Beatrice Offshore Windfarm Limited Pays £33 Million for Licence Breach

Beatrice Offshore Windfarm Limited (BOWL) has acknowledged breaching condition 20A of the Electricity Generation Standard Licence Conditions, known as the Transmission Constraint Licence Condition (TCLC). Following an engagement period with the Office of Gas and Electricity Markets (Ofgem), BOWL has opted for an alternative resolution to avoid formal enforcement action. This resolution involves immediate adjustments to its bid pricing policy and a substantial payment of £33.14 million into the consumer redress fund.

Transmission constraints occur when the national electricity transmission system cannot transfer power to the location where it is needed. To manage these constraints, the electricity system operator (ESO) uses a balancing mechanism (BM) to adjust the electricity output of different generators. This limited choice during constraint periods poses a risk of generators exploiting the situation by setting high bid prices to reduce output, which is prohibited by the TCLC.

BOWL operates the 588MW Beatrice offshore wind farm in northern Scotland, which is affected by several key transmission constraint boundaries. Since 2021, the farm has regularly submitted bids in the BM to lower its output and adhere to transfer limits. BOWL’s investment contract ensures a fixed income level for the power it generates. When wholesale prices fall below the “strike price,” and the ESO instructs a reduction in output, BOWL loses the subsidy it would have received, prompting generators to offset this cost via bid prices.

During periods of high wholesale prices in late 2021 and throughout 2022, BOWL’s bid pricing led to concerns of excessive profits from avoided repayments to the Low Carbon Contracts Company (LCCC). Ofgem’s review found that BOWL’s bid pricing included a cap that allowed it to retain a significant portion of avoided repayments instead of passing savings to consumers, resulting in substantial profits for BOWL in the 2021 and 2022 fiscal years.

Ofgem noted that BOWL did not adequately consider its compliance with TCLC requirements, leading to higher balancing costs for consumers. Although BOWL argued that estimating costs was challenging due to data limitations, Ofgem maintained that efforts should have been made to use available information.

To resolve the issue, BOWL cooperated with Ofgem, made necessary policy changes, and agreed to the redress payment. By accepting the breach and taking steps to prevent future occurrences, BOWL has avoided formal enforcement action under the Electricity Act 1989.