U.K. Offshore Wind Link Licences May Push Up Consumer Prices

A U.K. government program that will pay 17 billion pounds ($27 billion) to companies which operate power transmission assets linking offshore wind farms to the onshore grid may push up consumer prices, lawmakers said.

The system run by energy regulator Ofgem awards licences to companies which own and operate the infrastructure for 20 years, receiving steady revenue. It’s too skewed to attracting investors rather than lowering prices for consumers, the Committee of Public Accounts said today in a report.

Britain introduced the competitive licencing process in 2009 to ensure the offshore wind farms its promoting to meet renewable energy targets were not delayed by lack of grid connection. It also sought to ensure the infrastructure was built at competitive prices to prevent hikes in consumer bills. About 8 billion pounds of investment in the assets, including cables and substations, is needed to bring electricity from wind farms at sea to the grid, according to the report.

“Not only is it unlikely that this new licensing system for bringing electricity from offshore wind farms onto the national grid will deliver any savings for consumers, it could well lead to higher prices,” Margaret Hodge, a lawmaker in the opposition Labour Party who chairs the committee, said.

Operators receive revenue from the National Grid which recovers the costs from electricity suppliers and generators, ultimately passed on to consumers. Future payments will amount to 17 billion pounds, the report said.

Investor returns of 10 percent to 11 percent on the initial licences awarded were too generous given the limited risks they bear operating the links, according to the committee. Penalties if operators fail to provide the assets are too low while the government failed to ensure that gains made when assets are refinanced are shared, the committee report found.

The report also found four of the first six licences were won by one company, Transmission Capital Partners LP. “This risks the creation of a monopoly supplier,” the report said.

To contact the reporter responsible for this story: Sally Bakewell in London at Sbakewell1@bloomberg.net

To contact the editor responsible for this story: Reed Landberg at landberg@bloomberg.net

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