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Gwynt y Môr Transmission Assets £26.4m (€34m) too much

4C Offshore | Chris Anderson
By: Chris Anderson 13/02/2015 4C Offshore
Ofgem’s assessment of the costs which ought to have been incurred in connection with the development and construction of the transmission assets for the Gwynt y Môr offshore transmission project were £26.4m (€34m) too high according to a report issued by the department today.

Originally The initial transfer value calculated in November 2010 was estimated by the developer at £305.7m (€411m), however the the developers final submission price was £378.3m (€510.7m). This value was based on information received from the Developer at an early stage in the construction and development of the Project.
A number of the Developer’s contracts were in the process of being finalised at that time and these were considered in greater detail when the indicative transfer value of £346.0m (€467m) was set.  This price was established in October 2012  and comprised of estimated Capex, development and contingency costs of £304.7m (€410m) and IDC of £41.3m (€55.6m).  Ofgem were supported in determining these prices by forensic accounting advisor, Grant Thornton, and technical advisors DNV GL Energy.  

Ofgem investigated the £378.3m (€510.7m) claim and determined that the "economic and efficient costs assessment of costs should be £351.9m (€471m), “the final transfer value”.  This is the amount to be paid to the Developer -  a joint venture structure by RWE Innogy GmbH (60%), Stadtwerke Munchen GmbH (30%) and Siemens AG (10%).

The cost assessment process involved three key stages:

. The initial calculation of costs based on the developer’s initial estimate of £305.7m (€411m) - “the initial transfer value”.

. The indicative estimate of costs was £346.0m (€467m). This estimate was calculated as a result of further information regarding the development and construction of the project made available by the developer and ongoing analysis by Ofgem and its advisors. This updated calculation was communicated October 2012. The indicative transfer value was published and was the transfer value assumed for the purpose of Invitation To Tender stage submissions.

. The assessment of costs of £351.9m (€471m) (“the assessed costs”). This when compared to the developer’s final submission of £378.3m (€510.7m), is a reduction of £26.4m (€34m). The assessment is the Authority’s calculation of the costs which ought to have been incurred in connection with the development and construction of the project. This is also the amount to be paid to the developer  -  a joint venture structure by RWE Innogy GmbH (60%), Stadtwerke Munchen GmbH (30%) and Siemens AG (10%) - by the OFTO for the transmission assets.

The cost increases were due to :-

Capital expenditure (Capex)

The Capex component of the final transfer value increased by £18.6m (€25.1m)since the indicative transfer value. This includes increases of:

. £20.2m (€27.2m) for offshore substation costs, offshore cable jointing costs, installation delays and onshore substation costs; and

. These increases were offset by a reduction of £1.6m (€2.16m) for other onshore costs.

Ofgem also blamed increases on project management costs and supporting offshore logistic costs related to the cable installation process and the offshore platform commissioning.

The amount claimed for interest during construction was also reduced although £4.3m (€5.8m) was allowed though as a result of extended construction period and an increase in Capex and development costs.  £8.8m (€11.8m) of transaction costs were also reduced to £2.1m (€2.8m) .

Gwynt y Môr Offshore Wind Farm is owned and financed under a joint venture structure by RWE Innogy GmbH (60%), Stadtwerke Munchen GmbH (30%) and Siemens AG (10%).

The Gwynt y Môr transmission assets connect to the Gwynt y Môr Wind Farm at two offshore platforms. The transmission assets that are transferring to the OFTO comprise of:

. two offshore platforms and associated substations;
. four subsea export cables with a total length of approximately 82.8km;
. four 132kV onshore cables with a total length of 44km; and
. an onshore substation at St Asaph.

The boundary points for the Gwynt y Môr transmission system are defined as:

. Offshore: Located at the incoming 33kV circuit breaker cable termination on the two offshore substations; and

. Onshore: Located between the 400kV busbar disconnectors and the 400kV OFTO circuit breaker.

click this text link to view project on interactive map and zoom in to see cables and turbines

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