Offshore Transmission Benchmarking and Cost Monitoring · PDF fileOffshore Transmission...

Offshore Transmission Benchmarking and

Cost Monitoring

Final Report

10 June 2016

ORE Catapult

Document History

Revision Date Prepared by Checked by Approved

by

Revision

History

V01.00 25/04/2016 Gavin Smart

Hytham Emam

Owen Murphy

Ander Madariaga

V02.00 16/05/2016 Gavin Smart Hytham Emam

Peter MacDonald Chris Hill

V02.01 10/06/2016 Gavin Smart Hytham Emam Chris Hill

ORE Catapult

Contents

1 Executive Summary ............................................................................................... 6

1.1 Background ...................................................................................................... 6

1.2 Key Findings .................................................................................................... 6

1.3 Recommendation ............................................................................................. 8

1.4 Further Considerations – Cost Reduction Monitoring Framework .................. 10

1.5 Conclusions ................................................................................................... 11

2 Introduction........................................................................................................... 12

2.1 Background .................................................................................................... 12

2.2 Transmission Costs ....................................................................................... 12

2.3 Potential Approaches to Offshore Transmission Cost Benchmarking &

Monitoring ............................................................................................................... 13

3 Publicly Available Transmission Cost Data ....................................................... 14

3.1 Overview ........................................................................................................ 14

3.2 Available Data Sources .................................................................................. 14

3.3 Capex Estimation Methodology ..................................................................... 17

3.4 Metrics Summary ........................................................................................... 18

3.5 Summary of Publicly Available Offshore Transmission Cost Data ................. 22

4 Action 1 - Cost Benchmarking based on OFTO Data ........................................ 23

4.1 Background .................................................................................................... 23

4.2 Current GB Offshore Wind Transmission Benchmarking ............................... 24

4.3 Examples of Benchmarking in Other Industries ............................................. 25

4.4 Estimate of Benefits ....................................................................................... 26

4.5 Implementation .............................................................................................. 27

4.6 Data Confidentiality ........................................................................................ 30

4.7 Anonymity of Results ..................................................................................... 30

ORE Catapult

4.8 One-off exercise to prepare current benchmarks ........................................... 31

4.9 Cost of conducting the exercise ..................................................................... 32

4.10 Recommendations ...................................................................................... 32

5 CRMF Background ............................................................................................... 33

5.1 CRMF Overview ............................................................................................. 33

5.2 CRMF Key Challenges .................................................................................. 33

6 Action 2 – Amend Existing CRMF LCOE Calculator .......................................... 35

6.1 Amendments to the LCOE Calculator ............................................................ 35

6.2 Key Considerations ........................................................................................ 35

6.3 Recommendations ......................................................................................... 35

7 Action 3 – Update CRMF Qualitative Indicators ................................................. 36

7.1 Qualitative Workstream – Existing Offshore Transmission Indicators ............ 36

7.2 Proposed Offshore Transmission Indicators .................................................. 36

7.3 Recommendations ......................................................................................... 37

8 Recommendations ............................................................................................... 38

8.1 Implement an ongoing transmission cost benchmarking exercise ................. 38

8.2 CRMF Quantitative Workstream .................................................................... 40

Appendix 1 CRMF Qualitative Stream Detailed Design ....................................... 42

Appendix 2 CRMF Quantitative Stream Detailed Design ..................................... 43

Appendix 3 Existing Transmission CRMF Indicators .......................................... 45

Appendix 4 OFTO Transfer Metrics in 2011 Terms .............................................. 46

Appendix 5 OFTO Transfer Metrics by Windfarm................................................. 47

ORE Catapult Page 4 of 50

List of Tables

Table 1 Key project-specific data required for cost monitoring ...................................................................................... 7

Table 2 Proposed Direct Cost benchmarks ................................................................................................................. 10

Table 3 Proposed CRMF transmission indicators ....................................................................................................... 11

Table 4 Proposed quantitative transmission benchmark metrics ................................................................................ 14

Table 5 Ofgem OFTO Cost Assessment capex summary by windfarm ...................................................................... 15

Table 6 Calculation data sources ................................................................................................................................ 18

Table 7 Metrics summary for OFTO transfers to date ................................................................................................. 19

Table 8 Illustrative potential savings from benchmarking against best in class by windfarm ...................................... 26

Table 9 Combined illustrative savings from benchmarking ......................................................................................... 27

Table 10 Proposed Direct Cost benchmarks ............................................................................................................... 29

Table 11 Initial analysis of OFTO transfers to date ..................................................................................................... 32

Table 12 Existing transmission-related CRMF indicators ............................................................................................ 36

Table 13 Proposed transmission-related CRMF indicators ......................................................................................... 37

Table 14 CRMF qualitative indicator tracking example ............................................................................................... 37

Table 15 Proposed Direct Cost benchmarks ............................................................................................................... 39

Table 16 Proposed CRMF transmission indicators ..................................................................................................... 40

Table A1 - 1 CRMF Qualitative Indicators Design ....................................................................................................... 42


List of Figures

Figure 1 Offshore Substation Capex Metrics 2011 - 2015 ............................................................................................ 6

Figure 2 Offshore TNUoS charge worked example ..................................................................................................... 17

Figure 3 TRS as a % of FTV shown against number of OFTO transfers by year 2011 - 2015 .................................... 19

Figure 4 Offshore Substation capex metrics by year 2011 – 2015 .............................................................................. 20

Figure 5 Offshore Circuit capex metrics by year 2011 - 2015 ..................................................................................... 21

Figure 6 Onshore Substation Capex per MW by year 2011 - 2015 ............................................................................. 22

Figure A4 - 1 Offshore Substation capex metrics in 2011 terms ................................................................................. 46

Figure A4 - 2 Offshore Circuit capex metrics in 2011 terms ........................................................................................ 46

Figure A4 - 3 Onshore Substation capex metrics in 2011 terms ................................................................................. 46

Figure A5 - 1 TRS % of FTV by windfarm 2011 - 2015 ............................................................................................... 47

Figure A5 - 2 Offshore Substation capex metrics (nominal) by windfarm 2011 - 2015 ................................................ 47

Figure A5 - 3 Offshore Circuit capex metrics (nominal) by windfarm 2011 - 2015 ...................................................... 47

Figure A5 - 4 Onshore Substation capex metrics (nominal) by windfarm 2011 - 2015 ................................................ 48


1 Executive Summary

1.1 Background

Transmission costs represent approximately 10% - 15% of the Levelised Cost of Energy (LCOE)

for offshore wind. However, the current level of costs and cost reduction potential of offshore wind

transmission have not been subject to the same level of widely-published industry-level analysis

as the generation assets. There has been a tendency in offshore wind industry studies to deal

with transmission at a high level (in the UK, this has been partly driven by the background of study

sponsors or a changing regime; in Europe more due to state provision of transmission assets).

As offshore wind generation technology develops and sites are developed further from shore, the

demands on the transmission system are changing. There are also developments which require

improved industry and regulatory co-ordination. The ongoing CRMF tracks progress in specific

innovations and quantifies current LCOE on an industry-aggregated level. However, of the 40

technology innovations monitored in CRMF, only 5 relate directly to transmission so there is

currently limited visibility of the progress of cost reduction and innovation in this area.

The OWPB Grid Group has commissioned this initial feasibility study into the potential for

implementing a benchmarking and cost monitoring process for offshore wind transmission costs.

1.2 Key Findings

1.2.1 Offshore Wind Transmission Costs Publicly Available Data

There is a reasonable amount of Offshore wind transmission data already publicly available,

in Ofgem OFTO Cost Assessment reports and published National Grid tariffs, from which asset

costs of Offshore Substation, Offshore Circuit and Onshore Substation can be approximated

at a high level (see Section 3 of this report).

The cost metrics derived from these high-level capex estimations show that there is no

consistent trend of cost reduction by project or by year (see Section 3.4 of this report). In fact,

it appears that a number of key cost metrics are increasing. The example of increasing offshore

substation costs is shown in Figure 1, below. Further analysis is included in Section 3.4.

Figure 1 Offshore Substation Capex Metrics 2011 - 2015


In order to facilitate the required levels of cost reduction the reasons for apparent cost

increases require further detail on market and project-specific cost drivers. A summary of the

key additional details required is shown in Table 1, below.

Offshore Substation Local Circuit

Cost of transformers Offshore cable supply cost; Offshore cable

installation cost; number and size of offshore

cable sections

Cost of platform Onshore cable supply cost; Onshore cable

installation cost; number and size of onshore

cable sections

Offshore Substation foundations supply cost Landfall cost and method used

Foundations and topside installation cost Cost and properties of onshore reactive

equipment

Cost of any spare equipment included Cost of any spare equipment included

Table 1 Key project-specific data required for cost monitoring

From a disclosure point of view, release of the detailed information provided to Ofgem as part

of the OFTO Cost Assessment process is an additional level of detail compared to the data

already publicly available, but is essential in order to monitor and benchmark these costs more

accurately, to understand cost drivers and to inform and prioritise actions for transmission

system designers and procurement teams and for innovators.

1.2.2 The Case for Cost Monitoring and Benchmarking in Offshore Wind Transmission

Cost benchmarking is already used successfully by Ofgem in assessing economic and efficient

expenditure for OFTO assets, but the published metrics do not provide explanations for the

cost trends highlighted in Section 1.2.1, above, and in more detail in Section 3.4 of this report.

Cost monitoring and benchmarking is widely used internationally across different industries in

order to enable cost reduction and performance improvement. Section 4.3 of this report

outlines the examples of Energy Networks in multiple countries, Energy regulation in Europe,

GB Water Utilities and Offshore Oil & Gas.

The Cost Reduction Monitoring Framework, sponsored by the Offshore Wind Industry Council

(OWIC), is actively being used to inform priorities in innovation, research and joint industry

programmes within government and in organisations within industry.

The SPARTA (System performance, Availability and Reliability Trend Analysis) collaborative

project between ORE Catapult, The Crown Estate and offshore wind farm owner/operators is

used on an ongoing basis by owner/operators to benchmark their performance against the


wider industry, in order to understand their strengths and weaknesses against peers rather

than against internal benchmarks only.

SPARTA is designed to capture and report on operating performance metrics and, as such,

does not include details on capital or operating costs. It is therefore not a potential source of

data for the cost monitoring proposed here. However, a number of the operating metrics (eg.

offshore substation failures, export cable failures and onshore substation failures) would be a

valuable complement, should permission be granted in future to use SPARTA data.

Cost monitoring and benchmarking of direct costs in offshore wind transmission could

contribute to cost reduction, with initial illustrative savings up to 14% of transmission asset

capex based on enabling future OFTO assets to be constructed for the same cost as the lowest

capex seen to date (see Section 4.4 of this report).

Analysis of actual costs against budget will provide lessons on areas for improved contract

and risk management.

Analysis of “soft” costs such as project management and contract wraps will provide

understanding of the cost-benefit of different procurement approaches.

Data anonymity can be preserved using similar principles as employed in the CRMF.

1.3 Recommendation

Implement an ongoing transmission cost benchmarking exercise

A proposal could be made to OWPB for its members to authorise release to ORE Catapult of the

data provided to Ofgem as part of the OFTO Cost Assessment process. This will provide the basis

for an industry-wide understanding of common and design-specific offshore wind transmission

cost drivers, which can inform innovation and procurement decisions. ORE Catapult currently

manages the CRMF and SPARTA projects, giving a proven track record in fulfilling data handling

and confidentiality requirements as well as establishing and maintaining cost monitoring and

benchmarking systems.

The benchmarking process should have two elements: Direct Cost metrics; and Indirect Cost

metrics.

Recommended Direct Cost metrics are consistent with the Cost Comparators used by Ofgem’s

advisers in the OFTO Cost Assessment process, as shown in Table 2, below.

Asset Metric Rationale

Offshore substation

Offshore substation (platform structure,

topside and electrical equipment) supply

cost per MW of secure capacity

Minimises the effect of design choices by

simplifying the electrical infrastructure to the

function of secure export capability (the

power that can be exported with the loss of

a single transformer)



Offshore substation electrical (electrical

assets on the platform) cost per MW of total

capacity

Takes into account the cost of total

generation capacity installed

Transformer cost per MVA

Provides like for like comparison between

transformers for windfarms of different

generating capacity

Topside installation cost per substation

Provides insight into whether, for example,

lower topside supply cost is being offset by

more complex installation methods

Foundation supply cost



more complex foundation solutions

Foundation installation cost


lower foundation supply cost is being offset

by more complex installation methods

Offshore Export

Cable

Offshore cable supply cost per km offshore

cable

Splitting cable supply into offshore and

onshore allows a better like for like

comparison between windfarms

Offshore cable supply cost per MWkm

offshore cable

Taking distance and capacity into account

allows for an even better like for like


Offshore cable installation cost per km

offshore cable

Tracking installation as well as supply costs

allows insight into whether, for example,

cheaper cable supply is being offset by

more expensive installation

Offshore cable installation cost per MWkm

offshore cable




Onshore Export

Cable

Onshore cable supply cost per km offshore

cable




Onshore cable supply cost per MWkm

offshore cable




Onshore cable installation cost per km

offshore cable







Onshore cable installation cost per MWkm

offshore cable




Reactive

compensation

Cost of offshore reactive power

compensation per km of cable Taking distance into account allows for a

like for like comparison between windfarms Cost of onshore reactive power

compensation per km of cable

Development Capitalised development costs as a

percentage of asset cost

Provides insight to the relative magnitude of

capitalised development costs

Table 2 Proposed Direct Cost benchmarks

Recommended Indirect Cost metrics are: Actual costs vs budgeted costs; and Relative costs of

multi-contract vs greater use of EPC arrangements.

The benchmarking exercise could be implemented as a two-stage process – an initial exercise to

produce benchmark metrics for all fourteen OFTO transfers completed to date in order to establish

the current level of capex and to identify common issues and lessons learned; and an ongoing

exercise based on further completed transfers.

Release of data would be subject to Non-Disclosure Agreements (NDA) between the disclosing

and receiving parties. OWPB members should also consider the anonymity issues detailed in

Section 4.7 of this report, in order to determine the exact requirements (eg. include Direct Cost

metrics only or also include Indirect Cost metrics) and frequency of benchmarking (after each

OFTO transfer is completed, or after a minimum of 3 transfers in order to preserve complete

anonymity within aggregated results).

The recommendation here is that the exercise should be conducted following each OFTO transfer

with the Direct Cost metrics being produced. The Indirect Cost metrics would not be published,

but would inform ORE Catapult’s (or another receiving party) understanding of project issues in

order to identify common issues and best practice to be rolled out across the industry.

1.4 Further Considerations – Cost Reduction Monitoring Framework

1.4.1 CRMF Quantitative Study

A proposal should be made to the OWPB and OWIC in 2016 for the existing CRMF quantitative

LCOE calculator to be amended for future years to separate the LCOE results into LCOE for

generation and LCOE for transmission.

It is possible that next year’s study (CRMF 2017) will not include sufficient projects reaching FID

or Works Completion to conduct the quantitative assessment. One approach therefore may be

for OWIC to request permission from those who have responded to previous CRMF for the

Transmission LCOE to be extracted from the previous submissions (by the consultants who have


already reviewed the submissions) in order to establish a baseline Transmission LCOE consistent

with that already reported for UK Offshore Wind as a whole.

1.4.2 CRMF Qualitative Workstream

The additional transmission-specific indicators shown in Table 3 will be added to the qualitative

study in 2016. This does not require a recommendation to OWIC, as it will be carried out as part

of the CRMF annual review.

Proposed Indicator Rationale Next Steps

Lightweight Substations

First orders are expected in 2016.

The proportion of projects using

lightweight substations or radically

novel design concepts would be

expected to steadily increase,

approaching 100% by or before FID

2020.

Review 2020 cost reduction potential

and establish annual milestones based

on the OWPB report “Lightweight

Offshore Substation Designs”,

completed in January 2016

Increased Capacity Export

Cables

Cables at the “state of the art” capacity

level (400MW) expected in 2016.

The size of cable used by (sufficiently

large) projects would be expected to

rise steadily, reaching the 550MW

suggested by OWPB’s work on at least

one FID 2020 project

Estimate 2020 cost reduction potential


on work currently contracted by the

Grid Group to EDIF ERA, with results

expected to be available by June 2016.

Tender Revenue Stream

(TRS) % of OFTO Transfer

Value (see Section 3.4.1)

This should be added to the CRMF

Finance indicators to track the level of

return being required by OFTO’s


and establish annual milestones in

conjunction with OWPB Finance Group

Table 3 Proposed CRMF transmission indicators

This requires further work to be done to establish appropriate annual milestones and a 2020 target

against which to track progress.

1.5 Conclusions

Taken together, implementing the above measures will provide a basis for tracking the actual

costs of offshore wind transmission and assessing areas where progress is not being made at

the rate expected to be necessary to achieve the 2020 LCOE target of £100/MWh and further

ongoing cost reductions. This will provide a robust basis for transmission system designers,

procurement teams and innovators to learn lessons from previous projects and prioritise actions.


2 Introduction

2.1 Background

There is a growing body of evidence showing the reductions being achieved in Levelised Cost of

Energy (“LCOE”) for Offshore Wind. The Cost Reduction Monitoring Framework (“CRMF”) 2014-

151 showed LCOE for projects taking FID in 2012 – 2014 is estimated at £121/MWh in 2011 real

terms. The two offshore wind contracts for difference (CfD) awarded in the UK’s first CfD auction

round in January 2015 were at Strike Prices of £120 and £115, providing evidence that the CfD

recipients forecast LCOE for these projects lower than these figures. Of the two projects, East

Anglia One achieved FID in February 2016, while the outlook for Neart na Gaoithe is currently

unclear with the project entering judicial review over withdrawal of the CfD after missing key

milestones due to legal challenge.

Due to the commercial sensitivities around specific costs and contractual arrangements, the key

components of LCOE within these totals can only be estimated, rather than quantified with

certainty, based on known factors of site conditions and technology used.

The transmission cost elements, however, can be approximated from publicly available data (see

Section 3 of this report). Further disclosure of the detailed information provided to Ofgem is

required in order to understand these costs more accurately and to draw conclusions and prioritise

actions.

2.2 Transmission Costs

Transmission costs as a percentage of total LCOE vary depending on a number of factors,

including distance from shore (driving export cable length to be supplied and installed and reactive

compensation equipment requirements), windfarm capacity, onshore distance to grid connection

point, civil works required onshore and onshore grid connection and compatibility issues. Taking

into account the assets from the offshore substation to onshore substation, transmission would

typically represent 10% - 15% of total LCOE2. As turbine, balance of plant and installation

technology develops to be able to take advantage of higher wind speeds further from shore and

as windfarms become larger, the demands on the transmission system are changing.

As well as the changing demands, there are other factors which require focus on the area of

transmission cost and innovation. For example, there are a number of consented and in-planning

far from shore sites, which will only be cost-competitive if there is an acceleration in the

development of solutions. There are also developments which require industry and regulatory co-

ordination, such as use of dynamic rating and distributed transformer systems.

The ongoing CRMF tracks progress in specific innovations and quantifies current LCOE on an

industry-aggregated level. However, of the 40 technology innovations monitored in CRMF, only 5

relate directly to transmission so there is currently an opportunity to establish a better

understanding of the progress of innovation in this area.


2.3 Potential Approaches to Offshore Transmission Cost Benchmarking & Monitoring

There is a strong case for implementing a framework for benchmarking and monitoring the costs

of offshore transmission in order to allow those responsible for transmission system design and

procurement to learn lessons from previous projects, to ensure technical and commercial

innovations address the evolving needs of the industry and to identify areas where action is

required to kick-start or accelerate faltering progress, whether through R&D initiatives or other

means.

This report will present options for such a framework:

1. Release of the data provided to Ofgem for the cost assessment of each OFTO transaction in

order to compile and maintain key benchmark metrics;

1. An extension of the existing CRMF Qualitative Workstream to increase the number of

innovations tracked in the area of transmission; and

2. An amendment to the existing CRMF Quantitative Workstream, requiring modification of the

LCOE calculator to show LCOE for generation assets and transmission assets separately.


3 Publicly Available Transmission Cost Data

3.1 Overview

There is already sufficient publicly available data relating to OFTO transfers and tariffs to allow

high-level estimates to be made of the capital costs of the key elements of transmission assets.

However, the available data is not sufficient to explain the resulting trends in key metrics and is

therefore insufficient to inform decision making for system designers or innovation priorities.

Estimates can be made for the following cost metrics shown in Table 4.

Workstream Element Indicator

Finance OFTO Return Tender Revenue Stream % of Transfer Value

Capex Offshore substation £m per substation

Capex Offshore substation £ per MVA

Capex Offshore circuit £m per km installed

Capex Offshore circuit £m per MWkm

Capex Onshore substation £m per MW installed

Table 4 Proposed quantitative transmission benchmark metrics

As the same sets of data are published for each OFTO transfer, these metrics can be estimated

for each windfarm once the transfer has been completed, using the data sources and

methodology outlined in the following sections of this report. Note that it is not sufficient to simply

track the absolute values of the published substation and circuit tariffs, since these are driven by

the level of OFTO return in the Tender Revenue Stream as well as the underlying capex.

3.2 Available Data Sources

There are four key sources of publicly available information which, taken together, can be used

to estimate at a high level the actual capex of offshore wind transmission assets:

1. OFTO transfer Cost Assessment reports published by Ofgem3

2. OFTO TRS published by National Grid 4

3. Local substation and offshore circuit tariffs published by National Grid5

4. Offshore Transmission Network Use of System (TNUoS) charging methodology published

by National Grid6


3.2.1 OFTO Transfer Cost Assessment reports published by Ofgem

Ofgem publishes a Cost Assessment report for each OFTO transfer once the licence has been

granted. While the tender process is ongoing, a draft Cost Assessment report is made available

and once the transfer has been concluded a final Cost Assessment report is published. In addition

to the main report, several back-up documents are generally also made available in redacted

form, including the auditor’s report and the technical assessment. A high level summary of the

costs included in the Cost Assessment reports is shown in Table 5, below.

Year Windfarm Capacity Capex Devex Other FTV

MW £m £m/MW £m £m £m

2011 Robin Rigg East & West 180 50 0.28 4 12 66

2011 Barrow 90 26 0.29 4 4 34

2011 Gunfleet Sands 1 & 2 173 38 0.22 6 6 50

2011 Walney 1 184 88 0.48 8 10 105

2012 Walney 2 184 94 0.51 8 8 110

2012 Ormonde 150 80 0.54 14 10 104

2013 Greater Gabbard 504 241 0.48 34 41 317

2013 Sheringham Shoal 317 159 0.50 27 7 193

2013 London Array 630 344 0.55 49 66 459

2014 Thanet 300 120 0.40 27 17 164

2014 Lincs 270 234 0.87 36 38 308

2015 Gwynt y Môr 576 253 0.44 52 48 352

2015 West of Duddon Sands 389 215 0.55 31 23 269

2016 Westermost Rough 210 122 0.58 23 11 157

Table 5 Ofgem OFTO Cost Assessment capex summary by windfarm

It should be noted that the Final Transfer Value (FTV) represents the amount which Ofgem deems

to have been economically and efficiently incurred, based on the financial audit and technical

assessment reports. This is not necessarily the total amount of cost incurred, which is likely to be

greater than the amount allowed. However, for estimation purposes, the allowed value can be

used as a proxy for actual capex as it is not possible in most cases to track from Initial Transfer


Value, through Indicative Transfer Value, to the FTV in order to understand where costs have

been disallowed (and, in any case, even the Initial Transfer value may already be net of some

disallowed costs). It is also important to use the FTV in order to be consistent with the TRS and

tariff data outlined in the following sections.

3.2.2 OFTO Tender Revenue Streams (TRS) published by National Grid

National Grid publishes a 5-year forecast of TNUoS charges, which includes detail of the current

and forecast TRS for each offshore windfarm, expressed in £m per year in nominal terms. This is

the amount being paid to the OFTO to operate the transmission assets and will depend, among

other things, on the FTV paid to acquire the OFTO assets, the forecast ongoing O&M costs and

the level of return the OFTO requires to operate the assets (which will in turn depend on the

OFTO’s appetite and the level of competition between potential OFTO’s in the market).

3.2.3 Local substation and offshore circuit tariffs published by National Grid

The National Grid TNUoS forecast referred to previously also includes current and forecast values

for the local substation and offshore circuit tariffs charged to offshore windfarm generators for use

of the OFTO assets.

The local substation tariff relates to the assets at the offshore substation, specific to the generator.

The costs taken into account in calculating the tariff are Transformer, Switchgear and Offshore

Platform.

The offshore circuit tariff relates to the cost of the OFTO circuit, specific to the generator. The

costs taken into account in calculating the tariff are Offshore cable, Harmonic filtering equipment

and Reactive plant.


3.2.4 Offshore TNUoS charging methodology published by National Grid

This document sets out the basis for the charges levied on the generator for use of the

transmission assets. It provides a worked example for calculating the local substation and

offshore circuit tariffs from the cost of the capital elements and the agreed TRS. This worked

example for a 400MW offshore windfarm is reproduced in Figure 2.

In summary, the transmission assets capex items are allocated to Circuit, Offshore Substation or

Other (Onshore works). The capex for each category is calculated as a percentage of the total

transmission assets capex and this percentage is applied to the TRS. In this example, the Circuit

and Substation capex account for 38% and 45% of capex respectively, a total of 83% of capex.

The Circuit and Substation tariffs are then converted into 38% and 45% of the TRS, which will be

paid by the generator. The remaining 16.5%, relating to the Onshore substation is socialised into

the wider tariff element of TNUoS.

3.3 Capex Estimation Methodology

The data sources outlined in Section 3.2, above, provide the windfarm-specific information

outlined in Table 6, while the TNUoS charging methodology statement provides a way of

calculating each of the tariffs from the FTV and TRS. The same methodology can therefore be

applied in reverse to estimate the capex cost of the groups of components included in each tariff.

Figure 2 Offshore TNUoS charge worked example

Capex % of total TRS share Rating LSF Tariff

£m £ MVA £ / kW

Circuit

Export Cable Supply & Install 100.00 32.9%

Harmonic Filtering Equipment 1.00 0.3%

Reactive Plant 15.00 4.9%

Subtotal Circuit 116.00 38.2% 9.56 420 1.00 22.75

Substation

Transformer 10.00 3.3% 0.82 640 1.29

Switchgear 2.50 0.8% 0.21 680 0.30

Platform 125.00 41.2% 10.30 640 16.09

Onshore Civils cost adjustment - (0.40)

Subtotal Substation 137.50 45.3% 11.33 17.27

Other

Onshore Substation 50.00 16.5% 4.12 -

Subtotal Other 50.00 16.5% 4.12 -

Total 303.50 100.0% 25.00 40.02


Required information Source

Transmission assets capex Cost Assessment reports

Tender Revenue Stream National Grid TNUoS forecast

Local substation tariff National Grid TNUoS forecast

Offshore circuit tariff National Grid TNUoS forecast

Platform Rating Case-by-case basis

Cicuit Rating Case-by-case basis

Table 6 Calculation data sources

3.4 Metrics Summary

Applying the relevant calculations to the data for OFTO transfers to date, the capex for each of

the transmission asset elements can then be shown against relevant factors in order to quantify

specific metrics as shown in Table 7. The proposal here is to focus on Offshore Substation and

Circuit capex as Onshore Substation capex tends to be very site-specific. However, it would also

be worthwhile to track capex per MW for Onshore Substation in order to better understand the

cost drivers.

Windfarm MW Transfer

Year

FTV

£m

Capex

£m

TRS/FTV

%

Offshore

Substation

£m/platform

Offshore

Substation

£/MVA

Circuit

£m/km

Circuit

£k/MWkm

Barrow 90 2011 34 26 16.8% 3.0 25,370 0.5 6.1

Robin Rigg E&W 180 2011 66 50 12.2% (0.2) (2,375) 1.1 6.3

Gunfleet Sands 173 2011 50 38 14.3% 14.9 62,100 1.1 6.6

Walney 1 184 2011 105 88 12.2% 24.8 103,289 1.1 5.8

Walney 2 184 2012 110 94 11.6% 26.7 111,089 1.1 6.2

Ormonde 150 2012 104 80 11.5% 23.2 136,610 1.0 6.4

Greater Gabbard 504 2013 317 241 8.5% 31.6 175,567 1.0 2.0

Sheringham

Shoal 317 2013 193 159

10.2% 28.5 158,116 0.9 2.9

London Array 630 2013 459 344 8.6% 26.0 72,121 0.8 1.3


Windfarm MW Transfer

Year

FTV

£m

Capex

£m

TRS/FTV

%

Offshore

Substation

£m/platform

Offshore

Substation

£/MVA

Circuit

£m/km

Circuit

£k/MWkm

Thanet 300 2014 164 120 9.9% 37.8 104,879 1.3 4.3

Lincs 270 2014 308 234 8.6% 33.3 92,419 1.2 4.3

Gwynt y Môr 576 2015 352 253 6.9% 50.8 158,702 0.9 1.5

WoDS 389 2015 269 215 7.9% 30.1 62,664 1.8 4.7

Table 7 Metrics summary for OFTO transfers to date

The metrics can then be viewed on a timeline on an annual MW-weighted basis, consistent with

a CRMF-style approach, as shown in the following Sections 3.4.1 to 3.4.4. These sections

illustrate the level of analysis possible from publicly available data, but also highlight the key

shortcomings.

Note that these figures and analysis are shown in nominal terms. It may be desirable to deflate

all costs to a 2011 base (see Appendix 4 ) in order to be consistent with the basis of the £100/MWh

LCOE target and the current base year for monitoring under the CRMF. Appendix 5 shows that

the trends can be shown on a project-by-project basis and illustrates the point that the trends can

only be explained and acted upon with further data disclosure.

3.4.1 TRS as a % of FTV

This metric provides a guide to the level of return required by OFTO’s and is a major driver of the

charges to be levied on windfarm operators. As shown in Figure 3, this has been steadily

decreasing from a MW-weighted average of 13.4% in 2011 to 7.3% in 2015. It is a simple ratio,

which can be derived for all future OFTO transfers.

Further data: Estimates of OFTO asset opex to understand the overall level of OFTO return.

Figure 3 TRS as a % of FTV shown against number of OFTO transfers by year 2011 - 2015


3.4.2 Offshore Substation Capex

The metrics estimated for Offshore Substation capex are:

Cost per Substation; and

Cost per MVA of capacity

The historic data included in Figure 4 shows capex having risen from a MW-weighted average of

£12m per offshore substation in 2011 to £42m in 2015. At the same time, capex per MVA of

capacity has risen from a MW-weighted average of £50k per MVA in 2011 to £120k per MVA in

2015. Naturally, capex per MW follows these 2 trends, rising from a MW-weighted average of

£67k per MW in 2011 to £136k per MW in 2015.7 Overall it appears that the cost of constructing

and installing an offshore substation is increasing quite significantly. This trend can only be

understood with a number of additional data.

Further data:

Cost of transformers

Cost of platform

Offshore Substation foundations supply cost

Foundations and topside installation cost

Cost of any spare equipment included

3.4.3 Offshore Circuit Capex

The metrics estimated for Offshore Circuit capex are:

Cost per km; and

Figure 4 Offshore Substation capex metrics by year 2011 – 2015


Cost per MWkm to capture the effects of installing different capacities over distance

The historic data included in Figure 5 shows capex having risen from a MW-weighted average of

£1.0m per km of circuit in 2011 to £1.3m per km in 2015. At the same time, capex per MWkm has

reduced from a MW-weighted average of £6.2k per MWkm to £2.8k per MWkm in 2015. Capex

per MW follows the slightly increasing trend of capex per km, rising from a MW-weighted average

of £180k per MW in 2011 to £260k per MW in 2015.

It should be noted that circuit capex derived from the offshore circuit tariff includes onshore

harmonic filtering and reactive plant in addition to offshore and onshore cable. Therefore the

metrics derived using this method will be higher than a straightforward cost per km or per MWkm

of cable supplied and installed. This may account for some of the increase in capex per km as

the need for reactive plant increases with distance from shore, even if the cable cost per km is

not increasing.

Further data:

Offshore cable supply cost; Offshore cable installation cost; number and size of offshore

cable sections

Onshore cable supply cost; Onshore cable installation cost; number and size of onshore

cable sections

Landfall cost and method used

Cost and properties of onshore reactive equipment

Cost and properties of offshore reactive equipment

Figure 5 Offshore Circuit capex metrics by year 2011 - 2015


3.4.4 Onshore Substation Capex

The metric estimated for Onshore Substation is:

Capex £m per MW

The project by project movements shown in Appendix 5 illustrate how site-specific this metric is

likely to be. Continued tracking will, however, provide better understanding of the cost drivers.

3.5 Summary of Publicly Available Offshore Transmission Cost Data

Quantitative finance and capex indicators can be tracked using publicly available data

Data required are contained in Ofgem published OFTO transfer reports and National Grid

published tariffs

Analysis of historic OFTO transfer data shows that some elements of capex appear to be

reducing while others appear to be increasing

The public data needs to be supplemented with project-specific information in order to draw

conclusions on cost drivers and learn lessons for future system design and procurement

Further considerations

Expressing capex metrics in 2011 terms to be consistent with existing CRMF

quantitative analysis (see Appendix 4 ), though in order to be robust this may require

additional transparency in terms of the timing of capex spend.

Analysing metrics on a project-by-project basis (see Appendix 5 )

Figure 6 Onshore Substation Capex per MW by year 2011 - 2015


4 Action 1 - Cost Benchmarking based on OFTO Data

4.1 Background

As part of the GB OFTO regime, detailed cost data is provided by each developer8 to Ofgem. This

is provided in the form of cost reporting templates, contract values, asset cost schedules and

cash flows. Developers also provide supporting evidence to substantiate their cost submissions

including, amongst other things, contract documentation, supplier payment lists and invoices and

receipts. In order to assess the cost efficiency of the constructed assets, Ofgem and its advisers

benchmark a range of cost metrics against previous OFTO transactions, taking into account site-

specific factors and market variables, such as commodity prices and exchange rates.

As outlined in Section 3 of this report, there is valuable information contained in publicly available

sources. It is possible to generate approximate cost metrics by windfarm and by year; groupings

could also be made based on other properties, for example, windfarm size or distance from shore.

However, disclosure of the detailed data provided to Ofgem as part of the OFTO Cost Assessment

process would add a great amount of value to the analysis in terms of project-specific or

approach-specific cost drivers and allowing the trends identified to be explained and acted upon.

It is proposed here that the OFTO data disclosed to Ofgem should be made available for an

ongoing benchmarking study. The ORE Catapult could potentially conduct the benchmarking

study using similar principles as those applied to the CRMF. The expected benefits of undertaking

such a study would be as follows:

Allow developers to understand the current best in class across the industry, rather than purely

against internal benchmarks or their own supply chain inputs;

Provide consistent metrics for developers to compare between supply chain quotes;

Provide developers with more comprehensive benchmarks against which to challenge the

supply chain;

Provide insight into the cost impact of design trade-offs made in previous projects;

Provide developers with this information before they make procurement decisions (rather than

this information only being available to Ofgem and its advisers for use during the OFTO cost

assessment process once the money has already been spent);

Identification of common areas of cost and performance issues to enable industry participants

to take joint action;

Estimating the impact on costs of different contracting approaches;

Identifying the best methods of dealing with project issues (eg. supply chain delays or

performance levels)


4.2 Current GB Offshore Wind Transmission Benchmarking

Ofgem already undertakes comprehensive benchmarking of OFTO costs. This is required in order

to be able to assess economic and efficient expenditure. Key examples of publications in this field

are described here only very briefly:

Cost Efficiency Report 10010731, KEMA Ltd, June 20099

KEMA created a comparator valuation for each transmission project assessed, based on six

comparator metrics:

Offshore substation cost per megawatt of secure capacity

Offshore substation electrical cost per megawatt of generation installed

Cable cost per kilometre supplied

Cost per MVA for transformers

Capitalised development costs as a percentage of asset cost

Cost of reactive power compensation per kilometre of cable

All monetary values are redacted in the published version of this report.

Offshore Transmission Cost Assessment Development Update, Ofgem, June 201510

Published following industry consultation and detailed modelling by CEPA and SKM (see below),

including updated benchmarks for six metrics:

Land cable supply and installation (less than 15km) £m/km

Land cable supply and installation (greater than 15km) £m/km

Onshore substation £m/MW

Offshore substation £m/MW

Submarine cable supply £m/km

Submarine cable installation £m/km

The updated benchmark figures are included, as is a brief explanation of the movement from

the previous benchmark values.

OFTO Benchmarking, CEPA Ltd in association with SKM, December 201411

Detailed review of information from OFTO Tender Rounds 1 and 2 in support of the above

Ofgem report [10], including detailed examination and comparison of various statistical models

for validating relationships between cost drivers and costs.


While these publications are extremely valuable as tools in cost assessment and show that

comprehensive benchmarking has been undertaken, the published results do not provide

explanations of the trends in offshore transmission costs presented in Sections 3.4.2 – 3.4.4 of

this report.

4.3 Examples of Benchmarking in Other Industries

UK Offshore Wind

o The Cost Reduction Monitoring Framework, sponsored by the Offshore Wind Industry

Council (OWIC), is actively being used to inform priorities in innovation, research and

joint industry programmes within government and in organisations within industry.

o The SPARTA (System performance, Availability and Reliability Trend Analysis)

collaborative project between ORE Catapult, The Crown Estate and offshore wind farm

owner/operators is used on an ongoing basis by owner/operators to benchmark their

performance against the wider industry, in order to understand their strengths and

weaknesses against peers rather than against internal benchmarks only.

Government Construction Strategy - The UK government began publishing construction cost

benchmark data in 2012. All government departments are required to use a common

procurement strategy for construction projects and to share construction benchmarks. Cost

reductions declared of 13% to 20% per year in years 2012 to 2014.12

Energy Networks – Benchmarking is used widely to assess the reasonableness of

transmission costs in a number of countries and territories including the GB13, Australia14 and

Alberta (Canada)15.

Energy Regulation – Cost benchmarking is used throughout Europe, including Austria,

Denmark, Finland, Germany, Norway, Spain and Sweden to assess the reasonableness and

set targets for costs and performance levels16.

GB Water utilities – Scottish, English and Welsh water utilities share benchmark data on capital

maintenance and operating costs. This has assisted Scottish Water in targeting 13% cost

reduction from efficiency benefits in its 2015-2021 Business Plan17

Offshore Oil & Gas (two examples from multiple arrangements)

o Dodson Drilling Performance Benchmark Database System18 - a database system

consisting of benchmarking application software and information on wells drilled in the

Gulf of Mexico, including public and operator-submitted data.

o Solomon's Worldwide Offshore Production Operations Performance Analysis (Offshore

Study)19 - a platform for assessing the performance of offshore assets at the company

level and for comparing the performance of similar types of operations either globally

or within a given region


4.4 Estimate of Benefits

The average Final Transfer Value (FTV) of the fourteen completed OFTO transfers is £0.6m per

MW. For a 500MW windfarm, this equates to £300m. Analysis of published FTV’s and offshore

transmission tariffs allows an approximation to be made of key metrics for transfers completed to

date. The relevant costs and properties of each OFTO transfer are shown in Table 5 in Section

3.2.1 of this report. Comparing the estimated metrics for each transfer from 2012 onwards against

the lowest metrics achieved in previous years is taken here as an approximation of potential

savings. The analysis takes 2012 as the start year as the first OFTO transfers were completed in

2011. The estimated savings by windfarm are shown in Table 8.

Year Windfarm Capacity Illustrative Potential Savings (£m)

MW Based on

Transformer rating

Based on Substation

capex

Based on Cable

length and capacity

Based on Cable length

2012 Walney 2 184 1 1 3 3

2012 Ormonde 150 9 0 9 -

2013 Greater Gabbard 504 38 23 - 14

2013 Sheringham Shoal 317 24 9 19 -

2013 London Array 630 - 10 - -

2014 Thanet 300 17 22 67 36

2014 Lincs 270 9 14 119 50

2015 Gwynt y Môr 576 80 82 25 15

2015 West of Duddon Sands 389 - 8 130 96

2016 Westermost Rough 210 72 64 23 15

Total (£m)

3,529 251 234 396 228

Median (£m)

13 12 21 14

Median (£/MW)

36,405 33,418 59,461 40,117

Table 8 Illustrative potential savings from benchmarking against best in class by windfarm

Taking the average of illustrative savings from the Offshore Substation and Circuit capex metrics,

provides an estimate of potential benefit from being able to reduce key metrics to the lowest

achieved in previous transactions of 14% cost savings as shown in Table 9. Note that Onshore

Substation is not included in the potential savings as analysis of the publicly available data

suggests cost drivers are too site-specific. These savings should be taken as purely illustrative


since, if nothing else, the length of the planning and design phase of transmission projects means

that it will not always be possible to incorporate the most recent learnings into the process.

Metric Values

Average Saving based on Substation metrics (£/MW) 34,912

Average Saving for 500MW windfarm based on

Substation metrics (£m) 17.5

Average Saving based on Circuit metrics (£/MW) 49,789

Average Saving for 500MW windfarm based on

Circuit metrics (£m) 24

Average Saving based on both Substation and Circuit

metrics (£/MW) 84,700

Average Saving for 500MW windfarm based on both

Substation and Circuit metrics (£m) 42

Average OFTO Capex based on transactions to date

(£/MW) 600,000

Average OFTO Capex based on transactions to date

for 500MW windfarm (£m) 300

Saving % 14%

Table 9 Combined illustrative savings from benchmarking

4.5 Implementation

The benchmarking process can be split into two key elements:

Direct cost benchmarks (eg. costs per MWkm, derived directly from data provided)

Indirect benchmarks (eg. project management or procurement-related, which would require

more detailed analysis of contractual arrangements, variance analysis between budget and

actual costs and potentially direct engagement with developers and the supply chain)


If this approach were to be followed, it may be desirable to implement the Direct Cost Benchmarks

as the initial process in order to establish the feasibility of conducting further, more detailed

analysis on the more contractual elements.

4.5.1 Direct Cost Benchmarks

The proposed cost benchmark metrics are consistent with the Cost Comparators used by Ofgem

and their advisers in assessing the cost efficiency of OFTO capex.

Table 10, below, shows the proposed cost benchmark metrics. Those used in the Ofgem cost

efficiency testing are shaded grey. Note that the Ofgem comparators include a single cable metric

of cable supply cost per km and do not separate offshore from onshore cable, but it is considered

necessary here in order to provide a like for like comparison between projects which all have

different proportions of offshore vs onshore cable.


Offshore substation











capacity






generating capacity













Offshore Export

Cable


cable





offshore cable







offshore cable






offshore cable




Onshore Export

Cable


cable





offshore cable





offshore cable






offshore cable




Reactive

compensation

Cost of offshore reactive power

compensation per km of cable Taking distance into account allows for a

like for like comparison between windfarms Cost of onshore reactive power

compensation per km of cable






4.5.2 Indirect Benchmarks

Potential indirect benchmark metrics could be as follows:

Actual costs vs budgeted costs – Identify and analyse the causes of cost over-runs. As far

as possible, group the causes into generic categories, eg. weather delays, supplier

defects/errors, developer errors, change in requirements in order to identify common issues

and quantify their impacts.

Relative costs of multi-contract vs greater use of EPC arrangements – Conduct cost-

benefit analysis between project management costs and contractors’ risk pricing. (This may

require an even greater level of detail than is available in the Ofgem submissions.)


4.5.3 Implementation Phases

The cost benchmarking would be performed in two distinct phases

One-off exercise to prepare current benchmarks

An initial exercise would be required to collate and analyse the data for all OFTO transactions

completed to date (fourteen at the time of writing). This would establish the current cost base and

provide insight into site-specific and market cost drivers.

Ongoing exercise for completed OFTO transfers in a given period

The exercise would be updated for each completed OFTO transfer or periodically once a minimum

of three OFTO transactions have completed (see below on confidentiality and anonymity).

4.6 Data Confidentiality

In order to preserve the confidentiality of data provided, non-disclosure agreements (NDA’s)

would be required between the disclosing and receiving parties. The exact terms of the NDA may

need to be agreed individually with each disclosing party, but the expected general condition

would be that no confidential information should be disclosed to a third party without the prior

written consent of the disclosing party unless required by law. The receiving party may be ORE

Catapult or may be another third party (in CRMF, a limited disclosure of quantitative data is made

to an appointed consultant – in 2014 this was Deloitte LLP). This process has already successfully

been completed for LCOE data required for the CRMF work and could be replicated here.

The submitted data would be held and analysed within a secure location, eg. a restricted server

area with suitable password protection and named users.

4.7 Anonymity of Results

4.7.1 Option 1a – Produce Direct Cost benchmark metrics for each completed OFTO

transaction

The analysis of potential savings shown in Section 4.4, above, is based on estimating capex for

Offshore Substation, Offshore Circuit and Onshore Substation from the published FTV, the

published local circuit and substation tariffs and National Grid’s TNUoS charging methodology

statement. That is, the capex elements can be estimated by applying the TNUoS charging

methodology to the FTV (net of non-capex elements of Interest During Construction,

Development Expenditure and Transaction Costs) and the published tariffs. While the accuracy

of the estimate depends on the assumption that the non-capex elements are spread pro-rata over

the capital assets and cannot disaggregate the cost of the circuit into cable and onshore reactive

equipment, it does provide an approximate view.

One could argue that disclosing the OFTO data provided to Ofgem is not a significant step from

the estimates which can be made based on publicly available information and should pose no

commercial threat to disclosing parties.


If OWIC members are of this view, then it would be possible to produce the proposed Direct Cost

benchmark metrics for each OFTO transaction once completed. However, the deeper analysis

required to conduct the proposed Indirect Cost benchmarking of actual costs vs budget and the

costs and benefits of procurement strategies (the Indirect Cost metrics) may be more sensitive

and so should not be produced following each transaction.

4.7.2 Option 1b - Produce Direct and Indirect Cost benchmark metrics on similar basis to

CRMF

Under this option, the methodology would, as far as possible, mirror that applied in the CRMF.

One of the fundamental principles is that the data for each project should remain confidential to

the respective project developer(s). All data would be provided into the benchmarking process

under NDA’s. In order to ensure that no third party can backward-engineer the cost metrics of a

single project, three key tests would have to be satisfied:

1. Three project rule – a minimum of three OFTO transactions must be included in the dataset;

2. Ownership history – past ownership of projects will be considered in order to identify any

projects where parties other than the current owners have access to the project data; and

3. Relative size of projects – as a general rule, the combined contribution of any two projects

should not be greater than 80% of that year’s total capacity subject to OFTO transaction (the

80% hurdle will be considered on a year-by-year basis)

As a result of these requirements, it is highly unlikely that the transmission cost benchmarking

exercise could be conducted each year. Similar to the CRMF approach, a minimum of three OFTO

transactions would need to be completed before a further benchmarking could be undertaken.

This is likely to lead to single or multiple year gaps in benchmark publication.

4.8 One-off exercise to prepare current benchmarks

In order to provide meaningful benchmarks, it is likely that the fourteen already-completed OFTO

transactions to be included in the initial one-off exercise would be grouped by year. To preserve

anonymity in line with the principles outlined in Section 4.7.2, some multi-year groupings would

be required, possibly as in Table 11, below:

Year OFTO transactions completed Capacity

2011

Barrow Robin Rigg E&W Gunfleet Sands Walney 1

626MW

2012 - 2013

Walney 2 Ormonde Greater Gabbard Sheringham Shoal London Array

1,784MW


Year OFTO transactions completed Capacity

2014 - 2016

Thanet Lincs Gwynt y Mor West of Duddon Sands Westermost Rough

1,745MW

Table 11 Initial analysis of OFTO transfers to date

4.9 Cost of conducting the exercise

The costs of initial set-up and ongoing management of the process are not envisaged to be

significant, but would need to be assessed if there would be an appetite to pursue this proposal.

4.10 Recommendations

A proposal should be made to OWPB & OWIC for its members to authorise release to ORE

Catapult of the data provided to Ofgem as part of the OFTO Cost Assessment process. This will

provide the basis for an industry-wide understanding of common and design-specific cost drivers,

which can inform innovation and procurement decisions.

OWIC members should consider the anonymity issues detailed in Section 4.7, above, in order to

determine the exact requirements (eg. include Direct Cost metrics only or also include Indirect

Cost metrics) and frequency of benchmarking.

The recommendation here is that the exercise should be conducted following each OFTO transfer

with the Direct Cost metrics being produced. The Indirect Cost metrics would not be published,

but would inform ORE Catapult (or another receiving party) understanding of project issues in

order to identify common issues and best practice to be rolled out across the industry.


5 CRMF Background

5.1 CRMF Overview

The CRMF was developed by the ORE Catapult and The Crown Estate and has been approved

by the Offshore Wind Industry Council (OWIC). The framework has been implemented in order to

track the Offshore Wind industry’s progress towards achieving LCOE of £100/MWh for 2020

FID’s. The CRMF comprises two separate, but related, workstreams:

a) A qualitative forecasting approach to track industry progress against a framework of pre-

agreed milestones based on innovations identified in the Crown Estate’s Pathways Study

(“the Pathways Study”)20;

b) A quantitative tracking approach using standardised project data declared at FID and

works completion to calculate an industry average LCOE weighted by yield across as

many projects as is necessary to guarantee individual project anonymity in each year.

The output is a series of annual reports for the Offshore Wind Programme Board (OWPB) to

assess how the industry is progressing and where focus is required to make further progress in

delivering a lower LCOE.

The designs of the Qualitative and Quantitative Workstreams are provided in Appendix 1 and

Appendix 2 respectively.

5.2 CRMF Key Challenges

The results of the CRMF are used to mobilise industry, government and R&D organisations

around areas with cost reduction potential, particularly where progress is identified as falling

behind target. It is therefore seen by OWIC members as of crucial importance as an objective

method for measuring industry cost reduction progress. In spite of this, there were a number of

challenges to be overcome in order to design a process which could achieve the objectives, while

being capable of implementing in practice. It is vital to take this into account when implementing

any modification to the existing CRMF process.

5.2.1 Confidentiality

The need to maintain data confidentiality is a prime concern for all involved in the CRMF. Wind

farm developers and owners are required to complete a pro forma LCOE calculator for each

relevant project, in order to provide a project LCOE which would be aggregated up to an industry

weighted LCOE. In order to preserve data anonymity, a number of steps have been put in place.

Without these measures, the Quantitative Workstream could not proceed:

1. 3-project rule – each sample must include a minimum of 3 projects in order to prevent back-

calculation of individual LCOE’s.


2. Non-Disclosure Agreements (NDA’s) – an NDA was entered into with each respondent to the

Quantitative Workstream. This was a time and resource-consuming process as bespoke

wording had to be agreed with each respondent.

3. Independent consultant – a consultant (Deloitte LLP in 2014-15) was appointed to work

directly with the wind farm developers and owners in order to provide an additional layer

between wind farm data and ORE Catapult and The Crown Estate.

4. LCOE Model confidentiality – while Deloitte personnel were able to seek clarifications on how

the Excel model had been populated and, in some cases permitted to review the Excel models

in the participants’ offices accompanied by staff, only the ‘Results’ sheet, showing the wind

farm size, FID or Works Completion year, total capex, total annual opex, total annual electricity

generation and resulting LCOE, from the Excel model was provided to Deloitte.

5.2.2 Resource availability from respondents

Completion of both the Qualitative questionnaires and the Quantitative Excel LCOE calculator is

time-consuming. The CRMF is designed with this in mind in order to minimise the additional work

from respondents and maintain buy-in to the process.

5.2.3 Sample Size and Response times

In order to compile meaningful results, the CRMF includes as many participants from the

development, operating, supply chain and finance communities as possible. However, this

requires a significant level of project management resource in order to ensure responses are

received in a timely manner in order to deliver results to required deadlines.


6 Action 2 – Amend Existing CRMF LCOE Calculator

6.1 Amendments to the LCOE Calculator

The existing LCOE Calculator which is completed by CRMF respondents provides LCOE for each

project at total level (ie. generating assets plus transmission assets). The level of detail included

in the LCOE Calculator inputs enables generating and transmission LCOE to be shown

separately. The existing LCOE Calculator could be amended to show the LCOE for generating

and transmission assets separately on the ‘Results’ sheet. This would allow separate generation

and transmission LCOE to be included in the CRMF report going forward.

6.2 Key Considerations

The issues which had to be overcome when implementing the existing CRMF process are likely

to be evident and so it is worth considering how each of these can be addressed.

6.2.1 Confidentiality

The main consideration will be buy-in from respondents that showing the LCOE broken down into

these 2 elements does not pose any commercial or confidentiality issues. It will be vital to

emphasise that the results will still be reported at an industry aggregate level and so there should

be the same level of comfort as with the existing arrangements for preserving anonymity.

6.2.2 Resource availability from respondents

The level of detail required in populating the LCOE Calculator will not change from the existing

process and so no additional time or effort is anticipated in completing an amended Excel sheet

(the amendments would be made to the calculation and ‘Results’ sheets, rather than the inputs).

6.2.3 Sample Size and Response times

As above, respondents should not be required to spend any more time than under the existing

CRMF arrangements.

6.3 Recommendations

A proposal should be made to the OWPB and OWIC in 2016 for amendment of the existing CRMF

quantitative LCOE calculator to separate the LCOE results into LCOE for generation and LCOE

for transmission. However, the substantial potential obstacles detailed in Section 6.2 of this report

may prevent this option from being implemented in the current year.

It is possible that CRMF 2017 will not include sufficient projects reaching FID or Works Completion

to conduct the quantitative assessment. One approach therefore may for OWIC to request

permission from those who have responded to previous CRMF for the Transmission LCOE to be

extracted from the previous submissions (by the consultants who have already reviewed the

submissions) in order to establish a baseline Transmission LCOE consistent with that already

reported for UK Offshore Wind as a whole.


7 Action 3 – Update CRMF Qualitative Indicators

7.1 Qualitative Workstream – Existing Offshore Transmission Indicators

The Pathways Study focused on innovation and cost reduction potential up to the offshore

substation (ie. generating assets only). The CRMF indicators shown in Table 12 built on the

complementary piece of work “Potential for offshore transmission cost reductions”21 published by

The Crown Estate and RenewableUK in February 2012 and on areas being highlighted to DNV

GL (who designed the Qualitative Workstream) and to ORE Catapult.

Full detail for the 5 offshore transmission-related qualitative indicators currently included in the

CRMF are included in Appendix 3

Existing Indicator 2020 Vision

Standardisation of Offshore AC

Substation

All substations have standard rating and voltage, substantial standardisation

of other features

Overplanting and/or use of

dynamic rating Substantial use of overplanting and/or dynamic rating of cables

Booster stations Deployed on one offshore project

Compact HVDC systems HVDC equipment competitive with other options at 70km.

OFTO O&M OFTOs utilise condition monitoring on majority of assets, with some sharing

of vessels and spares, leading to cost savings of 10%

Table 12 Existing transmission-related CRMF indicators

7.2 Proposed Offshore Transmission Indicators

ORE Catapult, in conjunction with Transmission Excel, has undertaken a review of the existing

indicators and of OWPB Grid Group priorities, in order to assess the appropriateness of existing

indicators and to identify additional indicators relevant to offshore transmission. This review

reinforced the existing practice of reviewing the indicators each year to ensure their ongoing

relevance (eg. considering the cost reduction potential of standardised substations before there

is agreement that an optimised design has been achieved).

The review identified new indicators are shown in Table 13.





The proportion of projects using

lightweight substations or radically

novel design concepts expected to

steadily increase, approaching 100%

by or before FID 2020.

Review 2020 cost reduction potential


on the OWPB report “Lightweight

Offshore Substation Designs”,

completed in January 2016


Cables

Cables at the “state of the art” capacity

level (400MW) expected in 2016.

The size of cable used by (sufficiently

large) projects would be expected to

rise steadily, reaching the 550MW

suggested by OWPB’s work on at least

one FID 2020 project



on work currently contracted by the

Grid Group to EDIF ERA, with results

expected to be available by June 2016




This should be added to the CRMF

Finance indicators to track the level of

return being required by OFTO’s


and establish annual milestones in

conjunction with OWPB Finance Group

Table 13 Proposed transmission-related CRMF indicators

7.3 Recommendations

As shown in Table 13, the next steps (to be undertaken as part of the existing CRMF process)

for including new indicators in the CRMF will be to:

Estimate 2020 cost reduction potential for each new indicator

Establish annual milestones and a measurable 2020 target in order to compile a table as

shown in Table 14

Proposed

Indicator

Cost Reduction

figure for weighting

2020 Vision (to

hit £100/MWh)

Milestone

scorecard

FID

2016

FID

2017

FID

2018

FID

2019

FID

2020

Indicator X xx% Xxxxxxxxxx

Ahead of target

On target

Behind target

Missed target

Table 14 CRMF qualitative indicator tracking example


8 Recommendations

This report recommends 3 actions for the ongoing monitoring and benchmarking of offshore wind

transmission costs. The first two require a proposal to be made to OWIC, while the third is included

here for information only.

8.1 Implement an ongoing transmission cost benchmarking exercise

A proposal should be made to OWIC for its members to authorise release to ORE Catapult of the

data provided to Ofgem as part of the OFTO Cost Assessment process. This will provide the basis

for an industry-wide understanding of common and design-specific offshore wind transmission

cost drivers, which can inform innovation and procurement decisions.

The benchmarking process should have two elements: Direct Cost metrics; and Indirect Cost

metrics.

Recommended Direct Cost metrics are consistent with the Cost Comparators used by Ofgem’s

advisers in the OFTO Cost Assessment process, as shown in Table 15, below.


Offshore substation











capacity






generating capacity













Offshore Export

Cable


cable







offshore cable





offshore cable






offshore cable




Onshore Export

Cable


cable





offshore cable





offshore cable






offshore cable




Reactive

compensation

Cost of reactive power compensation per

km of cable

Taking distance into account allows for a

like for like comparison between windfarms






Recommended Indirect Cost metrics are: Actual costs vs budgeted costs; and Relative costs of

multi-contract vs greater use of EPC arrangements.

The benchmarking exercise would be implemented as a two-stage process – an initial exercise

to produce benchmark metrics for all fourteen OFTO transfers completed to date; and an ongoing

exercise based on further completed transfers.

Release of data would be subject to Non-Disclosure Agreements (NDA) between the disclosing

and receiving parties. OWIC members should also consider the anonymity issues detailed in

Section 4.7 of this report, in order to determine the exact requirements (eg. include Direct Cost

metrics only or also include Indirect Cost metrics) and frequency of benchmarking.


8.2 CRMF Quantitative Workstream

A proposal should be made to the OWPB and OWIC in 2016 for amendment of the existing CRMF

quantitative LCOE calculator to separate the LCOE results into LCOE for generation and LCOE

for transmission. However, the potential obstacles detailed in Section 6.2 of this report may

prevent this option from being implemented in the current year.

It is possible that CRMF 2017 will not include sufficient projects reaching FID or Works Completion

to conduct the quantitative assessment. One approach therefore may for OWIC to request

permission from those who have responded to previous CRMF for the Transmission LCOE to be

extracted from the previous submissions (by the consultants who have already reviewed the

submissions) in order to establish a baseline Transmission LCOE consistent with that already

reported for UK Offshore Wind as a whole.

8.2.1 CRMF Qualitative Workstream

The additional transmission-specific indicators shown in Table 16 should be added to the

qualitative study. This does not require a recommendation to OWIC, as it should be carried out

as part of the CRMF annual review. This would require further work to be done to identify further

indicators and to establish annual milestones and a 2020 target against which to track progress.




The proportion of projects using lightweight

substations or radically novel design

concepts would be expected to steadily

increase, approaching 100% by or before

FID 2020.

Review 2020 cost reduction potential and

establish annual milestones based on the

OWPB report “Lightweight Offshore

Substation Designs”, completed in January

2016


Cables

Cables at the “state of the art” capacity level

(400MW) expected in 2016.

The size of cable used by (sufficiently large)

projects would be expected to rise steadily,

reaching the 550MW suggested by OWPB’s

work on at least one FID 2020 project

Estimate 2020 cost reduction potential and

establish annual milestones based on work

currently contracted by the Grid Group to

EDIF ERA, with results expected to be

available by June 2016.




This should be added to the CRMF Finance

indicators to track the level of return being

required by OFTO’s

Estimate 2020 cost reduction potential and

establish annual milestones in conjunction

with OWPB Finance Group

Table 16 Proposed CRMF transmission indicators


1 https://ore.catapult.org.uk/documents/10619/168655/pdf/a8c73f4e-ba84-493c-8562-acc87b0c2d76

2 ORE Catapult financial modelling

3 https://www.ofgem.gov.uk/electricity/transmission-networks/offshore-transmission/offshore-transmission-tenders

4 http://www2.nationalgrid.com/UK/Industry-information/System-charges/Electricity-transmission/Approval-conditions/Condition-5/

5 ibid

6 http://www2.nationalgrid.com/UK/Industry-information/System-charges/Electricity-transmission/Transmission-Network-Use-of-

System-Charges/Tools-and-Data/

7 Note that 2011 includes Barrow and Robin Rigg, with very low Offshore substation capex. Excluding these, 2011 weighted

averages are £20m per Substation, £83k per MVA and £110k per MW.

8 Under the current practice of Generator-build, transmission assets are constructed by developers/generators before being

transferred to an OFTO. The Generator-build model is assumed throughout this paper and so “developer” is used to refer to the

builders of transmission assets, but this is also intended to refer to any builder of transmission assets in the future

9 https://www.ofgem.gov.uk/ofgem-publications/50898/appendix-5-kema-technical-benchmarking-report.pdf

10 https://www.ofgem.gov.uk/sites/default/files/docs/2015/06/150312_cost_assessment_decision_documentt.pdf

11

https://www.ofgem.gov.uk/sites/default/files/docs/2015/06/final_cambridge_economic_policy_associates_ofto_benchmarking_report

_1.pdf

12

https://www.gov.uk/government/uploads/system/uploads/attachment_data/file/325919/Departmental_Cost_Benchmarks_Cost_Redu

ction_Trajectories_and_Cost_Reductions_02_July_2014.pdf

13 Ofgem study for RIIO II implementation: https://www.ofgem.gov.uk/sites/default/files/docs/2013/05/rpt-

total_cost_benchmarking_at_riio-ed1_-_volume_1_-_final_-_stc_-_revised_25042013_1.pdf

14 https://www.accc.gov.au/system/files/Working%20paper%20no.%206%20%20-%20Benchmarking%20energy%20networks.pdf

15

http://www.aeso.ca/downloads/Reasonableness_Assessment_of_Transmission_Cost_Using_Benchmarking_Methodology_June_3.

pdf

16 http://www.wik.org/fileadmin/Studien/2011/Cost_benchmarking_in_energy_regulation_in_European_countries.pdf

17 http://www.scottishwater.co.uk/about-us/publications/strategic-projections

18 https://www.dodsondatasystems.com/Public/Default.aspx?sssid=84

19 https://www.solomononline.com/benchmarking/upstream/worldwide-offshore-study

20 http://www.thecrownestate.co.uk/media/5493/ei-offshore-wind-cost-reduction-pathways-study.pdf

21

http://www.thecrownestate.co.uk/media/5709/RenewableUK%20Potential%20for%20offshore%20transmission%20cost%20reductio

ns.pdf

https://ore.catapult.org.uk/documents/10619/168655/pdf/a8c73f4e-ba84-493c-8562-acc87b0c2d76

https://www.ofgem.gov.uk/electricity/transmission-networks/offshore-transmission/offshore-transmission-tenders

http://www2.nationalgrid.com/UK/Industry-information/System-charges/Electricity-transmission/Approval-conditions/Condition-5/

http://www2.nationalgrid.com/UK/Industry-information/System-charges/Electricity-transmission/Transmission-Network-Use-of-System-Charges/Tools-and-Data/

http://www2.nationalgrid.com/UK/Industry-information/System-charges/Electricity-transmission/Transmission-Network-Use-of-System-Charges/Tools-and-Data/

https://www.ofgem.gov.uk/ofgem-publications/50898/appendix-5-kema-technical-benchmarking-report.pdf

https://www.ofgem.gov.uk/sites/default/files/docs/2015/06/150312_cost_assessment_decision_documentt.pdf

https://www.ofgem.gov.uk/sites/default/files/docs/2015/06/final_cambridge_economic_policy_associates_ofto_benchmarking_report_1.pdf

https://www.ofgem.gov.uk/sites/default/files/docs/2015/06/final_cambridge_economic_policy_associates_ofto_benchmarking_report_1.pdf

https://www.gov.uk/government/uploads/system/uploads/attachment_data/file/325919/Departmental_Cost_Benchmarks_Cost_Reduction_Trajectories_and_Cost_Reductions_02_July_2014.pdf

https://www.gov.uk/government/uploads/system/uploads/attachment_data/file/325919/Departmental_Cost_Benchmarks_Cost_Reduction_Trajectories_and_Cost_Reductions_02_July_2014.pdf

https://www.ofgem.gov.uk/sites/default/files/docs/2013/05/rpt-total_cost_benchmarking_at_riio-ed1_-_volume_1_-_final_-_stc_-_revised_25042013_1.pdf

https://www.ofgem.gov.uk/sites/default/files/docs/2013/05/rpt-total_cost_benchmarking_at_riio-ed1_-_volume_1_-_final_-_stc_-_revised_25042013_1.pdf

https://www.accc.gov.au/system/files/Working%20paper%20no.%206%20%20-%20Benchmarking%20energy%20networks.pdf

http://www.aeso.ca/downloads/Reasonableness_Assessment_of_Transmission_Cost_Using_Benchmarking_Methodology_June_3.pdf

http://www.aeso.ca/downloads/Reasonableness_Assessment_of_Transmission_Cost_Using_Benchmarking_Methodology_June_3.pdf

http://www.wik.org/fileadmin/Studien/2011/Cost_benchmarking_in_energy_regulation_in_European_countries.pdf

http://www.scottishwater.co.uk/about-us/publications/strategic-projections

https://www.dodsondatasystems.com/Public/Default.aspx?sssid=84

https://www.solomononline.com/benchmarking/upstream/worldwide-offshore-study

http://www.thecrownestate.co.uk/media/5493/ei-offshore-wind-cost-reduction-pathways-study.pdf

http://www.thecrownestate.co.uk/media/5709/RenewableUK%20Potential%20for%20offshore%20transmission%20cost%20reductions.pdf

http://www.thecrownestate.co.uk/media/5709/RenewableUK%20Potential%20for%20offshore%20transmission%20cost%20reductions.pdf


Appendix 1 CRMF Qualitative Stream Detailed Design

The aim of the qualitative workstream is to assess progress of specific areas against the pathways

that were defined in the Offshore Wind Cost Reduction Pathways report.

The design phase of the workstream identified 66 indicators that would be tracked and a set of

milestones was agreed for each of these indicators. The milestones are designed to demonstrate

whether progress is on track for the related cost reduction to be achieved by projects reaching

FID in 2020.

The indicators are grouped into three areas (technology, supply chain and finance) and the

indicators are weighted in terms of estimated cost reduction potential before being combined to

present an overall assessment of progress towards the LCOE target of £100/MWh.

The first and second level indicators are:

Level One Indicator Level Two Indicator

Technology

PM and Development

Turbine

Balance of Plant

OFTO Capex

Installation

O&M

Design Life

Supply Chain

Growth and Scale

Competition

Collaboration

Finance

Cost of Equity

Cost of Debt

Insurance

Table A1 - 1 CRMF Qualitative Indicators Design

The full design methodology was approved by the CRMF Steering Group and the Offshore Wind

Programme Board Risk Committee and is available in the Final Design Report.

Assessment of progress towards the milestones was carried out during the implementation

phase. Primary evidence was gathered from consultation with companies actively engaged in the

sector. This was further supported by a literature review and the experience of the assessment

teams from DNV GL and PWC.

A final review of the assessment was carried out in conjunction with ORE Catapult and the CRMF

steering group.


Appendix 2 CRMF Quantitative Stream Detailed Design

Design Overview

The final process agreed is as follows:

1. Documentation (LCOE Calculator, User Guide, Questionnaire) provided by the Consultant

(in this case Deloitte) to participating developers

2. Developers complete LCOE Calculator and Questionnaire and return outputs to

Consultant

3. Consultant reviews outputs of completed LCOE Calculators and Questionnaires

4. Consultant conducts face-to-face interviews in order to clarify any issues with inputs or

outputs and to gain insight into project-specific drivers of LCOE

5. Consultant prepares final report for ORE Catapult of findings from Quantitative

workstream

LCOE Calculator

The main data gathering and analysis tool developed by, and used in, the Quantitative

workstream was the LCOE Calculator, an Excel workbook provided to all developers providing

project data to the CRMF. The LCOE Calculator includes data entry sections for all inputs required

for LCOE calculations, with the calculation and outputs sections password-protected to ensure

that LCOE calculations for all projects are conducted on the same basis. The Calculator also

includes built-in checks to identify any inputted or calculated parameters which fall outside of

expected ranges and any input sections not completed.

LCOE Calculator User Guide

The Excel workbook was accompanied by the LCOE Calculator User Guide, provided to all

participating developers in order to ensure that data for each project were inputted to the

Calculator on a like-for-like basis.

Questionnaire

The Questionnaire focuses on the qualitative factors which have been material for the quantitative

assessment of LCOE. Narrative information is requested, which provides insight to the drivers of

LCOE.

Assessors Handbook

The Assessors Handbook was compiled to document the methodology and process employed.

The Handbook is designed as a guide to allow any qualified party to implement the Quantitative

worak of the CRMF in future years.

Data Sets

For the 2014 CRMF process, projects reaching either FID or Works Completion in any of the

years 2011-2014 (inclusive) have been included. In future years, projects reaching FID or Works

Completion in the relevant year will be included.


Rules for Preserving Anonymity

One of the fundamental principles of the methodology employed is that the data for each project

should remain confidential to the respective project developer(s). All data has been provided to

the CRMF under Non-Disclosure Agreements (NDA’s). In order to ensure that no third party can

backward-engineer the LCOE of a single project, three key tests must be satisfied:

1. Three project rule – a minimum of three projects must be included in the dataset;

2. Ownership history – past ownership of projects will be considered in order to identify any

projects where parties other than the current owners have access to the project data; and

3. Relative size of projects – as a general rule, the combined contribution of any two projects

should not be greater than 80% of that year’s LCOE (the 80% hurdle will be considered

on a year-by-year basis)

As a result of these requirements, it may not be possible to conduct the Quantitative work each

year and it is likely that this report will instead be compiled bi-annually.


Appendix 3 Existing Transmission CRMF Indicators

Indi

cato

r

Cost

Red

ucti

on

figu

re c

hose

n fo

r

wei

ghti

ng

2020

Vis

ion

(whe

re w

e

need

to b

e to

hit

£100

/MW

h)

Mile

ston

e

scor

ecar

dFI

D 2

016

FID

201

7FI

D 2

018

FID

201

9FI

D 2

020

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ad o

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get

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cts

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ng a

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stry

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ct d

eliv

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esig

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ticu

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onit

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g.

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sels

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rtin

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ed

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Os

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to d

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els

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es, l

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ng to

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t sav

ings

of

10%

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rate

d co

st s

avin

gs o

f 10%

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M c

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n av

erag

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ross

all

proj

ects

.

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isat

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shor

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tati

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ter s

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itio

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latf

orm

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hore

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ve

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r AC

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on o

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ffsh

ore

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ect

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pact

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DC

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ems

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pmen

t

com

peti

tive

wit

h ot

her

opti

ons

at 7

0km

.

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&M

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%

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se c

ondi

tion

mon

itor

ing

on m

ajor

ity

of

asse

ts, w

ith

som

e sh

arin

g

of v

esse

ls a

nd s

pare

s,

lead

ing

to c

ost s

avin

gs o

f

10%


Appendix 4 OFTO Transfer Metrics in 2011 Terms

Figure A4 - 1 Offshore Substation capex metrics in 2011 terms

Figure A4 - 2 Offshore Circuit capex metrics in 2011 terms

Figure A4 - 3 Onshore Substation capex metrics in 2011 terms


Appendix 5 OFTO Transfer Metrics by Windfarm

Figure A5 - 2 Offshore Substation capex metrics (nominal) by windfarm 2011 - 2015

Figure A5 - 3 Offshore Circuit capex metrics (nominal) by windfarm 2011 - 2015

Figure A5 - 1 TRS % of FTV by windfarm 2011 - 2015


Figure A5 - 4 Onshore Substation capex metrics (nominal) by windfarm 2011 - 2015


Contact

ORE Catapult

Inovo

121 George Street

Glasgow, G1 1RD

T +44 (0)333 004 1400

F +44 (0)333 004 1399

ORE Catapult

National Renewable Energy Centre

Offshore House

Albert Street, Blyth

Northumberland, NE24 1LZ

T +44 (0)1670 359 555

F +44 (0)1670 359 666

[email protected]

Ore.catapult.org.uk

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