Equipping the OFTO regime for the future

What this is about

Ofgem is refreshing the OFTO regime ahead of a step change in volume. Since 2011, the competitive tender model has licensed 28 OFTOs worth £10bn across 9 rounds, and Ofgem points to a "highly competitive cost of capital" as evidence the design works. The problem now is throughput. The offshore wind pipeline over the next decade means far more transmission assets will come forward for tender, and several at once rather than the trickle the regime was built around. This consultation is about whether the tender machinery can absorb that volume without losing competitive tension.

The framing is deliberately forward-looking. This is not a review of whether competitive tendering for offshore transmission has worked; Ofgem has decided it has. The question is how to keep enough qualified bidders in the room when rounds get larger and more frequent. Three of the four proposals are about bidder economics and continuity: paying back the cost of getting qualified, letting that qualification carry across rounds, and changing how bids are scored. The fourth is operational: how to run a round with more than four assets in it without the process collapsing under its own weight. The wider strategic questions flagged in the analysis summary, non-radial assets, cap-and-floor evolution, asset transfers between OFTOs, sit behind this consultation as the direction of travel, but the four items actually on the table here are narrower and procedural.

Options on the table

The consultation document itself (196KB PDF) was not in the extracted text, so the detail below works from the four proposals Ofgem lists. Each is a distinct design choice with identifiable winners and losers.

Reimbursing first-time Enhanced Pre-Qualification costs

Enhanced Pre-Qualification is the gate a bidder has to pass to be allowed to bid. It costs money to get through: legal, financial and technical due diligence to satisfy Ofgem that a bidder is credible. Today that cost is sunk whether or not the bidder ever wins anything. The proposal is to let a bidder reclaim the cost of its first successful EPQ application.

The economic point is entry. An unrecoverable qualification cost is a fixed barrier that deters marginal entrants, particularly newer or smaller investors who cannot spread it across a portfolio of wins. Incumbents who already qualify each round absorb it as a cost of doing business. Reimbursing the first successful application lowers the entry barrier specifically for new entrants while leaving repeat bidders broadly where they are. Winners: prospective first-time bidders, and Ofgem's stated objective of maximising participation. The cost of reimbursement is recovered through the regime, so consumers ultimately fund the entry subsidy, which is the trade Ofgem is implicitly asking respondents to accept: a small socialised cost now in exchange for a deeper bidder pool and, if it works, a lower cost of capital later.

Passporting EPQ status across tender rounds

Currently a bidder appears to re-qualify, or substantially re-qualify, for each round. Passporting lets a bidder carry its EPQ status forward into subsequent rounds without repeating the process.

This attacks the same problem from the continuity side. Re-qualifying every round is a recurring transaction cost that compounds the entry barrier, and it is pure friction: nothing about a credible investor changes materially between rounds. Passporting removes that recurring cost, which keeps qualified bidders in the pool round after round rather than dropping out because re-qualification is not worth it for a round they might not win. Winners: repeat and standing bidders, and tender liquidity. The risk Ofgem will be probing in the questions is staleness, an investor's financial standing or ownership can change between rounds, so passported status needs an expiry, a refresh trigger, or a light-touch revalidation. Get that wrong in either direction and you either re-import the friction or let through a bidder whose qualification no longer holds.

More qualitative elements in bid assessment

The OFTO model has historically been close to a pure price competition: lowest revenue requirement wins, which is what drives the competitive cost of capital Ofgem advertises. The proposal is to weight more qualitative factors in how bids are assessed.

This is the most consequential and the most contestable of the four. A pure price auction is transparent, hard to game, and delivers the headline result Ofgem leans on. Introducing qualitative scoring buys flexibility, deliverability, financing robustness, operational track record, the ability to handle complex non-radial or multi-asset configurations, but at the cost of objectivity. Qualitative criteria are discretionary, harder to challenge, and create scope for the assessment to be steered. There is a real distributional effect: qualitative scoring tends to favour established players with a demonstrable track record over a cheaper but unproven entrant, which sits in tension with the entry-promoting logic of the first two proposals. Winners: incumbents with operating history and Ofgem's ability to manage delivery risk on harder assets. Losers: low-cost entrants who would have won a pure price contest. The substantive question for respondents is not whether qualitative elements have any place but how much weight, against which published criteria, and with what challenge mechanism, because an opaque qualitative overlay on a previously clean price auction is exactly the kind of discretion that erodes the competitive tension that made the regime work.

Managing large tender rounds (more than four assets)

The regime was built for rounds of a handful of assets. With the offshore pipeline scaling up, rounds with more than four assets become routine, and the existing process, sequencing, bid evaluation, allocation, may not scale.

This is operational rather than economic, but the design choices have economic consequences. Bundling several assets into one round raises the question of whether bidders bid asset-by-asset or for portfolios, whether a single bidder can sweep multiple assets, and how Ofgem prevents a large round from concentrating ownership or, conversely, from fragmenting in a way that loses scale efficiencies. How assets are packaged and allocated determines whether large rounds preserve competitive tension or hand structural advantage to the few bidders with the balance-sheet capacity to absorb multiple assets at once. Winners and losers depend entirely on the packaging rules, which is why this is a consultation question rather than a settled proposal.

Questions being asked

Ofgem states it is "asking for your feedback on each topic with questions throughout," but the numbered consultation questions sit in the 196KB PDF, which was not in the extracted text. The questions cannot be reproduced verbatim here. They fall under the four consultation topics, and the substantive issues respondents should expect to address are:

Enhanced Pre-Qualification reimbursement

Whether first-successful-application costs should be reimbursed; what counts as a reimbursable cost and where the boundary sits; whether reimbursement should be capped; and who should bear it. (The real question is how far Ofgem should socialise entry costs to widen the bidder pool, and whether the resulting cost of capital improvement justifies the consumer-funded subsidy.)

EPQ passporting

Whether EPQ status should passport across rounds; for how many rounds or how long it should remain valid; and what events should trigger revalidation or revocation. (This is asking respondents to price the trade-off between removing recurring friction and the risk of stale qualification.)

Qualitative bid assessment

Which qualitative factors should enter the assessment; how they should be weighted against price; how they will be scored and published; and what challenge or transparency mechanism applies. (The real question is how much discretion to introduce into a previously near-pure price auction without eroding the competitive tension that delivered the low cost of capital.)

Large tender round management

How rounds of more than four assets should be structured; whether bidders bid per asset or for portfolios; how allocation works across multiple assets; and what safeguards prevent ownership concentration or loss of competitive tension at scale. (This is asking the market to help design the packaging and allocation rules, which determine who can realistically compete in large rounds.)

Anyone intending to respond substantively should work from the consultation PDF for the exact question numbering and wording.

How to respond

Deadline: 30 March 2026. The consultation opened on 2 February 2026 and is currently Open.

Method: Send your response to offshorelicencing@ofgem.gov.uk. Ofgem asks respondents to answer the questions set out throughout the consultation document as fully as possible.

Who should respond: Offshore transmission developers, offshore transmission owners (OFTOs), investors and potential bidders are the primary audience. Ofgem also welcomes responses from other stakeholders and the public.

Source document: "Equipping the OFTO Regime for the Future" (PDF, 196.68KB), available on the Ofgem consultation page. The numbered consultation questions are in that document and should be used for any formal submission.