Offshore - Ofgem update on tender process
Ofgem has issued a further consultation document regarding the competitive tender process by which offshore transmission owners (OFTOs) will be appointed.
The document provides further detail on the tender process, and also indicates that Ofgem and the newly created Department for Energy and Climate Change will shortly issue updated joint proposals concerning the regulatory framework to apply to OFTOs.
An outline of some of the key aspects of the proposed tender process can be found in Wragge & Co's analysis.
The updated joint proposals will be the follow-up to the Ofgem/Business Enterprise and Regulatory Reform (BERR) paper issued in June, and will contain decisions relating to key issues such as the OFTO revenue stream and incentive mechanisms and the detailed changes necessary to industry documents. The current document provides indications of Ofgem's current thinking on:
- indexation of the OFTO revenue stream – Ofgem is minded to index at least part of the revenue stream and to use the retail prices index;
- capacity delivery incentive – Ofgem is minded not to include any delivery incentive, and instead to rely on the commercial incentive that the OFTO will not earn any revenue until construction is completed;
- operational incentives – Ofgem considers that up to 10% of an OFTO's annual revenue should be at risk, depending on performance against an availability target of 98%; and
- onshore transmission owner delay – Ofgem considers that it may be appropriate for onshore transmission owners to be subject to late delivery payments in the event of delays in connecting offshore assets to the onshore grid.
For a closer look at the Ofgem/BERR proposals that were made in June, read Wragge & Co's previous expert analysis.
Gus Wood, associate, +44 (0)121 629 1954, email@example.com
This alert may contain information of general interest about current legal issues, but does not give legal advice.