Decision on CMP411: Introduction of Anticipatory Investment (AI) within the Section 14 charging methodologies

What changed

Ofgem approved CMP411 on 28 March 2024, with immediate effect. The modification introduces Anticipatory Investment into the Section 14 charging methodologies — the framework that governs how Offshore Transmission Owners (OFTOs) recover costs from users of the offshore transmission network. Before this decision, OFTOs could only build and charge for capacity directly tied to confirmed generator connections. Now they can build ahead of demand: oversizing cables, substations, and other offshore transmission assets on the expectation that future projects will materialise to use the spare capacity.

The cost recovery mechanism is the core of the change. When an OFTO builds anticipatory capacity, the costs of that excess capacity enter the Section 14 charging base and are socialised across all transmission network users until a future generator connects and picks up its share. The modification establishes rules for how these costs are allocated during the interim period and how they transfer to new connectees when they arrive.

What this means in practice

For offshore wind developers, the immediate effect is positive. The GB offshore transmission regime has long suffered from a coordination problem: each project builds its own radial connection to shore, sized exactly to its own capacity, because no mechanism existed to fund shared or oversized infrastructure. This produced parallel cables running through the same seabed corridors, duplicate substations, and repeated consenting processes. CMP411 removes the barrier to building once, building bigger, and sharing the asset.

For OFTOs and transmission investors, this is a significant expansion of the investable asset base. Anticipatory investment means larger initial capital expenditure, funded through the regulated return, with cost recovery guaranteed through the charging methodology even before demand materialises. The risk profile shifts: OFTOs no longer need a confirmed customer before committing capital. They need a reasonable expectation that one will come — and Ofgem's approval of the expenditure through the regulatory framework.

For consumers, the picture is more complicated. All electricity bill-payers fund the Section 14 charges through Transmission Network Use of System (TNUoS) costs. Anticipatory investment means consumers begin paying for capacity that has no current user. If the anticipated demand arrives, the investment was efficient and consumers benefit from lower long-run costs (one shared cable is cheaper than two separate ones). If the demand does not arrive — because projects are cancelled, delayed, or built elsewhere — consumers have funded stranded assets with no recourse.

The moral hazard is structural. The mechanism removes the price signal that previously disciplined offshore transmission investment. Under the old regime, an OFTO would only build what a developer had contracted for, because the developer was paying. Under the new regime, costs are socialised regardless of whether the anticipated customer ever connects. This creates an incentive to overbuild: the OFTO earns a regulated return on a larger asset base, the developer benefits from pre-built capacity it did not fund, and the consumer bears the risk that the capacity sits unused.

The amounts are not trivial. Offshore transmission assets typically cost £200–500m per connection. Oversizing a 1.2 GW link to 2.4 GW to accommodate a future project roughly doubles the initial capital cost. If the second project never connects, consumers have funded several hundred million pounds of unused infrastructure through their bills, with the OFTO continuing to earn its allowed return on the full asset value.

The Ofgem justification rests on coordination efficiency. Building integrated offshore networks rather than point-to-point radial connections is widely accepted as more efficient in the long run. The Offshore Transmission Network Review (OTNR) identified this as a priority, and CMP411 is the charging mechanism that enables it. The question is not whether coordination is desirable — it obviously is — but whether socialising the investment risk is the right way to achieve it. The alternative would be to require developers who benefit from shared infrastructure to commit contractually and financially before construction begins, preserving the price signal while still enabling coordination.

What happens next

CMP411 took effect immediately on approval. OFTOs can now include anticipatory investment in their Section 14 cost base, subject to Ofgem's approval of specific projects through the existing regulatory process.

The practical impact depends on how aggressively Ofgem approves anticipatory spending. The modification creates the charging mechanism, but each individual investment still requires regulatory sign-off. The key decisions will come through OFTO licence negotiations and the Offshore Coordination project pipeline, where Ofgem and NESO determine which links should be oversized and by how much.

This sits within a broader push toward a more planned offshore grid. The OTNR, the Holistic Network Design (HND), and the Strategic Spatial Energy Plan (SSEP) all point toward integrated offshore networks rather than radial connections. CMP411 is the financial plumbing that makes that vision fundable — but it also means the costs of any planning errors in those strategic frameworks will land on consumer bills rather than on the developers or investors whose projects triggered the investment.

Watch for: Ofgem's approach to approving specific anticipatory investments; whether any consumer protection mechanism (e.g., cost caps, clawback provisions, or use-it-or-lose-it deadlines) is layered on top; and whether the same anticipatory investment logic migrates from Section 14 (offshore) to onshore transmission charging, where the sums would be considerably larger.