Public Accounts Committee chair Margaret Hodge has described the proposed funding mechanism to help build an offshore wind transmission network as “heavily skewed” in favour of investors, but with consumers bearing the risk.
A report published by the committee today looked at how the new £17bn offshore wind transmission network supporting the upcoming Round 3 offshore wind farms will be funded.
Transmission operators can recover their costs for constructing the assets from the National Grid, which in turn recovers the money from electricity suppliers and generators. Although this will not involve direct state funds, this cost will be passed onto the consumer.
But, according to the report, investors thought returns of 10-11% “look extremely generous” given the limited investor risk.
“Indeed the terms of the transmission licences appear to have been designed almost entirely to attract investors at the expense of securing a good deal for consumers,” said Hodge.
“Furthermore, investors do not have to share any gains made through debt refinancing or excessive equity profits.
“The Treasury’s defence, that it did not want to introduce any limitations on investors, does not cut it,” she added. “It used a similar argument in relation to early PFI [private finance initiative] deals, only to reverse its position later. The Treasury must ensure that lessons from PFI are passed on and applied across government.”
Offshore wind is due to provide between 8% and 15% of the UK’s electricity by 2020 according to the latest Department of Energy and Climate Change figures.