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Chart of the Week

2020

Offshore wind - OFTO the bank

Tom Palmer Managing Consultant

With the Government recently announcing the offshore transmission network review, this Chart of the Week takes a look at the recent trends in the OFTO tender process. The OFTO regime was established in 2009 by the Government and Ofgem. In many countries responsibility for constructing and operating offshore electricity transmission assets falls to either the windfarm developer or to the onshore transmission owner (TO). In the UK, separate Offshore Transmission Owners (OFTOs), which are neither the windfarm developers nor the onshore TOs, take responsibility for the assets under long term licences (20 years previously, now 25 years). The licence guarantees revenues over the lifetime of the assets subject to certain conditions such as performance obligations. Therefore, OFTOs represent an investment opportunity in a defined type of asset supported by an underlying regulatory regime. The chart shows the relationship over time between the Tender Revenue Stream (TRS), which represents the fixed revenue stream the OFTO owner receives from the offshore windfarm, and the Transfer Value (TV), which the OFTO owner will pay to the developer upon transfer of the asset. This is important as a lower percentage demonstrates the lower revenues expected by the asset owner or investor, which is determined by the lower cost of borrowing, certainty in the regulatory regime and the level of risk for investors. The analysis shows the progressive reduction in this rate through each additional Tender Round (TR) with increased confidence, lower financing costs and changes to the scheme. This is beneficial to the consumer as the OFTO ...

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