BEIS proposes centralised strategic approach to offshore wind development

The government has proposed taking a more centralised strategic approach to the planning and development of offshore wind infrastructure, stating that the current developer-led model is unlikely to deliver the necessary degree of coordination.

In a new consultation issued as part of its offshore transmission network review, the Department for Business, Energy & Industrial Strategy (BEIS) said this could include combining offshore wind leasing rounds with Contracts for Difference (CfD) auctions.

The document said windfarm locations are currently determined through a combination developer choice and leasing rounds, which have tended to offer rights for large areas of seabed often spread around the coast. This limits the potential benefits of coordination as projects are not close enough to share infrastructure or are being built at different times.

BEIS said there may need to be a more strategic approach to planning that takes into account network considerations such as reinforcement costs and proximity to demand centres as well as interactions with other marine development and activities and environmental issues.

It said a creating an upfront strategic plan setting out when and where offshore wind is expected to be deployed would allow for greater coordination of network infrastructure, including integration with cross-border interconnectors, improving efficiency and minimising the impact on the environment.

“It seems very unlikely that a developer-led approach would be able to deliver any of the more complex coordinated offshore network configurations,” the consultation explained.

Such a plan could provide a forward schedule for leasing rounds and CfD auctions and identify likely cable corridors, connection points to the onshore network and required reinforcements. This would ensure onshore reinforcements are completed at an appropriate time and that capacity constraints do not present a barrier to deployment.

“Although it would be possible to deliver some of the benefits of coordination in the absence of a strategic plan, we think these would be small by comparison,” BEIS stated.

“They would likely be opportunistic changes where windfarms near each other happen to be following a similar timeframe (and so could potentially plan to share transmission infrastructure), or where a future windfarm in the area can reasonably be expected.

“It is unrealistic to expect changes to the latter stages of the windfarm development process to be able to deliver significant benefits if the early stage does not plan coordination.”

However, the consultation also admitted there would be some trade-offs to upfront strategic planning: “If seabed leasing maximises opportunities for coordination, this could result in a smaller number of potential projects. This would reduce the diversity of projects competing in any CfD auction, which could reduce the competitive pressure in the auction.

“There are also fundamental questions around the role of the CfD in project selection if we are following a more strategic centralised approach. Essentially, if we take a more centralised approach to identification of sites, then there is less scope for developers to choose the sites that they feel are best suited to offshore wind and can help deliver lower costs.”

BEIS noted that the UK currently has one of the most decentralised approaches to offshore wind planning and development when compared to other countries, highlighting the arrangements in places such as Germany and the Netherlands.

“Under the German system, the seabed leasing is combined with the competitive process for government support. This process grants successful bidders the exclusive right to apply for a permit to build and operate a windfarm on the site for which the financial support was auctioned.”

There is no separate leasing auction and remuneration for seabed rights included in the permit fee, the price of which is determined by statute. The permit also entitles the windfarm to be connected to the grid by the transmission system operator at a time and place set according to a unified plan for the deployment of offshore wind generation and network infrastructure.  The government conducts preliminary site surveys and this information is provided to all bidders.

“The Netherlands take a yet more centralised approach, with construction permits for generation being granted alongside the seabed lease award and connection agreement. All windfarms are of a standard size (or multiple thereof), which enables the transmission owner to take a standard approach to offshore substations and cables delivering economies of scale from the supply chain.”

BEIS outlined two potential approaches for the future of offshore wind development and planning in the UK, the first being retaining the current developer-led model but implementing incremental changes.

These could include altering the methodology for calculating the costs of transmission assets and the approach to cost recovery so that generators could be reimbursed for constructing larger assets that could be shared by other developers; amending the CfD scheme so that developers could submit joint or linked bids; and changing the connections process to direct clusters of projects to shared connections points.

The second approach would see the holistic design and delivery of network infrastructure, building on Ofgem’s proposals from its Pathway to 2030 project to coordinate the connection of projects that have won seabed leases this year or will do by 2022.

BEIS said holistic network design would not necessitate the creation of a strategic plan for offshore wind deployment although it would help to reduce the risk of anticipatory investment.

It also outlined an alternative version of the second approach in which the allocation of seabed leases and government support are combined into a single competitive process.

The department said this would further reduce the risk of anticipatory investment: “A single competitive process would provide much greater certainty around the siting and timing of generation, enabling the transmission to be designed with much less uncertainty. This would enable it to be moved earlier in the process, but with a reduced risk of underutilised capacity.

“It would also be possible to include the connection offer in this process, further reducing uncertainties for the generator.”

BEIS additionally set out a number of potential options for the detailed design and delivery of offshore transmission infrastructure.

Under the current arrangements, offshore transmission assets are designed and built by offshore wind developers, which factors these costs into their strike price bids in CfD auctions. Ofgem then holds tenders to appoint an independent offshore transmission owner (OFTO) to own and operate them. Although there is also an “OFTO-build” model, no developer has yet taken this route.

BEIS suggested onshore transmission owners could take on some or all of these roles.

The department said it is not yet possible to identify a preferred approach from the options outlined in the consultation but said it can draw some “high-level” conclusions.

“Considering the challenges to delivering coordinated transmission in an efficient manner without exposing the consumer to undue risk of anticipatory investment, we think that strategic planning will be central to the delivery of the objectives of the review.

“This is consistent with early stakeholder engagement calling for coordination to be considered at the very early stages of the offshore wind development process. However, questions remain around the scope of any strategic planning and how roles and responsibilities would be determined.

“We think that the 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 deliver the objectives for the review, even if supported by new incentives.

“We therefore think that there is likely to be greater benefit from continuing the holistic network design with coordinated delivery. This would build on the approach being developed for the Pathway to 2030, but there are likely to be some differences to reflect the different timescales.”

BEIS acknowledged that the shift to a more centralised approach to offshore planning and development would represent a “very significant change.”

The deadline for responses to the consultation is 23 November 2021.