UK's OFTO regime slammed by MPs

The system by which the UK allocates ownership of the power lines linked to its expanding base of offshore wind farms has come under heavy fire, with an influential group of Members of Parliament arguing that it represents a bad deal for consumers.

While the group has no immediate authority to prompt changes to the so-called Offshore Transmission Owner (OFTO) regime, its criticism could lead to deeper scrutiny by government and media, potentially broadening the uncertainty that has engulfed much of the UK’s future energy policy into another, previously secure arena.

The terms of the six OFTO licenses granted to date “appear to have been designed almost entirely to attract investors at the expense of securing a good deal for consumers”, says the Public Accounts Committee (PAC), which scrutinizes government expenditures to ensure transparency and accountability.

To date, the Office of Gas and Electricity Markets (Ofgem) has awarded licenses to operate the offshore transmission for the Robin Rigg, Gunfleet Sands, Barrow, Walney 1 and 2, and Ormonde projects.

London-based Transmission Capital Partners won the rights to four of the projects, while Blue Transmission – which includes Barclays Infrastructure Funds Management and a subsidiary of the Mitsubishi Corporation – won the other two.

The fact that just two groups of investors won the first six projects dynamites the notion of any “competitive market” for the assets, according to the PAC.

The Department of Energy and Climate Change has said that about £8bn ($12.9bn) of investment will be required to build power links harnessing the country’s portfolio of existing and future offshore wind projects. Future payments to transmission owners are estimated at £17bn, with consumers to ultimately bear the cost via their electricity bills.

In addition to the initial terms of the licenses, which the PAC deems “extremely generous”, it also criticizes the penalties that will be levied on licensees if they do not hold up their end of the bargain. The most operators can be fined if their facilities are not up and running is 10% of their income in any one year.

The PAC suggests that any gains licensees make via refinancing their debt be shared, a lesson it says the government should have learned from past experience.

Countries continue to grapple with how best to balance the risk and reward of investing in offshore transmission assets. The lack of investor confidence in Germany's regime – seen as superior by many UK observers because of the linked-up nature of its design – has significantly delayed a number of offshore wind projects in that market.