The UK is making efforts towards achieving its ambitious 2030 offshore wind (OSW) goal of 50 GW in order to meet its long-term net zero targets. The UK government’s Department for Energy Security and Net Zero (DESNZ), which recently took over the energy portfolio from the former Department for Business, Energy & Industrial Strategy (BEIS), has published documents about its Offshore Coordination Support Scheme (OCSS), which aims to support the development of coordinated offshore wind transmission (OWT) infrastructure. The scheme was first announced in the British Energy Security Strategy, released in April 2022.
To begin with, the scheme aims to de-risk advanced OSW projects that have already made investments in developing connections for their own exclusive use, by establishing alternative coordinated connections, which are anticipated to deliver benefits to communities, the environment and consumers. It has a budget of up to GBP 100 million, comprising GBP 50 million in grants in each of the 2023-24 and 2024-25 fiscal years. Effectively, OCSS will provide grant payments to enable the development of coordinated OWT options for late-stage projects within the scope of the scheme. Interested parties can submit applications by February 28, 2023.
The scheme is also expected to provide lessons for the Offshore Transmission Network Review (OTNR), which is an ongoing effort launched by the former BEIS in 2020 to ensure that transmission connections for future OSW capacity are delivered economically and efficiently. OTNR has three workstreams covering OSW projects at different development stages – “Early Opportunities”, “Pathway to 2030” and “Enduring Regime”. Multipurpose interconnectors (MPIs) are also considered across the three workstreams. The learnings from OCSS funding activities can be applied to later OTNR workstreams.
The OCSS is a competitive process through which one or more applications may receive grant funding. The scheme guidelines, released in December 2022, set out the terms of the competition and provide information about the application process and assessment. DESNZ has also provided information on how to complete each application form (updated on January 25, 2023) and an update to the applicant requirements (updated on February 9 and 21, 2023) for qualifying coordinated projects.
“Qualifying coordinated projects” refers to the offshore coordination of interconnectors (including MPIs); OWT assets; and/or other subsea transmission assets. Individual projects could also include a quasi-bootstrap, which involves the installation of a circuit between the offshore substations of two offshore generators, where those substations are not connected to a common onshore substation; as well as establishing a connection to a transmission owner (TO)-owned bootstrap, which involves connecting an offshore generator to a subsea link between two points in the onshore system owned by a TO.
An application for funding should include a consortium of at least two projects. One of the projects could be part of the National Grid Electricity System Operator’s (NGESO) Holistic Network Design (HND) initiative, announced in July 2022 as part of the OTNR Pathway to 2030 workstream. The consortiums must include at least one project (either an interconnector or an offshore wind farm) that is not in the HND. Further, each of the relevant projects must have secured a seabed lease or agreement to lease as a result of the Crown Estate or Crown Estate Scotland leasing round processes, but should neither have obtained relevant planning consent, nor been awarded a contract for difference or a capacity market agreement. Additionally, at least one of the projects must happen through the NGESO’s Connection and Infrastructure Options Note process, and only one of the projects in the consortium can be a bootstrap.
For the OCSS, DESNZ has released three application forms – project application (for information about the organisation, project and key activities delivered), financial and impacts table (for information related to planned and completed transmission asset development activities and associated financial costs) and Northern Ireland Protocol questionnaire (to determine whether the business operations are within the scope of Article 10 of the Northern Ireland Protocol subsidy, which provides that the state aid rules will continue to apply to the UK in respect of measures that affect the production of wholesale electricity in Northern Ireland). DESNZ has also published a sample funding grant offer letter (FGOL) along with the typical terms and conditions that will be awarded to successful applicants.
Under the competitive process, for each application that complies with the eligibility criteria, DESNZ will appoint a case officer for the remainder of the process. In the third step, DESNZ will engage the Office of Energy Markets (Ofgem) to carry out a cost assessment review of the applications that have qualified. The Ofgem will apply regulatory principles to ascertain the economic and efficient costs of the additional development expenditure related to a qualifying coordinated project in each application. The Ofgem cost assessment team will undertake an activity-by-activity assessment. In case of an inconsistency between the Ofgem’s view of the additional development expenditure and the amount sought in an application, DESNZ may engage in dialogue with applicants at this point or at any other point in the process.
Notably, the assessment process allows applicants to be part of more than one consortium with respect to a single project. However, applicants cannot be awarded funding from more than one application, because the qualifying coordinated projects are mutually exclusive. Instead, DESNZ offers a down-selection point for projects that are part of more than one qualifying application, to withdraw applications for solutions they no longer wish to proceed with. To some extent, this will allow applicants to have time to respond to the policy changes being made by DESNZ, the Ofgem, NGESO and others under the OTNR’s Early Opportunities workstream. The down-selection point is expected in late April or early May 2023. After this step, DESNZ will score shortlisted applications against the assessment criteria set out in the document. DESNZ will determine a grant amount for each application based on the Ofgem cost assessment at Step 3 and the DESNZ due diligence assessment of whether development activities would have taken place without public funding; the amount that is in national interest; and the requirement of grant for financial feasibility.
Next, the ranking will be completed based on the overall score received against the criteria of deliverability (weighted score of 3) and benefits (weighted score of 7). DESNZ will then share this ranking and details of the applications that may be awarded funding with the Industrial Development Advisory Board (IDAB). DESNZ will combine its recommendations with those of IDAB in its advice to the Secretary of State, which will declare the final decision on the successful applications and grant amounts. For successful applications that have been offered a letter in principle, DESNZ may undertake further due diligence prior to issuing the FGOL. The grant amount offered will be non-negotiable.
The lead applicants need to give either a parental undertaking guarantee from the ultimate parent company or a guarantee from a bank with an investment grade credit rating. The liability amounts to the grant value plus 1.5 per cent interest above the Bank of England’s base rate at the time, from the date of demand to the date of payment. DESNZ expects applicants to seek the minimum amount required to proceed with the qualifying project, which is not more than 95 per cent of the additional development expenditure required. A DESNZ monitoring officer will be appointed for the successful applications to ensure the qualifying project is progressing in accordance with the FGOL.
Net, net, the OCSS is another innovative tool from the UK government to encourage coordinated OWT development in the country as a part of its efforts to redesign the transmission grid and accelerate the run to meet the 2030 OSW targets.