Best Before End - Ofgem Sets Out New Rules for Extending Offshore Transmission Revenue Streams

On 10 July 2025, Ofgem published its decisions on the extension of the Tender Revenue Stream (“TRS”) and related policy issues for offshore transmission assets. The changes aim to ensure that economically viable offshore transmission assets can continue operating beyond their original revenue periods, supporting the UK’s renewable energy targets and delivering value for consumers. The decisions follow extensive stakeholder consultation and address key issues such as major failure events, availability targets, performance reserves, partial awards, and the potential for longer TRS periods. 

Background and Policy Context

The offshore transmission regime, established in 2011, has matured into a competitive market with 28 Offshore Transmission Owners (“OFTOs”) licensed across nine tender rounds. As the first round of licences approach the end of their 25-year TRS from 2030, Ofgem has engaged with stakeholders to explore options for extending the regulatory revenue period for assets that remain technically and economically viable. The goal is to avoid premature decommissioning, maximize carbon-free generation, and ensure best value for consumers. Further information on Ofgem’s Extension Revenue Stream (“ERS”) consultation can be found here.

Key Policy Decisions

Managing Major Failure Events during Extension Periods

Ofgem sought views from industry stakeholders on how risk should be allocated in the event of an OFTO experiencing a major failure in the extension period. As a result of unanimous feedback Ofgem will further consult on licence modifications to define a “major failure” as an uninsured event where repair costs exceed 25 % of the annual ERS. Where such a failure occurs, Ofgem will convene the OFTO and generator to agree one of three outcomes: (i) the generator funds the repair; (ii) early termination of the ERS; or (iii) an alternative resolution. Ofgem will then issue a binding determination, alongside any consequential licence changes.

This approach is intended to balance consumer protection with operational flexibility, recognising that warranties, insurance and prudent maintenance should make major failures genuinely exceptional.

Availability Incentive and Exception Events

The current 98 % availability target (which triggers the full TRS payment to the OFTO) will be retained for the ERS period as will the existing ±2.5 % revenue adjustment per percentage point above or below 98 % (limited to 50 % availability and 78 % of the TRS) and the 5 % bonus for 100 % availability. The Exceptional Events regime will continue to apply, permitting relief where outages are demonstrably beyond the OFTO’s reasonable control. Consequently, Ofgem intends to issue a consultation shortly on licence modifications to incorporate this into the ERS. 

Performance Reserve Requirements

To ensure financial security, Ofgem will align Tender Round One ("TR1") licences with later rounds by requiring a performance reserve equal to 50 % of the annual ERS, uprated annually for inflation. For extension periods shorter than five years, the performance reserve may be set on a pro rata basis. Liabilities arising during the original TRS can roll forward into the ERS where appropriate, rather than forcing crystallisation immediately on expiry of the initial term.

Partial / Interim Awards for Investment Works

Partial awards will be permitted for investment works only, not for health review costs. The threshold for such awards will be defined on a case-by-case basis, and repayments will be required if the final award is less than the interim payment. This measure is designed to support OFTO cash flow while protecting consumer interests

Any interim award will be reconciled against the final allowance; over-funding must be repaid to consumers, reinforcing cost discipline. 

Early Exit Scenarios

If a generator ceases generation early, ERS payments to the OFTO will continue for up to 12 months (or to the scheduled end of the ERS, if sooner) to allow orderly wind-down and recovery of sunk costs. If the OFTO exits early (most likely following a major failure), ERS payments will cease immediately, protecting generators from paying for unusable assets. 

Length of Future TRS Periods

While the current maximum TRS period is 25 years, Ofgem acknowledges that many assets have technical lives exceeding this term. However, concerns remain about the risks of longer licence periods. Ofgem will continue to gather evidence from upcoming extension cases before considering changes to the initial TRS duration. The current framework, which allows for an initial period plus extension, provides a natural break point to assess asset health and consumer risk.

Practical Implications

These decisions provide greater clarity and predictability for OFTOs, generators, and investors as assets approach the end of their original revenue periods. By maintaining robust performance incentives and financial safeguards, Ofgem aims to support the continued operation of offshore transmission assets, facilitate further renewable energy generation, and deliver value for consumers. Further consultations are expected on specific licence modifications and the Generator Commissioning Clause.