United Kingdom

United Kingdom

Securing a place in the grid queue -- The single biggest hurdle yet

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The requirement for upfront payments for costs incurred before wind projects can be connected to the grid is the "single biggest hurdle" for wind developers of large British offshore wind projects, says Simon Christian from ScottishPower. The company's 500 MW West Duddon wind farm in the east Irish Sea is among a number of projects in the second larger round of UK offshore development that are liable for cash guarantees in the tens of million of pounds.

Known as "final sums liabilities," the guarantees are paid by developers to compensate the grid operator for any stranded costs should the project be withdrawn. The liabilities are highest in areas where most grid reinforcement is needed. Projects in the Irish Sea, where upgrades will be necessary in the Heysham area, are among those hardest hit.

Christian says that unlike onshore projects, where the final sums liabilities are low until projects get consent, liabilities associated with offshore projects rise very quickly as soon as developers have accepted their grid connection offers.

With doubt over whether projects in the second round of British support to offshore wind will secure planning permits, developers are understandably reluctant to commit large sums. "There is no way that we will expose ourselves to these liabilities with so much uncertainty," says Christian. But waiting until consent is obtained before applying for a connection offer will delay projects and mean that the government's targets for wind are even less likely to be met.

Meantime, the current connection offer for West Duddon made by network operator E.ON expires this month, so the project will have to join the back of the queue to make an application for a new connection offer.

Offshore projects are not alone in having to bear onerous upfront liabilities. Island developers needing interconnection with the mainland are similarly penalised. Developers of a 600 MW project on Shetland claim they are "flying blind" as they stump up large cash sums to secure their place in the queue for grid connections, while not yet knowing the final cost of an interconnection with the mainland, nor yet having gained planning consents.

The project is a joint development between Viking Energy, a renewable energy company owned by Shetland Islands Council and Scottish and Southern Energy (SSE). The overall cost could rise towards £1 billion, which includes the cost of a new cable connecting Shetland to mainland Scotland to feed power from the project into the National Grid, warns Aaron Priest from Shetland Council.

But an additional uncertainty for island projects is the charge for transmitting power to where it is needed. All that is known for certain is that the cost will be higher than for most mainland generators. "We are blind as to what use of system charges will be, and there are no hard and fast estimates of what the connection costs will be," says Priest. "Without knowing that use of system charge, we will not know if the project is economic or not."

Eyes wide open

The project should benefit from government proposals to cap charges for renewables developments on the Scottish islands. Findings from its preliminary consultation are due before a final consultation on the process to implement the cap. "By the time we finally know what the use of system charges will be, we should have consents for the wind farm and for the cable," says Priest.

Meantime, the developers are committed to final sums liability on advanced services. "These are the design and consents process for a cable connection with the mainland," he says. These initial guarantees will cost hundreds of thousands of pounds sterling -- and liabilities ramp up dramatically once construction of the cable starts. By that time the project would be consented, and the cost of both the connection and the transmission charges will be known. "We will be entering into this huge risk underwrite with our eyes open," says Priest.

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