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The OFTO regime is Ofgem's competitive process for transferring eligible offshore transmission assets from an offshore wind developer to an independently licensed Offshore Transmission Owner (OFTO). Once the assets have been constructed and commissioned, Ofgem appoints the successful bidder through a competitive tender. The OFTO then owns, operates and maintains the transmission assets under a regulated licence, typically for around 20–25 years. The regime is designed to encourage competition, reduce costs for consumers and provide long-term specialist ownership of offshore transmission infrastructure.
The OFTO regime was introduced to create competition in the ownership and operation of offshore transmission assets. Rather than developers retaining ownership, specialist investors compete to become the licensed OFTO. This approach aims to deliver better value for electricity consumers while allowing developers to recycle capital into new offshore wind projects.
Under Generator Build, the offshore wind developer designs and constructs the transmission assets before transferring them to an OFTO through Ofgem's competitive tender process.
Under OFTO Build, the OFTO would be responsible for delivering some or all of the transmission assets. Ofgem is currently developing early and late competition OFTO Build models for future projects.
While both models result in an OFTO owning and operating the assets, Generator Build remains the delivery model used for the vast majority of UK offshore wind projects.
The Generator Commissioning Clause (GCC) allows a developer to operate completed transmission assets for up to 27 months from the issue of the completion notice without an OFTO licence. This allows generation to continue while the OFTO tender, licence grant and asset transfer are completed.
An OFTO licence allows the OFTO to own and operate the transmission assets for the period specified in its licence. OFTO projects have historically had regulated revenue periods of up to 20 years, increasing to up to 25 years for newer projects. The licence can continue beyond the original revenue period where the OFTO continues to operate the assets.
An OFTO is responsible for owning, operating and maintaining the offshore transmission assets that connect offshore wind farms to the National Electricity Transmission System (NETS). Its responsibilities include asset management, planned and corrective maintenance, inspections, regulatory compliance and maintaining high levels of transmission asset availability. The OFTO does not own the wind farm or generate electricity, it is responsible only for the transmission infrastructure.
The OFTO tender process is Ofgem's competitive process for selecting an Offshore Transmission Owner to own and operate eligible offshore transmission assets. The process begins before construction is complete and progresses through several defined stages, including bidder qualification, tender evaluation and licence grant. Once complete, ownership of the transmission assets transfers from the developer to the successful OFTO.
An OFTO Tender Round is the framework through which Ofgem runs competitive tenders for one or more qualifying offshore transmission projects. Each project progresses through defined stages from bidder qualification through to licence grant and asset transfer. Ofgem manages the process and appoints the bidder offering the best overall value for consumers.
Ofgem evaluates bidders against published criteria covering their suitability, experience, financial standing and technical capability. At ITT, bids must satisfy the evaluation criteria before being ranked on price, with the lowest-priced satisfactory bid becoming the Preferred Bidder. The objective is to appoint an OFTO capable of delivering reliable long-term ownership and operation of the transmission assets while providing value for electricity consumers.
The OFTO tender process typically takes around two years, although the duration varies by project. It begins before construction is complete and includes bidder qualification, tender evaluation, Preferred Bidder, licence grant and asset transfer.
Enhanced Pre-Qualification (EPQ) is the first formal bidder assessment stage of the tender process. Ofgem assesses bidders' suitability, relevant experience, financial standing and technical capability. Successful bidders become Qualifying Bidders and are invited to participate in the Invitation to Tender stage.
During the Invitation to Tender (ITT) stage, shortlisted bidders submit their detailed proposals against Ofgem's published evaluation criteria. Ofgem assesses the submissions and ranks satisfactory bids on price, with the lowest-priced bid becoming the Preferred Bidder.
Ofgem's Cost Assessment process determines the economic and efficient costs of developing and constructing the offshore transmission assets that transfer to the OFTO. The assessment progresses through the Initial Transfer Value (InTV), Indicative Transfer Value (ITV) and Final Transfer Value (FTV).
Costs may be disallowed if Ofgem concludes they are not economic, efficient or sufficiently evidenced. Disallowance does not always mean the cost was unnecessary, it may simply mean the supporting justification was not strong enough.
A common cause is insufficient evidence. Even reasonable project costs can be challenged if developers cannot clearly demonstrate why the cost was incurred, how suppliers were selected or why the chosen solution represented value for money.
Successful submissions begin long before the first Cost Assessment. Keeping clear records, documenting procurement decisions, retaining supporting evidence and understanding Ofgem's expectations throughout the project can significantly reduce the risk of disallowances.
Yes. In some circumstances, costs disallowed at an earlier submission can be reconsidered if additional evidence or justification is provided before the Final Transfer Value (FTV) assessment. FTV is the final opportunity to demonstrate that costs should be included.
Developers should provide evidence demonstrating that costs were necessary, efficiently incurred and appropriately procured. This typically includes contracts, invoices, procurement records, technical justification and supporting documentation explaining key commercial decisions.
The OFTO typically acquires the offshore and onshore transmission assets, including substations, export cables and onshore connection assets. Generation assets, such as wind turbines and array cables, remain with the offshore wind farm developer.
HVAC (High Voltage Alternating Current) is generally used for shorter offshore transmission distances. HVDC (High Voltage Direct Current) is more efficient for transmitting large amounts of electricity over longer distances, making it increasingly common on larger offshore wind projects.
The choice depends on factors including transmission distance, project capacity, seabed conditions and overall economics. Shorter connections typically use HVAC, while larger or more distant projects often favour HVDC because of its greater efficiency over long distances.
The developer retains the electricity generation assets, including the wind turbines, foundations, array cables and associated generation equipment. Only the eligible transmission assets transfer to the OFTO following licence grant.
Once the transmission assets transfer, the OFTO becomes responsible for operating, maintaining and managing them for the duration of the licence. Their objective is to maintain high asset availability while meeting their regulatory obligations.
Strategic spares are purchased by the developer before asset transfer where they are considered necessary for efficient long-term operation. Ofgem assesses whether the costs are economic and efficient for inclusion in the Final Transfer Value (FTV), with eligible spares transferring to the OFTO.
Ofgem regulates the UK OFTO regime, runs the competitive tender process, grants OFTO licences and assesses the costs developers can recover. Its objective is to protect consumers while supporting efficient investment in offshore transmission.
NESO is responsible for planning and operating Great Britain's electricity transmission system. Within the OFTO regime, NESO administers Tender Revenue Stream (TRS) payments and calculates Transmission Network Use of System (TNUoS) charges.
TNUoS charges are the fees paid by users of Great Britain's transmission network to recover the costs of providing and maintaining transmission network services. Offshore wind farms pay generator TNUoS charges for their use of the transmission system.
The OFTO's regulated revenue is recovered through TNUoS charges. The offshore generator therefore pays a local offshore TNUoS tariff reflecting the costs associated with the OFTO transmission assets connecting the wind farm to the wider network.
The Clean Industry Bonus (CIB) supports investment in UK clean energy supply chains. Under Ofgem's draft Cost Assessment Guidance, eligible CIB expenditure is proposed to be recoverable where it meets the published assessment criteria and supporting evidence requirements.
Once licensed, an OFTO must comply with its transmission licence, including obligations relating to asset operation and maintenance, transmission availability, regulatory reporting and revenue. Ofgem monitors compliance and can take enforcement action where licence obligations are not met.
The Tender Revenue Stream (TRS) is the annual regulated revenue an OFTO receives after licence grant. It is paid by NESO over the revenue period, which is currently up to 25 years for new OFTO projects, and is indexed in accordance with the OFTO licence.
The TRS is established through Ofgem's competitive tender process. Bidders compete on the annual revenue they require to own and operate the transmission assets, with the successful bid forming the basis of the OFTO's revenue..
The OFTO's base revenue is indexed for inflation in accordance with its licence. The proportion of revenue indexed and the applicable indexation arrangements depend on the individual OFTO licence.
OFTO availability is measured against the proportion of time the transmission assets are available to transmit electricity. Performance is assessed annually against a 98% availability target, with performance affecting the OFTO's regulated revenue.
An OFTO's revenue can change after licence grant through mechanisms set out in its licence, including indexation, pass-through costs, availability performance and other permitted revenue adjustments. The applicable mechanisms depend on the individual OFTO licence.
Pass Through Costs are specific costs that the OFTO licence allows to be recovered separately from the TRS. These adjustments affect the revenue received by the OFTO and can also influence the TNUoS charges recovered from offshore generators.