Last week I looked at Ofgem’s Decarbonisation Action Plan and asked how much this was a shift in tone or even direction for the regulator under new CEO Jonathan Brearley. This week I want to look in more detail at Action 3: “explore regulatory options to support development of an offshore grid to enable a four-fold increase in offshore wind generation by 2030.”
First, as everyone knows, offshore wind farms are growing in size, and distance from shore is growing. So this that the costs of building, operating and maintaining connections is increasing. This shift over time is shown by the following graph tracking export cable length over time. Each yellow dot marks an individual project's export cable length. Each grey dot shows the average distance from shore for each project. All data in this and other figures here is courtesy of RenewableUK’s Project Intelligence Hub.
Increasing distance means of course that cables costs make up a bigger cost of construction and operation. By the way, the graph shows that distance from shore and export cable length is increasing, but that export cable length is increasing more. That is a signe of a shortage of nearby connections, with schemes increasingly having to design longer cable routes so they can connect to the best transmission infrastructure onshore. This makes industry’s worries about the current OFTO regime more acute, given that this OFTO regime is going to have to manage these connections. So opening up a discussion on the right way to regulate offshore connection will be welcomed by industry. But how much of the current pipeline could be connected by shared connections if the regulation shifts?
Well first the bad news. 40GW might be a big number, and we are less than ¼ of the way in terms of fully operational offshore sites, but most of the next 30GW has already locked down its connection route and will have little choice but to connect on single radial connections. That’s almost all down to decisions made early in this decade when the offshore wind “enduring regime” was agreed between DECC and Ofgem, and the unsurprising decisions made since by developers to build out wind farms at lowest risk.
Now the good news. Ofgem is right to identify a shift to a meshed grid system as a gamechanger. Leadership and a new regulatory approach is vital. We just need to be more pragmatic about how long this might take, and when it might begin to have an impact.
So let me take you through the numbers and the GB offshore wind pipeline to show you what I mean. We have 12.2GW of offshore wind in full operation, commissioning or under construction. Following closely behind is 10.2GW consented and either holding a CfD or looking to get one (let’s discuss merchant routes or blended schemes another time so we don’t confuse things). There is an additional 14.4GW in planning or development, so in total we have 36.9GW of existing projects.
This 36.9GW portfolio and how it breaks down into these different stages is shown in the next figure. The line (and right axis) shows cumulative development (assuming that all projects are built).
New leasing rounds being run by The Crown Estate (which expects to lease a minimum of 7GW) and Crown Estate Scotland (which has not set a figure) will deliver the gap up to 40GW, and offer new schemes that help us get closer to the 75GW we need to support delivery of net zero by 2050.
To help break that down further, this next set of figures breaks down this 36.9GW. On the left the data is broken down by status (in operation, under construction, etc), and on the right by location (England and Wales, or Scotland). England & Wales are put together, but as the above figure shows, most offshore wind is in England and the only current Welsh scheme not yet built is the proposed Gwynt y Môr extension.
Let’s unpick this data some more. On the left-hand side, the yellow shades shows the 33% of our 36.9GW portfolio in operation, being commissioned or under construction. 28% (in magenta and pink) is consented with site designs, connections etc. essentially locked down. So 61% of our 36.9GW portfolio cannot make use of any change to how we regulate or connect to the grid.
A further 29% (orange) of our existing portfolio is currently in the English planning system (there are no Scottish sites awaiting consent). These schemes will already have a clear idea of connection route, substation location etc and these will be under discussion with relevant authorities and form part of submitted planning applications. 10% (dark and light grey) is in development so will have at least an emerging idea, and in practice will be making decisions on connection and at best have already commissioned expensive connection option reviews.
Given the speed with which decisions on grid and regulation are made, my estimate is that for over 90% of our existing 36.9GW portfolio, Ofgem’s commitment to look at different connection options is of no practical value. That’s a problem for everyone.
One of the most difficult days of my time at RenewableUK was appearing as a witness in front of the House of Commons Public Accounts Committee, just before seeing the then DECC Permanent Secretary and Ofgem CEO be taken to pieces about value for money in the OFTO regime. And with growing questions from coastal MPs about the scale of connection required, disagreement around grid will be a sensitive issue and risk factor for the build out of offshore wind in the UK.
The data in the pie-chart on the right shows this data by region. England and Wales are in red and Scotland blue. Shading shows status. Over 80% of GB’s offshore wind portfolio is in England, though Scotland is a growing market with over 1/3 of the Scottish portfolio still in development. This later growth in Scotland could be important for how Ofgem addresses offshore connections.
To be able to make a difference by 2030, we first need to hear more about Ofgem’s 9thcommitment to “take big decision in a fast-changing environment by being more adaptive in our regulatory approach”. In my view this is the most significant commitment, and obviously will be hardest to deliver. Energy consumers still need protecting. Facebook doesn’t operate under the mantra “move fast and break things” anymore, but Ofgem is unlikely to adopt this as a strapline now it is free.
The best way that Ofgem can demonstrate an adaptive approach is by recognising the environment has changed since decisions were taken at the start of this decade on the enduring regime for OFTOs. How Ofgem responds to growing industry frustration at the current OFTO system will be a big clue to any shift in attitude. I was part of the industry lobbying effort to ensure “generator build” was an option. Industry was right to reject Ofgem and DECC’s proposals, and hopefully Ofgem will be alive to the fact that its own recommended approaches have never been used. Industry in the UK in turn recognises that Ofgem’s approach of allowing the private sector to lead on building connection infrastructure has allowed the sector to build out more quickly and cheaply than the continental approach of state or regulated transmission companies building assets, as confirmed by a recent DIW Econ study.
That means Ofgem has an opportunity to tweak this successful private sector led model by addressing the challenge of how to share costs as well as risks of stranded or under-utilised assets. Some form of underwriting or insurance will be required to manage this. Ofgem could use regulation and innovation programmes to bring forward small trials of shared connections later this decade, but realistically meshed connections will take time to develop and secure industry confidence.
For me then what is really needed is Ofgem taking charge of offshore connection from 2030 to 2050. This longer-term thinking brings a number of opportunities.
First continental connections. There are is a growing pipeline of interconnection projects. In Germany TenneT is looking at its Energy Island project and options for connection of offshore wind to a Germany-Norway interconnector. The obvious UK schemes Sofia and Dogger Bank will come too soon to make use of that piece of grid infrastructure, but Ofgem could play a useful role in bringing the many interconnector developers into the conversation and also looking at how to encourage new technology providers such as Supernode.
Second, leasing and east coast clusters. New leasing rounds will likely deliver clusters of significant projects around Yorkshire & Humber, East of England, NE and Eastern Scotland. There are opportunities then to see how regulation could change to deliver better grid coordination here, and of course to help developers with the headache of individual connection as an alternative to an increasingly congested onshore grid.
Third, new bootstraps. Expect a growth in Scottish schemes. So Ofgem could lead a conversation about how future offshore wind would connect in Scottish connections, where we already have a lot of onshore wind and a congested network. Let’s hope that Ofgem has located and re-read the shelved plans for the Eastern Bootstrap.
Fourth, is floating. Thinking longer term of course means going deeper and further out. As well as Scotland there is growing appetite for floating offshore wind in SW England and Wales, and frustration that these areas are not covered in existing leasing. All these areas have similar challenges with connection and constraint.
Finally, hydrogen. Ofgem looks after gas and electricity, so oversight of the electricity to generate the hydrogen and changes to the gas network to move it will fall to it. But a move offshore also means that oil and gas involvement. It’s regulator is the Oil and Gas Authority, and it is ahead of Ofgem in addressing energy transition. The OGA, Ofgem, BEIS and The Crown Estate are already collaborating on offshore renewables so there is lots of shared thinking going on, and don’t be surprised if more attention is paid to the latest German leasing round where far offshore sites are being leased without connection back to shore. By the way, the fact that the regulators are working together won’t prevent a looming turf war over aspects of hydrogen regulation. Having worked with both organisations, at the moment I would say the OGA is ahead in its work to stake a claim to that part of the regulatory landscape.