Ofgem, the energy regulator in Britain, has issued a call to potential investors interested in bidding for offshore transmission assets worth £7 billion. These assets are scheduled to be auctioned off between 2024 and 2025.
The auction will include approximately 10 Offshore Transmission Owner (OFTO) assets, which consist of prebuilt transmission connections for offshore wind farms. These assets offer guaranteed returns for 25 years, provided that availability targets are met.
The OFTO regime has been operating successfully for 11 years, attracting investment for 24 assets, with more currently undergoing the process. Over the next two years, there will be a significant increase in OFTOs entering the market, aligning with the UK Government's ambitious goal of increasing offshore wind generation capacity to 50GW by 2030, a fivefold increase.
This regime ensures compliance with competition laws by prohibiting wind farm developers from owning the associated transmission link once the wind farm is operational. Under this framework, developers can construct the transmission connection according to their specifications, maintaining full control over the timeline. The cost of the asset is then repaid to the developer when it is auctioned off, enabling the recycling of capital into future developments.
To highlight the upcoming investment bidding round, scheduled to commence in early 2024, Ofgem organized a conference on May 30th at the Institute of Engineering and Technology in London. The event saw the participation of prominent figures from investment banking, asset management, and representatives from the government and energy industry.
Akshay Kaul, Ofgem's Interim Director of Infrastructure and Security of Supply Group, emphasized the significance of OFTOs as part of Ofgem's regulation of energy networks, facilitating multi-billion-pound investments. He further assured investors that Ofgem is working on regulatory reforms such as Accelerated Strategic Transmission Investment (ASTI), Holistic Network Design (HND), and Connections reforms to ensure the necessary onshore infrastructure is in place.
Upon opening the investment round, Ofgem will assess the submitted bids and grant offshore transmission licenses to successful bidders, a process that typically takes one to two years.
