The UK OFTO regime is Ofgem's competitive process for transferring eligible transmission assets from an offshore wind developer to an independently licensed Offshore Transmission Owner (OFTO).
The developer designs and builds the offshore and onshore transmission assets before transferring ownership to the successful OFTO following construction and Ofgem's cost assessment.
Under OFTO Build, the OFTO is responsible for delivering some or all of the transmission assets, rather than purchasing them after construction. This alternative delivery model is being developed for future offshore wind projects.
Ofgem's competitive process for selecting an OFTO, taking a project from qualification through competitive bidding to licence grant and asset transfer.
The OFTO bidder selected by Ofgem as the preferred owner of the transmission assets, subject to satisfying the remaining legal, financial and regulatory requirements before licence grant.
The point at which Ofgem grants the transmission licence, allowing the Successful Bidder to become the OFTO and own, operate and maintain the transmission assets for a licence term of up to 25 years.
The overall competitive process run by Ofgem to appoint an OFTO for one or more qualifying transmission projects. Each Tender Round follows a series of defined stages from qualification through to licence grant.
The first assessment stage where prospective bidders demonstrate they have the financial strength, technical capability, organisational experience and resources required to participate in the tender.
The stage where shortlisted bidders submit their full tender response, including commercial, financial and technical information, for evaluation against Ofgem's tender requirements.
Companies or consortiums competing to become the OFTO. Bidders are assessed by Ofgem throughout the tender process against published evaluation criteria.
The bidder selected by Ofgem as the preferred owner of the transmission assets, subject to satisfying the remaining legal, commercial and regulatory requirements before licence grant.
The Preferred Bidder that satisfies all remaining legal, commercial and regulatory requirements before being granted the OFTO licence and assuming ownership and operation of the transmission assets.
The first of three cost submissions to Ofgem. The developer provides an initial estimate of the cost of designing and constructing the transmission assets, forming the starting point for Ofgem's cost assessment.
The second of three cost submissions to Ofgem. A detailed cost submission reviewed by Ofgem to determine the estimated economic and efficient costs of the transmission assets. The ITV is used by bidders during the Invitation to Tender stage.
The third and final cost submission to Ofgem. Following completion of the project and a detailed review of the actual costs, Ofgem determines the Final Transfer Value, which forms the amount paid by the OFTO for the transmission assets.
A financing allowance calculated by applying Ofgem's IDC methodology to eligible DEVEX and CAPEX from the date payments are made to suppliers and contractors until first power. It is not a recovery of the developer's actual borrowing costs, interest or bank charges.
Costs that Ofgem determines are not considered economic, efficient or otherwise eligible for inclusion, or are not eligible for inclusion within the transfer value. These costs are excluded from the final assessment.
Costs that relate to both generation and transmission assets. Developers must use a transparent and justified allocation methodology to ensure only transmission-related costs are included.
HVAC uses alternating current (AC) and has been the preferred transmission technology for the majority of UK OFTO projects because it is well suited to shorter transmission distances.
A transmission technology increasingly being adopted for larger and more distant UK offshore wind projects. HVDC uses direct current (DC) and is increasingly being adopted as the transmission technology for larger and more distant UK offshore wind projects.
One of the four principal transmission asset categories transferred to the OFTO. The Onshore Substation receives electricity from the ONCA, transforms the voltage where required and connects the transmission system to the National Electricity Transmission System (NETS).
One of the four principal transmission asset categories transferred to the OFTO. The Offshore Substation collects electricity from the wind turbines, transforms the voltage for transmission and connects to the OFCA.
One of the four principal transmission asset categories transferred to the OFTO. The Offshore Export Cable transports electricity from the OFSS/OSP to the onshore landfall, where it connects to the ONCA.
One of the four principal transmission asset categories transferred to the OFTO. The Onshore Cable connects the onshore landfall point to the ONSS.
The independent energy regulator responsible for the UK OFTO regime. Ofgem runs the competitive tender process, grants OFTO licences and assesses the costs developers can recover for eligible transmission assets.
NESO is responsible for planning and operating Great Britain's electricity transmission system. Within the OFTO regime, NESO manages generator connections, administers Tender Revenue Stream (TRS) revenue payments to OFTOs and calculates Transmission Network Use of System (TNUoS) charges payable by offshore wind generators.
The primary legislation governing the electricity industry in Great Britain. The Electricity Act 1989 provides the legal framework for electricity transmission, licensing and the establishment of the OFTO regime.
The industry code governing how users connect to and use the National Electricity Transmission System (NETS). CUSC sets out the commercial and operational arrangements that apply to transmission network users, including offshore wind projects.
TNUoS charges are payable by transmission network users for using the NETS. Offshore wind generators become liable for TNUoS charges once electricity is exported onto the NETS.
GCC provides a 27-month period from the completion notice during which the developer can operate the transmission assets without an OFTO licence, allowing time to complete commissioning before the transmission licence is granted and the assets transfer to the OFTO.
The annual regulated revenue an OFTO is entitled to receive following licence grant. The TRS is paid by NESO for the duration of the licence (typically 20–25 years) and is indexed annually in accordance with the licence.
A mechanism that adjusts the OFTO's TRS between the winning bid and licence grant to reflect defined changes in market conditions, helping ensure the OFTO is not financially disadvantaged before the licence starts.
A financial incentive that rewards OFTOs for achieving annual transmission asset availability above 98%. Availability above the 98% target can earn a bonus of up to 5% of the annual TRS, while poor performance can reduce revenue.
CPI is the inflation measure used to index the OFTO's TRS and by NESO when calculating TNUoS charges payable by offshore wind generators.
Specified costs that are recovered separately from the TRS because they sit outside the OFTO's control. Examples include licence fees, business rates, Crown Estate lease costs, tender fees and other specified adjustments defined in the OFTO licence.
The mechanism under which a proportion of an OFTO's TRS is recovered through transmission network charges and ultimately recovered from electricity consumers through transmission network charges rather than directly from the offshore wind generator.