Clause 40
Energy Bill
2:00 pm
Malcolm Wicks (Minister of State (Energy), Department for Business, Enterprise & Regulatory Reform; Croydon North, Labour)
No, I do not think that this is the time. If there is an opportunity for saying more about that in due course, I might do so, but I am trying to talk about the grid mechanism. However, I will try to find a way of accommodating the hon. Gentleman’s question in due course if I can—not necessarily during this debate.
As a result of our chosen regulatory approach, offshore renewable generators will receive similar access rights to the grid as generation connected onshore. The Government have also concluded that, because such transmission assets are new and there are no incumbent licensees, there should be competition for offshore transmission licences that authorise the conveyance of electricity from specific offshore projects, rather than awarding one licence for the conveyance of electricity from all projects in an offshore area. We believe that that competitive approach to licensing offshore networks will give new parties the opportunity to enter the market, thus bringing innovative solutions and helping to keep down costs for developers and electricity consumers.
The purpose of clause 40 is to supplement the existing powers and enable the authority—Ofgem—that will have responsibility for running the tender exercise to select offshore transmission licence holders and to recover the costs it incurs through the process. At present, the authority is able to recover the costs of undertaking its duties and functions only through a combination of licence application fees and ongoing licence fees.
Clause 40 will allow the authority to fund its role in the tender exercise by requiring those parties that cause the authority to incur costs in running the tender process to contribute directly towards meeting those costs. We consider that approach to be a more appropriate than the existing cost recovery powers, as it increases transparency and ensures that the costs of running the tenders are met by those who participate in the tendering exercise and not licence holders generally.
Clause 40 will enable the authority, by regulation, to create new mechanisms to recover its costs in carrying out and administering tender exercises. Since the precise details of the tender exercise are still subject to consultation with industry stakeholders and other interested parties, clause 40 has been drafted to provide flexibility in relation to the form of payments to be required and the participants from which they can be recovered. However, we are clear about the broad objectives that we are trying to achieve through the use of these mechanisms. In particular, the mechanisms are intended to ensure that participants in the tender process are appropriately committed to the exercise and that the costs are met by the appropriate persons.
The authority has recently published a document that sets out proposals for a five-stage tender process that would lead to the selection of an offshore transmission licence holder and therefore the award of a licence. To prevent the excess recovery of costs, the Bill includes a provision—proposed new section 6D(5) of the Electricity Act 1989—that will require the authority to take steps at the end of each tender exercise to ensure that the total amount that it has obtained from the participants in the tender exercise does not exceed the actual costs incurred.
Subsection (3) constitutes a technical amendment to the Electricity Act 1989 to ensure that the definition of “relevant offshore line” includes electric lines that are located in GB internal waters.
Finally, clause 40 introduces schedule 2, which will give effect to proposed new schedule 2A to the Electricity Act 1989.