Connecting Offshore Wind


July 8, 2012

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It is estimated that, between now and 2020, approximately £8 billion of investment is required in order to connect offshore wind farms to the onshore grid.

And that’s just for those located off the UK coast. Forget Germany, forget Denmark and don’t even factor in France. That’s an £8bn single country investment.

In short, it’s no small cheque. And it’s no small construction and installation challenge either.

Currently investors are bidding to buy up existing assets, with a regulated licence issued by Ofgem, to become an offshore transmission owner (OFTO) – a process that enables them to transmit electricity from the sites to the shore.

It’s a competitive bidding tender and the first round of this initiative has already achieved some pretty positive results.

For the first four licenses, representing assets worth £254m, there was a good level of interest despite financial market volatility. The cost of debt was pegged at just above 2% – the sort of thing typically associated with UK gilt yields – and the assets have already been recognised as an attractive investment for long-term institutional investors. An attraction that’s thanks in part to a guaranteed a 20-year inflation proof income (although there’s no clarity on what this means for the end user just yet, mind…).

So why the potted history?

Well, as offshore wind energy construction escalates and as increasing numbers of projects and plants continue to come online, for many it’s only now that the sheer size and scale of the transmission task is becoming apparent.

This, set against the wider European challenge of not just building out existing grids, but fundamentally re-thinking the way in which energy in the future is transmitted and regulated, presents quite the headache.

And moreover, it requires developers, investors, utilities and the wider manufacturing community to recognise this key macroeconomic shift.

It’s because of this that in the next couple of months we’ll be giving this topic some further thought. As such, if you’ve got any views that you’d like to share, then please share your thoughts below.

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