km long; up to five cable ducts for two future East Anglia projects, which will be installed to connect to Bramford substation; and an onshore converter station adjacent to the existing substation at Bramford, Suffolk. It is expected to be commissioned by 2020.

 

CATO: To replicate the success of the OFTO regime, in 2015, Ofgem, as part of its Integrated Transmission Planning and Regulation (ITPR) project, decided to extend the use of competitive tendering to onshore electricity transmission assets that are new, separable and of high value and can bring value to consumers. These assets are part of the Strategic Wider Works (SWW) regime encompassing large and uncertain projects identified by the transmission operators (TO). 

 

This model has two types—Early CATO build and Late CATO build. Under the Early CATO build model, the selected CATO will be responsible for all necessary preliminary works, construction and operation, while under the Late CATO build, CATO will only be responsible for construction and operation.  As of now, Ofgem has proposed to set CATO’s revenue based on a bid tender revenue stream, fixed for a 25-year period from completion of construction and indexed to inflation. However, as the need arises, Ofgem may consider a shorter or longer period for projects being tendered in case that would serve consumers better. Ofgem has undertaken several consultation documents seeking feedback and input for putting in place arrangements to select the CATO.

 

Several onshore projects have been assessed as suitable for development through competitive bidding. However, Ofgem will decide on a case by case basis whether the project will be delivered under the SWW mechanism or via competition. Key projects include the Eastern Link, Western Isles Link and Hinkley Seabank Connection Project.

 

However, in June 2017, Ofgem notified that it will further develop the CATO regime only when there is greater clarity on the timing of the enabling legislation. But the regulator intends to continue with the consultation process for the onshore projects that have been assessed as suitable for competitive bidding. In this context, a key development is the launch of a consultation on final need case and potential delivery models for the Hinkley connection.

 

Table 2: Onshore projects assessed as suitable for competitive bidding

Project

Description

Voltage (kV)

Line length (km)

Bid value

Commissioning

 

Western Isles link

It aims to connect the Western Isles to the Scottish mainland through a 450 MW or 600 MW, ±150 kV high voltage direct current (HVDC) link comprising an 80-km subsea cable and a 76-km underground cable

±150/132

182

GBP780 million

2021

Orkney Islands link

The project includes the construction of an AC subsea cable rated at around 200 MW between Orkney and northern Scotland.

NA

NA

NA

2022

Shetland Islands link

The project includes the construction of a 600 MW HVDC link between Kergord on Shetland and Caithness, or alternatively landing in Morayshire.

±275

345

EUR148.2 million

2021

Torness to North East England AC reinforcement

The project includes the construction of a new double-circuit line from a new 400 kV substation in the Torness area to a suitable connection point in North East England.

400

NA

NA

2028

Eastern link

The project proposes to develop a 2 GW subsea link between the north of Scotland and demand centres in England.

±500

365

EUR1,460 million

2024

Hinkley Seabank Connection project

The project entails removing about 65 km of existing 132 kV overhead electricity lines owned by Western Power Distribution and constructing a new 46.6-km, 400 kV connection between Bridgwater and Seabank.

400

57

EUR814 million

2024

North West coast connections

The project involves the construction of a new 400 kV power ring around the North West coast, which will provide the nuclear power plant in Moorside with a secure connection to the grid and allow other new generators to link into the electricity network in Cumbria in the future.

 

400

164

NA

2025

NA: not available

Source: Ofgem

 

Cross-border projects: In parallel, development of cross-border interconnectors has accounted for a major part of the grid investments as part of the UK’s strategy to build energy security in a move towards a low carbon economy.  Currently, around 24 cross-border links are at various stages of development involving around 8,000 km of line length. Some of the major cross-border projects  are summarised below.

 

Table 3: Key cross-border projects in the UK

Project

Voltage (kV)

Line length (km)

Cost

Commissioning

AQUIND Interconnector (France and UK)

±320/563

240

EUR1,400 million

2020

BRITIB Project (France, UK and Spain)

±500/600

1,330

EUR2,450 million

2020

North Sea Network (Norway and UK)

±500

720

EUR1,850 million

2021

Greenlink Interconnector (Ireland and UK)

NA

172

EUR400 million

2022

Viking Link (Denmark and UK)

±500

760

EUR1 billion

2022

Greenconnect (Ireland and UK)

NA

155

EUR400 million

2023

Greenwire North Interconnector (Ireland and UK)

NA

262

EUR800 million

2023

Greenwire South Interconnector and Greenwire Loop Cable

(Ireland and UK)

NA

288

EUR900 million

2023

Ice Link (Iceland and UK)

±525

 

1,000

 

GBP4-5 billion

 

2030

 

Source: Global Transmission Research

 

Summing Up

Just like the OFTO regime, boosting competition in the UK’s onshore power transmission grid is expected to result in the timely, economic and efficient development of the country’s grid. The move is expected to create a strong competitive field by attracting new entrants and encouraging them to adopt innovative ways to design, construct and operate transmission infrastructure. However, legislative delays have raised doubts over the timely implementation of the regime, which might not be launched in the near future.

 

Nonetheless, the outlook for transmission investments in the country remains positive as new transmission assets, including cross-border links, have been planned to increase renewable energy capacity, which is targeted to serve 15 per cent of the country’s energy needs by 2020 and support the UK’s strategy of building an energy secured and a low carbon economy.