Offshore transmission gives investors steady long-term returns

By: Chloe Emanuel

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01/06/2023 Ofgem

Britain’s energy regulator Ofgem has put out a call to prospective investors looking to bid for £7 billion worth of offshore transmission assets set to be auctioned off in two bidding rounds in 2024 and 2025. Around 10 Offshore Transmission Owner (OFTO) assets, comprising prebuilt transmission connections for offshore wind farms, and providing guaranteed returns for 25 years subject to availability targets being met, will be going under the hammer.

The OFTO regime has operated successfully for 11 years, having so far brought investment in for 24 assets, with several more currently going through the process. The next two years will see a surge in OFTOs coming to market, reflective of the UK Government’s ambitious target of increasing offshore wind generation capacity fivefold to 50GW by 2030. A gigawatt is equivalent to one billion watts, and one GWh of electricity is enough to power one million homes for one hour.

The regime ensures compliance with competition laws that mean the offshore wind farm developer may not own the associated transmission link once the wind farm is operational. Its design means that the windfarm developer can build the transmission connection to its own specification, with full control over timescales, then be repaid the cost of the asset when it is auctioned off. The developer can then recycle that capital into further developments.

To highlight the next investment bidding round, which is due to begin in early 2024, Ofgem hosted a conference on Tuesday 30 May at the Institute of Engineering and Technology in London. The guest list included major names in investment banking and asset management, alongside Ministerial and energy industry representatives.

Akshay Kaul, Ofgem Interim Director, Infrastructure and Security of Supply Group, said: “OFTOs are an important part of a multi-billion-pound investment Ofgem is facilitating through its regulation of energy networks. They deliver on energy security and affordability for Britain’s consumers by reducing our reliance on expensive imported fossil fuels. They offer investors attractive index-linked steady returns for 25 years."

Kaul continued: “Britain already has the highest offshore wind deployment in Europe, and the second highest in the world. With the Government’s target of 50GW of offshore wind generation by 2030 there is still huge potential for investors to get in early and be part of an industry that’s set for huge worldwide growth.”

Kaul added: “Investors can also rest assured that Ofgem is ensuring through regulatory reform such as our ASTI (Accelerated Strategic Transmission Investment), Holistic Network Design (HND) and Connections reforms that the necessary onshore infrastructure will be in place.”

Attendees at the event were talked through the bidding process and given the opportunity to ask questions. Speakers at the event included Lord Johnson, Minister of State in the Department for Business and Trade and Steve Lomas, Managing Director, Banking and Investments at the UK Infrastructure Bank. Those bids will then be assessed by Ofgem with offshore transmission licences granted to successful bidders, in a process that usually takes one to two years.

For more information on offshore wind farms worldwide, click here.

About the Author

4C Offshore | Chloe Emanuel
Chloe Emanuel

Press Coordinator

01502 307037