North Seas grids need integrated planning, cost sharing and financing

The Offshore TSO Collaboration, a consortium of North Seas TSOs, has taken the next step in developing an offshore network infrastructure with recommendations for an integrated approach encompassing regional planning, cost sharing and financing.

With the potential to supply up to an estimated 1,000TWh of electricity by 2050, around 40% of Europe’s energy needs, the planning approach is critical, with a joint planning approach key to the essential cost sharing and financing decisions for individual projects.

Earlier work had identified at a high level promising grid connections based on system benefits between wind hubs and countries around the North seas, i.e. in the North Sea, the Irish Sea and the Celtic Sea, and without determining specific sitings of wind farms or optimal cable locations or landing points.

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Cost sharing and financing

The core principle adopted for cost sharing in the Collaboration's proposals is that partner countries contribute in proportion to the benefits they receive, based on both modelled projections (ex-ante) and observed conditions (ex-post).

Broadly ex-ante means that countries determine their share of costs before the project begins on the basis of jointly modelled scenarios, while ex-post allows these shares to be adjusted after commissioning when real data shows how much individual countries actually benefit. 

Combining both elements is considered to create a system that is reliable enough to trigger large infrastructure investments while remaining flexible enough to fairly reflect the actual system benefits.

The OTC proposes that the cost sharing approaches should apply both to sets of projects as well as to individual projects that result from joint regional planning.

It is further recommended that cost sharing arrangements take both generation and transmission costs into account. For generation assets, only the costs of support schemes should be subject to cost sharing between countries. Although assets may be owned by different entities, the benefits of additional generation and transmission capacity are closely interlinked, the OTC notes.

For the financing the OTC states that mobilising the necessary capital can be supported by clear, predictable, and well-aligned financing frameworks. However, different regulations and ownership models across TSOs indicate that a uniform financing solution is not feasible. Therefore, policymakers must support a flexible financing toolbox. 

This may include public loans, commercial finance, green bonds, guarantees, equity or hybrid instruments and grants to address funding gaps.

The OTC calls on policymakers to act now to turn shared ambition into concrete progress, with a commitment to an integrated process across planning, cost sharing and financing.

The suggested next steps are to plan and identify North Seas offshore project sets in a structured, recurring process with stakeholders to select concrete projects for implementation.

There should be agreement on cost sharing principles early to ensure transparency and practicality and to apply the methodology on the first projects.

Mechanisms also should be developed for ex-ante fixed amounts and ex-post adjustments in cost-sharing agreements and financing frameworks established.

With the signing of the Hamburg Declaration, which took place at the North Sea Summit in Hamburg at which the recommendations above also were released, further momentum is built on the Esbjerg and other declarations towards this joint planning approach.

The members of the TSO Collaboration, which was established in 2022 at the Esbjerg Summit, are TenneT, Elia, 50Hertz, Energinet, EirGrid, Statnett, NESO, Amprion, National Grid Ventures and RTE France.