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WoDS developer knocked back £27.8 million (€38.6 million)

By: Chris Anderson 21/08/2015 4C Offshore

General Grid Substations

Ofgem today published its cost assessment for the West Of Duddon Sands transmission assets, which was originally budgeted at £311 million (€432 million). Despite the developer asking for £296.7 million (€412.4 million) Ofgem knocked down cost assessment to £268.9 million reducing the developers claim by a further £27.8 million (€38.6 million).

The UK Government body OFGEM who regulate and monitor the cost assessment process uses the three key stages set out below:

1 - The initial calculation of cost: based on the Developer’s initial estimate which in this case was £311m (“the initial transfer value”). This is communicated to the Developer and published in the preliminary information memorandum (PIM). This was back in December 2012;

2 - The indicative estimate of costs(“the indicative transfer value”). This estimate is calculated as a result of information regarding the development and construction of the Project being made available to Ofgem by the Developer and continuing analysis by Ofgem and its advisors. This updated calculation is communicated to the Developer (back in August 2013). The indicative transfer value is made available in the project information memorandum and is the transfer value assumed for the purpose of Invitation To Tender stage submissions which in this case was £296.2m;

3 - The assessment of costs (“the assessed costs”). 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 by the OFTO for the transmission assets (“the final transfer value”). In this case the Developer’s final submission was £296.7m (€412.4 million), but the assessment of costs by Ofgem and its advisors came to £268.9m (€373.3 million), a reduction of £27.8m (€38.6 million).

Reasons cited in the Ofgem report were

Capital expenditure (Capex)
The Capex component decreased due to a number of increases and decreases and including Ofgem’s efficiency decisions as set out below:

An increase in costs for the onshore substation construction,onshore cable installation and project management.

However the increase was offset by the following reductions in onshore civil engineering costs, foreign exchange losses, onshore substation project management costs, cost incurred for cable load out, removing pre-transfer Operation and Maintenance (O&M) costs, re-allocating costs to generation assets and removing estimated costs that were not incurred.

Development costs

The Project’s development costs have decreased mainly due to the reallocation of project management costs to generation and the removal of pre-transfer O&M costs found in project management.

Contingency
The contingency allowed in the indicative transfer value was mostly used in addressing additional Capex and development costs.

Interest during construction (IDC)
This increased as a result of the extended construction period.

The West of Duddon Sands offshore wind farm (WoDS) is located in the East Irish Sea, 14 km from Barrow-inFurness, off the Cumbrian coast in northwest England. The WoDS Wind Farm consists of 108 Siemens 3.6MW wind turbines generators, with a maximum output of 382MW at the OFTO point of connection to the onshore system.

The WoDS Wind Farm is owned and financed by a joint venture between Scottish Power Renewables (WoDS) Ltd (50%), and DONG Energy WoDS (UK) Ltd (50%).

WoDS Transmission plc is owned by Macquarie Corporate Holdings Pty Limited and 3i Infrastructure plc. It was selected by Ofgem through a competitive process, in which bidders compete to become OFTOs, and will now own and operate the link for the next 20 years. The project is supported by the EIB’s Project Bond Credit Enhancement product. This financing approach is deemed by the transmission partners as a means to open up investment in the OFTO regime to a wider range of investors, and in their opinion helping to drive down the costs for consumers of connecting offshore wind farms to the onshore grid.

The WoDS transmission assets connect to the WoDS Wind Farm at one offshore platform, unusually named West of Duddon Sands Substation.
The transmission assets that are transferring to the OFTO comprise of:

One offshore platform and associated electrical equipment;
Two subsea export cables of approximately 41km each;
Two onshore cables of approximately 3km each;
An onshore substation at Heysham (and two 400kV Switchgear bays within the existing NGET Heysham substation).

Grant Thornton acted as forensic accounting advisors and Fichtner as technical advisors to Ofgem, and other advisors included BPP Cables, DNV GL, on this evaluation process.

For details of windfarm and cable infrastructure click this link (text) - zoom in and cable, substation and turbine arrays will appear

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WoDS developer knocked back £27.8 million (€38.6 million)

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