Ofgem warns Oftos it may get stricter on 3rd party outages

This is an extract from an article in the February 2017 issue of New Power. 

Regulator Ofgem has warned it may change the way it accounts for the offshore transmission cable availability during outages caused by ‘exceptional events’ like cable strikes and other damage – which could affect Ofto bonuses. 

Ofgem decided that the failure at Walney 2 in 2013 was an ‘exceptional event’ and that the Ofto, Blue Transmission Walney 2, would not be penalised. The failure, in one phase of the onshore export cable, was the result of mechanical damage that had occurred before the licensee was appointed in 2013. The damage affected the cable ducting and sheathing, which resulted in erosion of the cable insulation, leading to a fault during operation.

The regulator allowed for an extra 70,955MWh of export availability during the month (up from 49,649MWh to 120,604MWh.

Ofgem came to the same conclusion about Robin Rigg’s 2015 cable failure. It determined that the Ofto, TC Robin Rigg, which was awarded a licence in 2011, was not responsible for the failure and had carried out the necessary due diligence. It adjusted the Ofto’s income to allow for the 29,181MWh of lost availability (92MW for 14 days).

Other decisions on income-adjusting events have yet to be confirmed. In June 2016, Gwynt y Mor Ofto applied to Ofgem to pass through the costs of its initial cable fault, which it estimates at £10.2 million to the end of the relevant financial year (to March 2015). In September 2016, Thanet wrote to Ofgem to ask for costs of £11.7 million to be passed through, representing the costs of the cable fault to the end of March 2016.

In the cases of Robin Rigg and Walney 2, Ofgem assumed that the links would have been operating at full availability during the outage period. Ofgem said, “within this period, based on historic performance, it is reasonable to assume that the licensee would have been operating at full availability”. But it warned that it may be stricter in future, saying, “for longer outages, the authority may consider whether it would remain appropriate to adjust the availability back to a level of 100% for the relevant period or whether an alternative level of availability, for example based on longer-term average observed availability for OFTO assets, would be more appropriate”.

Overall, the Oftos earned revenues of £227 million in 2015/16. Two Oftos were awarded performance bonuses (for early Oftos the bonus and penalty are accrued over five years). London Array was awarded £1.74 million and Lincs was awarded £520,000.

The bonus is awarded against a 98% availability target, and if Oftos do not meet this target they are subject to penalty charges. In 2015/16, according to Ofgem’s review, Walney 2, Thanet and Gwynt y Mor failed to meet that target (with unplanned Ofto availability at 92.47%, 83.05% and 82.58%, respectively).

Whether they will be penalised will depend on whether Ofgem regards their outages as being the result of exceptional events, as with the previous cable faults. The outages have already been logged as exceptional.

Ofgem has not allowed pass-through of all faults.  For example, it concluded that a brief three-hour reduction at Lincs on 19 September 2015, caused by problems with a seal replacement, was not an ‘exceptional event’. It concluded that the Ofto was aware of the likely problem and its own decisons contributed to the outage.

But with availabilities well above the 98% threshold for most Oftos, it looks likely that most operators will be in line for bonuses for 2015/16.

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