Offshore transmission: Cost assessment for the Moray East transmission assets

What changed

Ofgem has finalised the cost assessment for the Moray East offshore wind farm's transmission assets, part of OFTO Tender Round 7. The assessment determines the "initial transfer value" -- the price the winning OFTO bidder pays the developer (Moray Offshore Windfarm (East) Limited, a subsidiary of EDP Renewables and ENGIE) for the transmission connection infrastructure. Ofgem's role is to establish what costs "ought to have been incurred," which caps the transfer value and prevents developers from gold-plating assets that consumers ultimately fund.

Grant Thornton carried out both an ex-ante review (assessing the developer's forecast costs before construction) and an ex-post review (auditing actual costs after construction). The ex-ante assessment fed into the Initial Transfer Value letter; the ex-post assessment produced the Indicative Transfer Value letter. This is the standard two-stage process Ofgem applies to all OFTO transfers, established through seven tender rounds since 2009.

What this means in practice

The OFTO revenue model. The winning bidder acquires the Moray East transmission assets and receives an OFTO licence granting a 20-25 year revenue stream. That revenue comes from Transmission Network Use of System (TNUoS) charges, ultimately paid by all GB electricity consumers. The transfer value is the single most important number in this process: it determines the asset base on which the OFTO earns its allowed return.

Moray East specifics. Moray East is a 950 MW offshore wind farm in the Moray Firth, operational since 2022. The transmission assets include subsea export cables, an offshore substation platform, and onshore connection infrastructure linking the wind farm to the GB transmission system. These are capital-intensive assets -- offshore substations and subsea cables typically run to hundreds of millions of pounds.

The cost assessment methodology. Ofgem's approach compares the developer's actual spend against benchmarks and the original forecast:

- The ex-ante review assessed whether the developer's projected costs were reasonable before construction began. This set the Initial Transfer Value, giving bidders a preliminary figure for their tender submissions. - The ex-post review audited actual construction costs, checking for cost overruns, scope changes, and whether the developer incurred costs efficiently. This produces the Indicative Transfer Value, which is closer to the final number.

Where the developer spent more than Ofgem judges was efficient, the excess is disallowed. The developer bears those costs, not consumers. Where costs came in below forecast, the transfer value reflects actual spend -- the developer does not pocket the difference through an inflated transfer value.

Consumer impact. The mechanism protects consumers from two risks. First, developer inefficiency: if construction costs blow out, Ofgem's assessment caps the transfer value at efficient costs. Second, market power: the developer is a monopoly supplier of these specific assets, and without cost assessment the transfer value would be whatever the developer claimed. The constraint is that the OFTO bidder's revenue stream (funded by TNUoS) is sized to the assessed transfer value, not to whatever the developer actually spent.

Developer impact. Moray East's developer retains the construction risk. Any disallowed costs reduce the transfer proceeds they receive. This incentive structure is deliberate: developers know from the outset that Ofgem will audit their spend, which disciplines construction procurement decisions. The tension is that offshore transmission assets are bespoke, built in hostile marine environments, where cost benchmarking is inherently imprecise.

What happens next

The cost assessment feeds into the competitive OFTO tender for Moray East's transmission assets. The process from here:

1. Preferred bidder selection. Ofgem runs the TR7 tender process. Bidders compete on the revenue they require to operate and maintain the assets over the licence term. The Indicative Transfer Value from this cost assessment anchors their bids. 2. Final Transfer Value. Before licence grant, Ofgem finalises the transfer value incorporating any remaining adjustments. The developer transfers the assets to the winning OFTO at this price. 3. OFTO licence grant. The successful bidder receives an offshore transmission licence and begins earning revenue through TNUoS.

This is one of several TR7 assets progressing through cost assessment. The OFTO regime has transferred over 8 GW of offshore transmission assets across previous rounds. The Moray East assessment does not change the methodology or raise structural questions -- it is implementation of an established framework.

The wider context is whether the OFTO model scales to the 50 GW offshore wind target. Larger projects with longer export cables and more complex grid connections push the cost assessment process harder. The fundamental question -- whether competitive OFTO tenders deliver better value than allowing developers to own and operate their own transmission assets -- remains live, but this decision does not revisit it.