Ofgem: offshore competition cuts connection costs by £700m

Competitive tendering has cut the cost of connecting offshore wind farms by at least £700 million since 2009, regulator Ofgem has revealed.

Ofgem said the tender regime it introduced with the Department for Energy and Climate Change to offshore transmission in 2009 as a world first has brought £2.7 billion of investment into the energy market through 15 tenders in three rounds.

It added that the process of companies bidding against each other to own and operate the offshore links has reduced the cost of connecting the wind farms by at least £700 million over the 20-year period of the contracts.

The length of the contract also provides investors with stable long term revenue, lowering the financial risk and allowing them to produce a more competitive bid.

The government has included proposals to extend competition to onshore transmission and distribution to cut the costs of connections in the draft energy act currently in pre-legislative scrutiny, based on the benefits competition has brought to offshore transmission.

Ofgem acting senior partner, networks, Maxine Frerk said: “The figures published today show that competition is helping to deliver savings for consumers for connecting offshore wind.

“We expect a further £2 billion of investment in the projects for tender rounds four and five. We want to continue to get the best deal for consumers from network regulation. So from next year we plan to open up high value upgrades to the onshore high voltage grid to competition.”

The fourth tender round will be launched next month, allowing bidders to compete for the Burbo Bank Extension, a 258MW wind farm in the Bay of Liverpool.

Ofgem said it expects to launch the fifth tender round in autumn.

The Energy Network Association last week expressed concern at the late inclusion of distribution in the plans for onshore competition, calling for clarity on when the new rules will apply.