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.This is a key step in the delivery of the targets, goals and aspirations for renewable generation set out in the 2003 Energy White Paper: "Our Energy Future—Creating a Low Carbon Economy".The White Paper set out four key goals of energy policy:To put the UK on a path to cut carbon dioxide (CO 2 ) emissions by some 60 per cent. by about 2050.To maintain the reliability of energy supplies.To promote competitive markets in the UK and beyond.To ensure that every home is adequately and affordably heated.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 10–15 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.Broadly speaking the consultation document sought views from stakeholders on two high level options for this offshore regime. The main options set out were:Extension of arrangements broadly similar to the existing onshore regulated price control approach offshore.A light touch regulatory approach with developers directly responsible for funding and construction of cable connections to the onshore system—the licence merchant approach.A third option was also included which is a sub-set of the first option above:Extension of the existing onshore system offshore but with the addition of some limitation of the highest transmission charges.The approachI am announcing that the existing onshore regulated price control approach to electricity transmission should be extended offshore, and ruling out the licensed merchant approach.In making this decision I have also noted that this was also the option supported by the majority of respondents to the consultation exercise.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 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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