OFTO Further Evolution: Ofgem’s decisions and what they mean for bidders generators and lenders
Ofgem has published its decision on the further evolution of the Offshore Transmission Owner regime, setting final positions on high voltage direct current (HVDC) availability targets and confirming a package of near‑term tender process reforms designed to make better use of the extended Generator Commissioning Clause period proposed by the Department for Energy Security and Net Zero (DESNZ) (OFTO: further evolution of a mature asset class | Ofgem).
The direction of travel is pragmatic: retaining the core availability incentive while introducing targeted flexibility for very long HVDC links; re‑sequencing the tender timetable to enable firmer bids and shorter Preferred Bidder (PB) negotiations; and signaling the introduction of standardised vendor due diligence to support new entrants and comparability of bids. The decision follows Ofgem’s July 2025 consultation which received twenty stakeholder responses from developers, existing OFTOs, manufacturers and The Crown Estate (Ofgem consults on proposed changes to the OFTO tender process).
Since 2011, Ofgem has licensed 28 OFTOs across nine tender rounds, with strong competitive tension on cost of capital. As project scales and distances have increased, HVDC transmission has moved from exception to expectation for new connections, bringing materially different availability and repair dynamics compared with high voltage alternating current (HVAC). Ofgem’s latest decision sits alongside recent policy on Tender Revenue Stream extensions for technically viable assets and its choice to keep potential longer‑than‑25‑year Tendered Revenue Stream (TRS) under review pending evidence on asset life. (Extension of Tender Revenue Stream (EoTRS) and Tender Revenue Periods)
HVDC availability
Ofgem has decided to retain the headline 98% availability target for OFTO assets, including HVDC, emphasising the centrality of availability incentives to consumer protection and system reliability when single circuits may carry very large volumes of generation. Stakeholders recognised the heightened outage and repair risk on HVDC links—owing to distance, cable length, converter complexity and limited OEM capacity—but developers in particular supported keeping the 98% target, coupled with clearer allowance for critical strategic spares to minimise outage duration.
Respondents cited international evidence of HVDC operational availability in the 92–98% range and stressed the importance of spare transformers, converter components and long‑lead cable sections, where replacement lead times can stretch three to six years under current supply chain constraints. OFTOs emphasised the value of case‑by‑case flexibility, HVDC‑specific benchmarking, clearer exceptional event treatment and pathways to engage beyond OEM‑controlled O&M frameworks to diversify service options.
Against that evidence base, Ofgem will retain 98% for “the vast majority” of HVDC projects but is open to a reduced target where developers present a pre‑tender business case grounded in project‑specific technical characteristics—particularly for assets with over 200 km of cable, where failure risks and repair logistics are qualitatively different. Any reduction would be locked in before Invitation to Tender (ITT) launch and mirrored in the incentive dead‑band and cap, preserving the symmetry of reward and penalty around the adjusted target while holding the maximum upside at 5% of TRS for 2% overperformance.
To make the retained target workable in practice, Ofgem will update cost assessment guidance to give more specific direction on justifying strategic spares within the Final Transfer Value (FTV), reflecting both technical needs and supply chain limitations. Manufacturers also pressed the need to recognise specialist HVDC O&M expertise in Preferred Bidder selection, given the complexity and customisation of converter systems.
Ofgem rejected analogies to interconnector cap‑and‑floor or the onshore “balanced scorecard” model, with most respondents agreeing those constructs do not map cleanly to OFTO incentives and accountability. However, the regulator flagged that broader questions of asset access, control and quality metrics will be taken up in a subsequent consultation, particularly as HVDC projects begin to dominate the pipeline.
Tender process changes
DESNZ has proposed a 9‑month extension of the Generator Commissioning Clause—from 18 to 27 months—via the Planning and Infrastructure Bill, applying to projects in flight two months after Royal Assent of the Bill. Ofgem’s decision is expressly designed to make efficient use of that headroom by shifting effort toward earlier data completeness and document firmness to reduce protracted PB‑stage negotiations.
Stakeholder feedback split along familiar lines. Developers resisted a full 12‑month pre‑ITT delay, warning of increased operational, advisory and financing costs and the risk of losing key specialist capacity; they proposed shorter pre‑ITT intervals and more flexibility to start ITT earlier when assets and data rooms are genuinely ready, for example upon reaching defined commissioning milestones. OFTOs tended to support a longer pre‑ITT stage to improve data quality and reduce Q&A churn, while urging clear data room standards, risk allocation guidance, and more structured developer‑bidder engagement before PB. The Crown Estate endorsed measures that ease end‑stage pressure and support orderly lease and asset handover.
Reflecting that feedback, Ofgem has recalibrated its process design in three areas. First, ITT will ordinarily commence six months after the final completion notice, with an option to start earlier where the data room is fully populated and assets are operating as expected; Ofgem will not artificially delay if parties are ready. Second, the ITT window will be lengthened to allow deeper engagement on the terms of the Transfer Agreement and Interface Agreement, enabling developers to iterate toward near‑final drafts during ITT and thereby reduce unknowns and negotiation scope at the PB stage. Third, Ofgem will seek to have the FTV ready before PB wherever possible and will build in a further three‑month backstop at PB to absorb the tail of any residual negotiation without resorting to time‑limited licence extensions to stretch the GCC.
In parallel, Ofgem is minded to introduce standardised Vendor Due Diligence as a requirement from the next appropriate tender round, replacing the signposting report and providing a consistent, comparable foundation for bidder assessments. Responses were mixed: some questioned duplication and the knowledge advantage of incumbents; others, including prospective new entrants, saw value in accredited, reliance‑ready VDD to support benchmarking, reduce PB‑stage challenges and compress transaction timelines. Ofgem will update data room requirements, consider cost recovery via the FTV, and develop a common framework to help ensure the VDD is truly decision‑useful.
What this means for market participants
For developers, the strategic imperative is to front‑load data completeness and legal drafting to take advantage of the early‑ITT option and to avoid value‑eroding PB drift. Ofgem has signalled it will not hold up ITT where data rooms are complete, assets are performing as expected, and documents are sufficiently firm; conversely, where readiness is partial, the longer ITT and PB backstop exist to reduce the need for GCC extensions. Developers contemplating HVDC links over roughly 200 km should assess whether a pre‑tender case for a tailored availability target is justified by design specifics and whether the associated incentive calibration would support bankability at bid.
For bidders and lenders, the decision points to two diligence priorities. First, expect a heavier emphasis on HVDC‑specific spares strategies, failure mode data and repair logistics—including OEM capacity constraints and long‑lead component procurement—driving both FTV treatment and availability risk premia. Second, anticipate standardised VDD becoming the foundation of the data room, with reliance mechanics and accreditation intended to improve comparability; bidders should engage with Ofgem’s framework development to ensure the product addresses known key issues and areas of sensitivity.
Relationship to Ofgem’s 2025 consultation and DESNZ policy changes
This decision document closes out key limbs of Ofgem’s July 2025 consultation, notably the HVDC availability target and the tender timetable re‑sequencing to align with the proposed GCC extension to 27 months. Ofgem will consult further in 2026 on bidder incentive mechanisms to accelerate transaction close and on policy for OFTO access and control, including OMSA structure, in light of the broader shift to coordinated offshore transmission and HVDC prevalence. Its earlier work on TRS extension for technically viable assets and the holding position on longer‑than‑25‑year TRS remain live context for investors evaluating lifecycle risk and potential end‑period strategies.
Looking ahead
The next phase of tender process reform will focus on two fronts. First, implementation details for the re‑sequenced tender process, including VDD framework standards, reliance mechanics, and data room readiness criteria, are expected to be embedded at the next appropriate tender round. Second, Ofgem will consult on bidder incentive mechanisms and on asset access and control, responding directly to stakeholder concerns about O&M Service Agreement structures, HVDC‑specific exceptional events, and the role of data sharing, benchmarking and specialist service providers in sustaining availability performance.
