Offshore grid may need government investment

The government may need to pump prime investment in the mooted offshore transmission grid to get the project off the ground, according to the former director of networks at the Department for Business, Energy and Industrial Strategy (BEIS).

Dan Monzani, BEIS director for energy security, networks and markets until last September, told the House of Lords Economic Affairs Committee’s energy security inquiry on Tuesday (8 March) that he hopes the government will go “further” on network investment.

This could include upfront investment in the North Sea transmission network being explored by the government, which is designed to support prime minister Boris Johnson’s planned expansion of the UK’s offshore wind farm capacity to 40GW by 2030, he said. “It might need some government money to seed that for early progress rather than waiting for price controls.

“This allows us to increase interconnectors with the continent and helps with the intermittency problems because you have more diverse sources of power.”

This seed corn investment would enable the more rapid deployment of offshore wind turbines because they could be plugged into a “pre-planned and pre-surveyed” system rather than having to fund and build their own connections with the onshore grid like now, Monzani added.

Monzani, who left the civil service to take up his current role as managing director of the consultancy Aurora Energy Research, also told the committee that the development of an offshore transmission network may mean Contracts for Difference (CfDs) will no longer be required to financially support the development of marine wind farms.

He said: “Undoubtedly, CfDs have been phenomenally successful in driving deployment and cost of capital down but this does not automatically mean that unamended they are right instruments for the future.”

Enabling offshore wind turbines to plug into a transmission network could halve their capital costs, Monzani said: “If you build an offshore transmission network, you might therefore be able to introduce more merchant signals, which means more exposure to actual wholesale costs and that might be beneficial for system costs.

“They (CfDs) have been brilliantly successful at driving down cost of capital but that has to be balanced against the rising system costs.”

He also said the current gas supply crunch may mean that the UK’s remaining fleet of coal plants may have to “run harder” than otherwise would have been the case ahead of their planned closure in 2024.

At the same meeting, Professor Sir Dieter Helm accused the government of having paid “very limited” attention to security of supply.

The professor of energy policy at the University of Oxford, who wrote a review of energy policy for the government in 2018, said: “It is not rocket science and doesn’t need to be particularly complicated, but they have made if fantastically complicated.”

He also told the committee that it would be “more sensible” to extend the timescale for reviewing the energy price cap to an annual basis and that it should “certainly” not be halved to once every three months as Ofgem is currently considering.

Helm said less frequent reviews would make it easier for suppliers to cover their positions, reducing the likelihood that spikes in wholesale prices will drive the market.

While renewables will be an increasing part of the generation mix, he told the peers that he is “not convinced” that costs of such technologies will fall as much as people think they will, pointing to “very sharp” short term rises seen recently.