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The Secretary of State for Trade and Industry (Alan Johnson): I have this week written to the Nuclear Decommissioning Authority, to confirm that I have approved its first strategy. Full details will be provided by the NDA when it publishes the strategy later today.
After carefully considering the views of key stakeholders, including the NDA, the regulators and the unions, I have also agreed the recommendation of the BNFL board that it should sell British Nuclear Group through a competitive sale process. The process will coincide with the letting by the NDA of a new five-year
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contract for Sellafield and is in line with their strategy to develop a competitive market in decommissioning and bring in private sector expertise to improve performance. BNFL and the NDA will therefore work in close co-operation, with the aim of ensuring that the successful bidder is the best available to improve performance, particularly at Sellafield. I would expect the sale to be completed by autumn 2007.
I firmly believe that a competitive sale is in BNFL's best commercial interest and represents British Nuclear Group's best chance of operating successfully in the commercial market created by the Energy Act 2004. Bringing in external expertise more quickly contributes to improved clean-up performance for the NDA and is therefore good for the tax payer. BNFL will be holding media briefings later today to provide fuller details.
The Minister for Energy (Malcolm Wicks): I am making today a statement to the House to announce the Government's decision on the high level regulatory regime to be put in place to regulate offshore electricity transmission.
Offshore renewable energy can make a major contribution to the delivery of the Government's target of 10 per cent. renewable energy by 2010. Currently there is no regulatory regime in place covering the transmission connection of our second round of offshore wind farms (and the other marine renewables that may follow them) to the onshore electricity grid. However, the Energy Act 2004 gives the Secretary of State for Trade and Industry various powers to set up a regulatory regime for offshore transmission.
The Government's aim has been to introduce a regulatory regime that facilitates the connection of a proportion of Round 2 (R2) projects in time to contribute to the 2010 target. That objective includes ensuring efficiency of connections and allowing for fair and open access for offshore generators.
In making my decision I have sought to balance the achievement of the four White Paper goals. The right balance also needs to be struck between the interests of all stakeholders including consumers, offshore developers, transmission companies, and other generators. Grid connections are likely to form 1015 per cent. of capital costs for the round two wind farms given the considerable cable lengths involved. Certainty about how the grid connection costs will be funded, and the regulation that controls them, is a key factor that developers need in preparing their business models.
I have concluded that the regulated price control approach has a number of clear advantages. Extending the regulated price control approach offshore will ensure consistency with the regulatory arrangements onshore. It will provide a financial benefit to offshore developers by spreading the costs they face to connect to the onshore electricity system over a number of years. The regulated price control approach will also mean that the responsibility for developing the offshore transmission network will be shared by the System Operator and the Transmission Asset Owners. This should help to ensure that the Government's renewable energy targets are achieved.
In taking this decision I have sought to put in place a regulatory framework that includes a fair and transparent approach to transmission costs consistent with those faced by onshore generators. At this stage there is insufficient information to indicate that the level of transmission charges offshore would deter renewable generation. Based on the information currently available the Secretary of State does not foresee a need to consider capping transmission charges offshore for the planned round two wind power projects. However, he will continue to keep this under consideration as different offshore technologies develop, taking account of the Government's targets and aspirations for the generation of electricity from renewable energy sources and the cost to consumers being acceptable. Full consultation with all interested stakeholders on any future proposal of this sort would be essential.
It is likely to be at least eighteen months before the necessary programme of technical work to determine the level of charging is completed, by which time the Energy Review will have concluded. The impact of those charges could therefore be considered in the context of any conclusions that have emerged from the review.
It is important to bear in mind that regulated price control offshore, while providing the advantages to generators that I mention above, would still involve the charges they face being based on the costs of their connections. The main consideration with the options consulted on was how these costs will be financed. Under the regulated price control approach the costs will be recovered from developers through an annual transmission charge over a fixed period. Under the licensed merchant approach the cost of building the
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connection would have been met by developers upfront themselves. Only under the price control approach with capping would there be an extra element of cross-subsidisation from other users of the system.
A fuller consideration of the issues behind my decision can be found in the "Government Response to the joint DTI/Ofgem Public Consultation on the Regulation of Offshore Electricity Transmission", which is published today and is available in the Library of the House, together with an updated Regulatory Impact Assessment.
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