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OFGEM to change OFTO regime

By: Chris Anderson 12/12/2014 OFGEM

General Grid Substations Windfarms

OFGEM is introducing an extended OFTO build framework which incorporates a range of additional potential OFTO build tender options. The framework is intended to provide flexibility to respond to both the current and future requirements of offshore generators and to adapt to specific project characteristics. Through the extended framework we will ensure that we continue to meet our objectives for the offshore transmission regime of:

delivering transmission infrastructure to connect offshore generation
providing certainty and best value to consumers through the competitive process
attracting new entrants to the sector.

The plan is to involve the OFTO's to take part in the construction of the transmission assets that have up to now been provided by the generator (wind farm developer) and hand over once built subject to OFGEM overseeing and policing of the handover.

The options to be considered are:-

Generator “Engineering, Procurement and Construction” (EPC) – the generator carries out all supply chain procurement and manages construction under an “EPC” contract with the OFTO

Generator procurement – the generator carries out elements of supply chain procurement but the OFTO manages construction under an “EPC” contract with a third party

Generator/OFTO management – the generator splits responsibility for managing construction of the offshore transmission assets with the OFTO (eg across onshore/offshore elements)

OFTO procurement and “EPC” – the ‘late OFTO build’ option set out in our updated proposals on the enduring regime in May 2012.

However despite the proposed options for change OFGEM still expects that the OFTO is responsible for construction and for financing construction including ensuring its transmission system is compliant with industry codes and standards;

The generator is responsible for initial design and preliminary works;

The generator agrees the particular tender option with Ofgem, which is then clearly communicated to the market before the OFTO tender process starts;

Risks during construction should be borne by the party best placed to manage them;

The allowed cost of the construction works, whether these are undertaken by the generator or the OFTO, will be fixed as far as possible during the tender process and subject only to certain limited revenue adjustments for events beyond the OFTO’s control, as allowed under the OFTO licence;

An OFTO will be expected to bid a fixed price revenue stream, which it will receive for 20 years when the offshore transmission assets are complete;

The OFTO's operation phase rights and obligations (as set out in its licence) will be largely the same as under Generator build.

OFGEM IS Looking for engagement with generators and those potentially interested in bidding for an OFTO build project. They are gathering initial feedback from stakeholders by the end of January 2015, either through meetings or in writing, and will encourage interested parties to contact them.

Following this OFGEM will revise the current tender regulations to enable the OFTO build framework and develop a generic OFTO licence for OFTO build in anticipation of future tenders.

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OFGEM to change OFTO regime

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