OFTO build and its early and late competition models 

Over the last few years, the energy sector has raised increasing questions around offshore transmission design and delivery. Although generator build has remained the dominant route in practice, Ofgem has for some time been considering OFTO build alternatives, including a late competition model alongside generator build. 

Following a series of market-sounding exercises, Ofgem has moved towards an early competition model for OFTO build. It has now launched a consultation setting out detailed proposals for that model and updating the late competition OFTO build model to support greater flexibility in offshore transmission asset delivery. 

The consultation focuses on how those two OFTO delivery models should be developed and refined, with Ofgem’s stated aim of establishing a regulatory framework that supports coordinated offshore wind development, strategic planning and the delivery of offshore transmission assets. 

With the consultation closing on 2 July 2026, what is included, and how can you respond?

Background: generator build and the existing regime 

The OFTO regime is the regulatory and funding model used in Great Britain to connect offshore wind farms to the onshore electricity grid. It was introduced to increase competition and attract investment in transmission asset ownership through the established generator build model. 

Under the existing generator build regime, offshore wind developers design and construct the transmission assets. These typically include the offshore substation, transmission cable and onshore substation that together link the turbines at sea to the onshore electricity transmission network. 

Once built, those assets are sold to an independent company, the OFTO, which is appointed and granted an OFTO licence through a competitive tender process run by Ofgem. The sale is subject to a deadline of 18 months following first power passing through the transmission assets. The OFTO then owns, operates and is responsible for those assets. 

Consultation: OFTO build and the early and late competition models 

Ofgem is consulting on how an OFTO should be appointed and how transmission assets should be delivered under two OFTO build models: a new early competition model and an updated late competition model. 

Ofgem’s consultation sets out detailed proposals for the early competition OFTO build model and updates to the late competition OFTO build model. Under the proposed early competition model, the OFTO would be selected before the design, build and ownership of offshore transmission has begun and would therefore take responsibility for the transmission project. 

Reasons for OFTO regime reform 

The consultation identifies a range of structural and commercial shortcomings in the existing OFTO regime. Many stem from the fact that it was designed for simpler, project-by-project delivery. As offshore wind projects increase in scale and complexity, and as the need for coordinated offshore networks grows, the current regime is seen as poorly suited to delivering infrastructure that aligns with system-wide planning. 

The case for reform is driven by both structural and commercial concerns. On the one hand, the existing regime is not well suited to a more coordinated offshore network. On the other, it can create problematic risk allocation and cost uncertainty for market participants. 

Alongside these structural limitations, the existing regime can create uncertainty in the allocation of risk, particularly around delays. 

Developers may feel inadequately protected against delays in transmission delivery, even where other regulatory protections are available. Whilst some protections exist, developers may still face significant unrecovered costs arising from transmission delay, including additional financing costs, supply chain disruption and wider logistical expense. 

Those risks must ultimately be borne by the developer or reflected in the project’s pricing and financial assumptions. The consultation recognises the need to balance greater risk transfer to OFTOs against the possibility that excessive or uncertain risk allocation could reduce bidder appetite, increase financing costs and undermine the bankability of the OFTO model. 

The consultation also highlights inefficiencies of process and cost within the current framework. Tender timing can be poorly aligned with key project milestones, creating uncertainty for both developers and OFTO bidders, while high bid and participation costs may act as barriers to market entry. 

The current system is also open to criticism for failing to deal well with the inherent cost volatility of offshore projects, where long lead times and complex supply chains make it difficult to achieve cost certainty at an early stage. 

Early competition, better coordination? 

The proposed regime reflects a shift towards earlier market engagement and greater coordination of offshore transmission infrastructure by aligning delivery with the Centralised Strategic Network Plan (CSNP). That moves away from project-by-project design and instead supports transmission planning and delivery at a system level. Taking that approach alongside earlier engagement is expected to reduce duplication and improve network design across multiple projects. 

The proposals also introduce a more flexible and competitive delivery framework. By developing the early competition and late competition OFTO build routes alongside generator build, the regime may offer greater flexibility across different project circumstances, although the consultation also proposes mandatory application of early competition in certain cases. That may allow different delivery models to be used for different projects and is intended to promote overall market efficiency. 

The proposed reforms also seek to address long-standing concerns around risk and cost uncertainty. The introduction of a structured approach to delay risk, combining revenue incentives, milestone penalties and optional risk-sharing mechanisms, is intended to provide a more balanced and transparent framework for both developers and OFTOs. 

Impacts on transmission asset financing and disposal 

The proposed reforms are expected to reshape the financing profile of offshore wind projects and OFTO assets by redistributing risk and changing how transmission assets are funded and transferred. 

For developers 

The early competition model may offer a clearer capital allocation benefit. Rather than financing transmission assets upfront and subsequently disposing of them under the generator build model, a developer may be able to rely on an OFTO appointed at an earlier stage to fund and deliver those assets. That has the potential to reduce upfront funding requirements and allow developers to focus capital on the generation project itself. Developers may, however, still need to account for residual risk and cost uncertainty elsewhere in the project structure, particularly where transmission costs or interfaces remain uncertain at the point of bidding. 

The early competition model may also remove the need for developers to navigate the time-limited post-first-power disposal process that applies under generator build. That process can create commercial pressure, particularly where transfer must be achieved within a constrained timetable and the successful OFTO bidder is well placed to press for additional risk protection. In practice, developers may be required to accept complex arrangements involving residual guarantees, indemnities or insurance-backed solutions in order to complete the disposal. Avoiding that process may therefore be seen as a further practical and commercial advantage of the early competition model. 

For OFTOs 

For OFTOs and their funders, the converse is earlier capital deployment and greater exposure to construction and delivery risk. Rather than acquiring an operational transmission asset following construction, an OFTO appointed under the early competition model may need to fund and deliver the transmission works itself, with revenues linked to energisation and potentially affected by delay-related incentives, penalties and other risk-sharing mechanisms. 

The early competition model may nonetheless offer some advantages for OFTOs. Earlier appointment could give OFTOs greater influence over project delivery, procurement and risk management, and may create opportunities to participate in a broader and more strategic pipeline of offshore transmission assets. Whether those benefits are sufficient will, however, depend on the extent to which the risk allocation remains investable and financeable. 

On disposal and transfer  

Separately, the framework also introduces greater flexibility around disposal and transfer if projects do not proceed as planned. In cases of OFTO failure or non-delivery, options may include appointing a reserve bidder, re-tendering the project or permitting an open market sale or transfer of assets. That may create a more flexible approach to asset disposal, but it also raises new questions around project continuity, valuation and transfers at a pre-operational stage. 

Overall, the consultation reflects Ofgem’s attempt to move the OFTO regime beyond a project-by-project transfer model and towards a framework better suited to coordinated offshore transmission development. For developers, that may offer meaningful benefits in capital allocation and disposal. For OFTOs, however, the price of earlier involvement is earlier capital commitment and greater delivery risk. The central question for the consultation is whether it can strike a balance between improved coordination and a risk allocation that remains investable and financeable.

Responding to the consultation 

Responses can be submitted online to [email protected] or to the team “OFTO Build Tender Development”, using “OFTO Build: Early and Late Competition Models” as the subject line. The deadline for responses to the consultation is 2 July 2026.