Page type: primary-anchored (mirrors OFTO Licence SLCs -- Section E of the Electricity Transmission Consolidated Standard Licence Conditions, activated by A6 Direction)

Offshore Transmission Owner (OFTO) Licence

The OFTO licence governs the companies that own and operate the cables and substations connecting offshore wind farms to the onshore grid. OFTOs do not generate electricity. They earn a regulated annual payment for keeping the transmission link available.

Source file: sources/ofgem/licences/ofto-slc.md

What an OFTO is

An OFTO (Offshore Transmission Owner) owns the offshore transmission assets for a specific wind farm for a fixed revenue period (20 or 25 years). It is not the wind farm developer. It does not own the turbines. It owns the export cables, offshore substation, and onshore connection point.

The developer builds these assets during wind farm construction, then transfers them to the OFTO after commissioning. The OFTO earns a Tender Revenue Stream (TRS) paid through the transmission charging system. Consumers pay indirectly through TNUoS charges.

Tender round process

Ofgem runs a competitive five-stage tender process for each set of projects:

1. Pre-qualification: bidders submit questionnaires; Ofgem selects qualifying bidders
2. Qualification to tender: further evaluation; confidentiality agreements signed
3. Invitation to Tender (ITT): formal bids submitted; each bid is a licence application; bidder offering the lowest TRS wins
4. Best and final offer: shortlisted bidders refine offers
5. Preferred bidder: Ofgem selects winner; developer transfers assets; licence granted

The exclusive route rule (SI 2015/1555, Reg. 35) means the tender framework is the only way to obtain an offshore transmission licence. Normal application procedures are disapplied.

Revenue stream model

The TRS is fixed at bid stage and inflation-indexed (RPI for TR1-TR7; CPIH under consideration from TR8). It runs for: - 20 years: TR1-TR5 (projects from ~2011 to ~2018) - 25 years: TR6 onwards (from 2018 reforms)

Availability incentive

Historical portfolio average: ~99.19%. OFTOs are incentivised to maintain assets above target, but downside is capped at 10% annually.

Key licence obligations

Transmission services (E15): Must keep assets available, allow NESO to direct configuration, and provide real-time system information to NESO.

SQSS planning (E16): Must plan and develop the transmission system in accordance with the National Electricity Transmission System Security and Quality of Supply Standard.

STC compliance (E13): Must be a party to the System Operator - Transmission Owner Code and comply with it. This is the principal operational interface with NESO.

Grid Code compliance: Applies as a transmission owner connected to the national electricity transmission system.

Ring-fencing (E7): OFTO activity must be restricted to offshore transmission. No electricity storage interests. Financial ring-fencing from group. Non-transmission revenue must not exceed 2.5% of regulatory accounts value.

Asset disposal restriction (E4): No disposal of transmission assets without Ofgem consent and 2 months' prior notice.

Credit rating (E11): Must maintain investment grade credit rating (issuer or instrument coverage of 75% of net assets), or provide alternative security equal to 12 months' gross operating expenditure.

Regulatory accounts (E2): Annual accounts by 31 July; financial year ending 31 March; mirrors onshore TO requirements.

Financial certificates (E8): Must certify annually that it has sufficient resources (financial and operational) for the next 24 months.

Current OFTO portfolio

As of April 2026: approximately 30 licensed OFTOs across TR1-TR9+, combined asset value approximately £10bn.

Transfer values range from ~£34m (Barrow, TR1) to ~£1,212m (Hornsea Two, TR8).

Future: coordinated offshore grid, MPIs, and Beyond 2030

The project-by-project model is under structural review:

Coordinated offshore grid: The Offshore Transmission Network Review (OTNR) has developed a framework for shared offshore infrastructure (hub-and-spoke or meshed networks connecting multiple wind farms). The current OFTO licence model does not accommodate shared assets across multiple generators.

Multi-purpose interconnectors (MPIs): Assets that carry both domestic offshore wind power and cross-border flows. Ofgem published a minded-to decision on an interim MPI framework. An enduring MPI regime is being designed for 2030 onwards.

Co-ordination licence (Energy Act 2023, s.6(1)(da)): A new licence category for coordinated offshore infrastructure was created by the Energy Act 2023. It could underpin a future entity holding transmission assets in an integrated offshore network rather than individual project OFTOs.

Extended Revenue Streams: TR1 OFTOs begin approaching end of their 20-year revenue periods from ~2031. Ofgem is developing an ERS framework so OFTOs can bid for a further regulated period rather than face premature decommissioning.

The project-by-project OFTO model will remain dominant through the 2020s and into the early 2030s for all projects currently in tender (TR11-TR13). Any transition to a coordinated model requires primary legislation and licence modifications.

Cross-references

Last updated: 2026-04-12