Increased confidence boosting Offshore Transmission Owners tender process

Cornwall Insight has examined the recent trends in the Offshore Transmission Owners (OFTO) tender process.

The below graph highlights the relationship over time, between the Tender Revenue Stream (TRS), or the fixed revenue stream the OFTO owner receives from the offshore wind farm, and the Transfer Value (TV), which the OFTO owner will pay to the developer upon transfer of the asset. The analysis here shows there has been a progressive reduction in rate through each additional Tender Round (TR).

Offshore Transmission Owners tender process

Tom Palmer, Managing Consultant at Cornwall Insight, said:

“This reduction is important as a lower percentage demonstrates the lower revenues expected by the asset owner or investor, which is determined by the more reasonable cost of borrowing, certainty in the regulatory regime and the level of risk for investors.

“The reduction in this rate is predominately due to increased confidence, lower financing costs and changes to the scheme. This is beneficial to the consumer as the OFTO charges will be recovered in Contracts for Difference strike prices.

“Despite this, it is not all rosy for OFTOs. The announced offshore transmission network review by the government is seeking to explore if the approach of point to point connections can deliver the 40GW offshore commitment. At the same time, they are exploring options to counter objections from locals on the onshore cable routes to the OFTOs. The idea of offshore ring mains and other solutions have been identified, potentially akin to the hub infrastructure approach within the oil and gas sector.

“However, there are many challenges around what you do with the existing OFTOs at the end of their licence, future commercial agreements and what the regulatory regime would be. It’s a significant challenge, but perhaps is the only way to deliver the offshore wind target to get to net zero.”