Department of Energy and Climate Change : offshore electricity transmission - a new model for infrastructure, twentieth report of session 2012-13, report, together with formal minutes, oral and writte

It is estimated that offshore wind farms have the potential to contribute 8-15% of electricity by 2020.

This will require a large investment in offshore infrastructure, including around GBP8 billion of investment in transmission assets (offshore platforms, cables and onshore substations).

An elaborate regime that licences operators of offshore electricity transmission assets following competitions has been introduced.

The aim was to develop a competitive market for offshore electricity transmission but the reality is that the first six licences were won by just two companies.

Furthermore, the terms of the transmission licences awarded so far appear heavily skewed towards attracting investors rather than securing a good deal for consumers.

The transmission operators receive their income from the National Grid which recovers its costs from electricity suppliers and generators.

Future payments to licensees are estimated at around GBP17 billion, and this will ultimately be funded by customers who could well end up paying higher electricity prices.

The investors' estimated returns of 10-11% on the initial licences look extremely generous given the limited risks the investors bear. Licensees are guaranteed a fully retail price index-linked income for 20 years regardless of the extent to which assets are used.

Yet penalties are limited to 10% of expected income in any one year if the operators fail to provide the transmission facilities when required.

Despite the lessons from the PFI market the Government has failed to ensure that gains secured, for example, from debt refinancing are shared