1. Offshore Transmission Giles Stevens Head of offshore electricity transmission

2. 2 of 11 Contents 1.Regulatory approach 2.Attracting investment 3.User requirements & commitments 4.A potential scenario

3. 3 of 11 Regulatory approach  Approach must ensure that sound investment decisions provide the best value to consumers and offshore transmission users  Sound investment decisions require: –Co-ordination –Minimising risk of stranded assets and ‘gold plating’  To deliver best value to consumers and network users, the regulatory approach must: –Enable necessary investment to deliver economically efficient, fit for purpose, transmission infrastructure –Provide certainty to investors in offshore transmission

4. 4 of 11 Attracting investment 1  Investors in offshore transmission will need certainty  What risks are private investors exposed to?  Scope  Timing  Development  Construction  Financing  Operation  Returns  Price control can give certainty over:  Regulated asset value  Performance requirement  Returns  Incentive/penalty regime

5. 5 of 11 Attracting investment 2  The following are likely to be required:  Fair and transparent selection process  Competitive pressure  Independent ownership of offshore transmission assets  No unfair advantage to incumbents  Clear definition of scope of work i.e. technical standards  User commitment from generators  Enduring regulatory structure, including mechanisms for change

6. 6 of 11 User requirements  Capacity  Location  Additional capacity  Performance –Availability –Time to repair –Delivery date

7. 7 of 11 User commitment TO ensure offshore transmission networks are not stranded investments, need:  Commitment from generators for transmission build  Commitment to be in place before transmission investment  Most efficient investment will take place once all generators committed  Scope of transmission work dependent on firm signal from generators

8. 8 of 11 Geographic areas The following options were set out in the scoping document 1.Single zone Pros Easiest way to allocate Economics of scale 2.Few ( 3 – 5) Pros Reasonable investment scale Economics of scale Opportunity for competition ‘Spread the risk’ 3.Many (17 zones) Pros Point to point approach Easy to implement Cons  Scale (£1bn+) likely to deter all but largest players  Less opportunity for competition  ‘Eggs in one basket’  No comparison/benchmarking possible Cons More complex regime Needs cooperation from generators Cons Few opportunities for economies of sale More complex regime Investment may be too small to be attractive

9. 9 of 11 One potential scenario (1)  Geographic areas –3 or 5 (as projects of £2-500m maybe most attractive to investors)  Security standards –Present standard, single fault etc  Connection requirements –Generator provides up front commitment –Offshore TO responsible for providing most economic and timely connection  Scope –Requirements defined by generators to get least cost solution

10. 10 of 11 One potential scenario (2)  Selection of Offshore TO’s –By competition  Price control –Provides long term RAV certainty –Regular efficiency reviews –Provides detailed arrangements for investment risks to be managed: Adoption Changing scope Offshore TO failure

11. 11 of 11 Promoting choice and value for all gas and electricity customers