Ofgem grants licence for £352 million Gwynt y Môr offshore transmission link
- Transmission link connects world's second largest windfarm to the onshore grid
- Over £2.2 billion of new transmission investment delivered by the regime to date
- EIB’s innovative Project Bond Credit Enhancement product helps deliver lower costs for consumers
Ofgem yesterday granted Gwynt y Môr OFTO plc a licence to own and operate the £352 million transmission link to the Gwynt y Môr offshore wind farm. Competitive tendering for ownership of the assets has driven down costs for consumers. The regime has delivered over £800 million of investment in the last 6 months alone.
At £352 million it is the largest OFTO project to date to be financed through the capital markets. This innovative financing approach opens up investment in the OFTO regime to a wider range of investors, helping to drive down the costs for consumers of connecting offshore wind farms to the onshore grid.
Gwynt y Môr OFTO plc is owned by the Balfour Beatty Equitix Consortium, a consortium comprising Balfour Beatty Investments Limited and Equitix Limited. It was selected by Ofgem through a competitive process, in which bidders compete to become offshore transmission owners (OFTOs), and will now own and operate the link for the next 20 years.
Martin Crouch, senior partner for transmission, said: “With the licence granted for Gwynt y Môr OFTO, the OFTO regime has attracted over £2.2 billion of new investment into the UK transmission sector to date. This is just a part of up to £10 billion of investment in offshore and cross-border investment that we are expecting by the end of decade. The regulatory frameworks devised by Ofgem are key to attracting the new investment needed to extend grid networks to connect renewable energy projects, and to enable planned interconnectors with European partners to be built.”
Jonathan Taylor, European Investment Bank, said: “Investment in renewable energy helps to reduce carbon emissions and benefits local economic activity. The European Investment Bank is committed to supporting energy investment across the UK, including development of the offshore wind energy sector. We are pleased to be able to support the Gwynt y Môr project using the Project Bond Credit Enhancement facility and continue our close cooperation with OFGEM to finance the connection of offshore windfarms to the national grid using a range of financing structures. The scheme is already creating jobs in north Wales and elsewhere, and clearly demonstrates the huge potential of harnessing wind energy in UK waters.”
Notes to editors
1. Together with DECC we launched the offshore transmission regime in 2009. It uses competitive tendering for licensing offshore electricity transmission systems – something that had not been done before anywhere else in the world.
We have begun three tender rounds to date. The Thanet project reaching financial close and licence grant in December 2014 marked a key milestone for the regime. It was the final project in Tender Round 1 to reach this stage and marked the close of the tender round. Gwynt y Môr is the third offshore transmission project to reach financial close and licence grant in Tender Round 2.
Financial close is where the developer completes the sale of the offshore transmission system to the OFTO.
To date all offshore transmission systems have been built by the wind farm developer before being transferred to an OFTO when construction is complete. In future tender rounds we expect to see projects where OFTOs design, build, operate and maintain the transmission assets.
2. Gwynt y Môr Offshore Wind Farm Limited is a joint venture owned by RWE Innogy, Stadtwerke München GmbH and Siemens. It is located in the Liverpool Bay area, approximately 8 miles off the North Wales coast, and comprises 160 Siemens 3.6MW turbines with a maximum installed capacity of 576MW. RWE Innogy estimates that the wind farm will be capable of generating enough energy from renewable sources to power the equivalent of approximately 400,000 homes.
3. Gwynt y Môr OFTO plc is owned by the Balfour Beatty Equitix Consortium, a consortium comprising Balfour Beatty Investments Limited and Equitix Limited. It was selected by Ofgem through a competitive process, in which bidders compete to become offshore transmission owners (OFTO), and will now own and operate the assets for the next 20 years.
4. The European Investment Bank’s Project Bond Credit Enhancement (PBCE) product is designed to enable infrastructure projects, such as the Gwynt y Môr OFTO, to attract additional private finance from institutional investors such as insurance companies and pensions funds. The PBCE reduces the investment risk, enabling the project to attract cheaper finance, which ultimately reduces costs for consumers.
5. An independent report by consultants CEPA and BDO estimates that through competition and appropriate allocation of risks, the regime’s first tender round (TR1) has already saved consumers between £200m and £400m. CEPA and BDO also estimate that if the same cost benefit analysis methodology used to evaluate the TR1 projects was applied to projects in Tender Round 2 (TR2), the cost savings could be considerable.
6. For more information on the offshore transmission regime and the projects Ofgem is tendering, see the offshore section of our website.
7. Ofgem is the Office of the Gas and Electricity Markets, which supports the Gas and Electricity Markets Authority, the regulator of the gas and electricity industries in Great Britain. The Authority's functions are set out mainly in the Gas Act 1986, the Electricity Act 1989, the Competition Act 1998 and the Utilities Act 2000. In this note, the functions of the Authority under all the relevant Acts are, for simplicity, described as the functions of Ofgem.
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Claudia Cimino: 020 3263 2722
Lisa O’Brien: 0207 901 7426
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