Ofgem Opens $4.69 Billion Tender to Find Owner of Hornsea 3 Grid Link in the North Sea

Ofgem has put the offshore transmission assets serving Hornsea 3 up for grabs, kicking off the biggest competitive tender the regulator has ever run under its Offshore Transmission Owner framework. Tender Round 14, which opened on Wednesday 21 October, carries an estimated value of about USD 4.69 billion and will determine which investor takes ownership of the cables and substations that carry power from the North Sea windfarm to the British onshore grid.

A windfarm of international scale awaiting a new owner

Hornsea 3, located more than 100 kilometres off the coast in the North Sea, is among the largest offshore wind farms in the world and is currently under construction. It is scheduled for completion by the end of 2027, with a projected capacity to power 3.3 million UK homes. The assets in the tender comprise the cables together with offshore and onshore substations that tie the windfarm into the onshore network. Investors competing in the round will, if successful, take on both ownership and operation of that connection. Beatrice Filkin, Ofgem's Director of Major Projects, described Hornsea 3 as one of the world's biggest windfarms and said the offshore connection linking it to the onshore grid will help deliver home-grown energy to millions of British consumers, while offering a great long-term opportunity for investors. Filkin also stressed the role of competition in the process. By running a competitive tender, Ofgem is helping attract the investment Britain needs for a cleaner, more secure energy system while making sure consumers get value for money, she said, encouraging any prospective investors interested in the opportunity to get in touch and learn more about the process.

The mechanics of the OFTO model

The tender operates within Ofgem's OFTO regime, under which winning bidders are granted offshore transmission licences for specific assets connected to offshore wind farms around Great Britain. The assets themselves are simultaneously sold by the developer to the successful bidder. In return for financing, operating and maintaining the prebuilt transmission infrastructure, the winning bidder receives a long-term, inflation-linked revenue stream lasting up to 25 years. That revenue is subject to the availability and performance of the assets. Ofgem assesses bids within each tender round and grants licences to the successful participants. The competitive structure is intended to keep costs down for consumers and to uphold high standards of performance. According to the regulator, the regime underpins the government's renewable energy targets by connecting homegrown offshore wind generation at least cost to consumers, and pairs offshore wind generators with the most efficient and competitive transmission owners in the market. That arrangement, Ofgem states, delivers lower costs and high service standards for generators and, ultimately, for consumers.

Round 14 is the largest since the regime began in 2009

The OFTO framework has been running since 2009. Over that period, winning bidders have invested more than USD 13.39 billion in transmission links connecting 28 offshore wind farms to the grid.

The estimated USD 4.69 billion value of the Hornsea 3 round makes it the largest tender since the framework was introduced. Ofgem has signalled that more North Sea offshore transmission assets are expected to come to market through the OFTO framework in future rounds, indicating that the pipeline of opportunities for investors is set to continue beyond the current competition.

Positioned within a broader overhaul of the grid

Ofgem frames the OFTO framework as a key element of what it describes as a once-in-a-generation modernization of Great Britain's energy system. The regime helps deliver clean electricity to homes and businesses and supports the growing demand from transport, heating, industry, and data centers. The framework also plays a role in energy security, according to Ofgem, by making greater use of Britain's renewable resources and reducing the country's exposure to volatile global gas markets.

The regulator positions the competitive tendering process as a way of attracting the investment required for a cleaner, more secure energy system, while safeguarding value for money for the consumers who ultimately pay for the connections.

With Tender Round 14 now open, investors have the opportunity to compete for the licence to own and operate the transmission link for what will be one of the biggest single connections in the regime's history, and Ofgem has invited interested parties to engage with it on the process.