Offshore Transmission Owner (OFTO) opportunities

Sector and market opportunity

The UK government’s British energy security strategy targets 40GW of additional offshore wind by 2030 (bringing the UK total to 50GW).

This will provide a strong pipeline of offshore transmission opportunities to connect 20 or more wind farms over the next 10 years, which has been estimated to require over £20 billion of investment.

Successful OFTO bidders secure a pre-agreed revenue stream for up to 25 years with opportunity for additional income in return for outperformance, and limited penalties for underperformance.

Location

OFTO Tender Round 10 offers the next opportunity to invest in this fast growing asset class.

UK offshore waters and coastal sites will see dozens of new offshore wind farms and their associated transmission infrastructure developed in the next few years, leading to many subsequent investment opportunities.

Local talent and skills

There’s a strong and growing network of service providers working the over 20 OFTOs already in operation, giving you access to an abundance of talent and skills to support your investment.

Further details

When developers build offshore wind farms, they typically build the transmission connection at the same time. Under UK law, once the wind farm starts to generate electricity, the developer must divest the transmission asset. This is done through Ofgem’s OFTO Tender Regime.

The timing of Tender Rounds depends on when offshore wind farm developers are nearing the completion of the construction of their transmission assets. More than one OFTO may be tendered in each round.

Ofgem expect one tender round to take place each year in 2023, 2024 and 2025, comprising 13 OFTO assets with a total value of around £10 billion. Further tender rounds are likely to take place thereafter.

OFTO bidders are typically consortia including a lead partner with operatorship capabilities together with financial investors. The bidder must evidence that they have the necessary experience and financial capability, namely:

• experience of operating transmission or other infrastructure assets (this does not have to be experience in the UK).
• a track record of delivering similarly sized financial proposals.

They are then invited to bid for the tender revenue stream they require to own, operate and maintain the OFTO asset for between 20 and 25 years (depending on the asset). The lowest priced bidder who has submitted a compliant bid is awarded the OFTO licence to operate and maintain the assets.

OFTOs benefit from several characteristics attractive to investors:

• Strong UK Government support for renewable energy and offshore wind, of which OFTOs form an integral part
• OFTOs take on assets that have very recently been completed by wind farm developers – there is no development, construction or commissioning risk
• Low counterparty risk – the counterparty is the National Electricity Transmission System Operator
• Low operational risk – OFTO assets are new the technology is well established, and its reliability proven
• There is potential for additional income from cost outperformance and availability incentive mechanisms
• The tender process, run by Ofgem, is transparent, mature and stable

Environmental, social and governance (ESG) highlights

OFTOs support green growth by connecting much of the UK government’s targeted total of 50GW of offshore wind energy to the UK mainland by 2030, as set out in the British energy security strategy.

Promoters and partnerships

Ofgem is the Office of Gas and Electricity Markets, the regulator for energy in Great Britain. Ofgem is responsible for protecting consumers by working to deliver a greener and fairer energy system. Ofgem has operated the OFTO tender regime since 2010.