Interconnection: moving towards a strategically planned energy system
Summary
Ofgem has published a call for input on the future regulatory framework for electricity interconnection, covering route to market, competition models, financing structures, and treatment of Offshore Hybrid Assets. This accompanies DESNZ's policy paper on interconnection's role in a strategically planned system. GB currently has 10.3 GW of operational interconnector capacity with 1.4 GW in construction and 8.9 GW in development under existing approvals.
Why it matters
This is a structural question about whether interconnection shifts from developer-led merchant risk to centrally planned, regulated infrastructure. The cap and floor regime already socialises downside risk onto consumers; extending strategic planning further means the state, not the market, decides how much cross-border capacity to build, where, and when. Offshore Hybrid Assets blur the boundary between generation and transmission, creating a new asset class that sits outside existing regulatory categories — whoever defines the rules for OHAs will shape billions in North Sea investment.
Options on the table
Route to market for future projects
How new interconnector projects gain regulatory approval and funding. The current developer-led model under the cap and floor regime may shift toward a more centrally coordinated approach where NESO or government identifies strategic needs and Ofgem runs competitive processes. This determines whether interconnection capacity is built where the market sees returns or where planners see system need.
Competition models
What types of competition could apply to future interconnector development. Options range from competitive tenders for specific routes identified by NESO to broader developer-led competitions. The choice determines whether incumbents with existing seabed rights and planning consents retain advantage or whether new entrants can compete on equal terms.
Investability and financing models
How to ensure projects attract capital given new asset configurations like OHAs that combine generation and transmission functions. The cap and floor regime provides revenue certainty but may need adaptation for hybrid assets where wind generation and interconnection revenues are intertwined. The question is how much risk consumers underwrite versus investors.
Offshore Hybrid Assets regulatory framework
LionLink and Nautilus pilot projects are testing how existing frameworks apply to assets that combine offshore wind connections with cross-border interconnection. The enduring regime must resolve who regulates each function, how costs are allocated between GB and connected markets, and whether OHAs receive the same consumer-backed revenue support as point-to-point links.
Questions being asked
Route to market
- What should the route to market be for future interconnection projects?
- How should strategic need be identified and by whom?
Competition
- What types of competition could be enabled for interconnection development?
- How can competition frameworks ensure fair access for new entrants?
Investability
- How can we ensure future interconnection projects remain investable?
- How should financing models evolve to reflect new asset configurations?
Offshore Hybrid Assets
- How should regulatory frameworks adapt to support combined offshore wind and interconnection assets?
- What lessons from the LionLink and Nautilus pilots should inform the enduring regime?
Key facts
- •10.3 GW of operational interconnector capacity across 10 links to 7 markets
- •43 TWh imported in year to September 2025, approximately 13% of GB supply
- •12 TWh exported over same period
- •1.4 GW under construction
- •8.9 GW in development with Ofgem regulatory approval
- •Over £200 million returned to consumers through cap and floor regime
- •Two OHA pilot projects: LionLink and Nautilus
- •Call for input published alongside DESNZ policy paper on interconnection
Areas affected
Related programmes
Memo
What this is about
Ofgem is asking how the regulatory framework for electricity interconnection should change as GB moves from a developer-led model to a centrally planned one. The call for input covers four areas: how future interconnector projects get approved and funded, what competition models should apply, how to keep projects financeable, and how to regulate Offshore Hybrid Assets — cables that combine cross-border interconnection with offshore wind connections.
The timing is driven by three things. First, DESNZ published a companion policy paper setting out government's view that interconnection should be strategically planned rather than left to developer initiative. Second, the North Sea Summit in Hamburg produced shared ambitions for an interconnected offshore grid, which requires a regulatory framework that does not yet exist. Third, two pilot OHA projects — LionLink and Nautilus — are already testing how existing rules apply to hybrid assets, and the results are revealing gaps that need an enduring regime. GB has 10.3 GW of operational interconnector capacity, 1.4 GW in construction, and 8.9 GW approved for development. The decisions made here will shape whether that pipeline accelerates or stalls.
Options on the table
#### Route to market: developer-led versus centrally planned
Under the current regime, developers identify interconnector routes, secure seabed rights and planning consents, then apply to Ofgem for a cap and floor revenue arrangement. The developer bears the upfront development risk and Ofgem assesses whether the project merits consumer-backed revenue support after the fact.
The alternative is central coordination: NESO identifies where interconnector capacity is needed based on system modelling, DESNZ or Ofgem designates those routes as strategic priorities, and developers compete to build them. This is the model used for offshore transmission (OFTOs) and increasingly for onshore network reinforcement.
Who wins: Central planning favours incumbents with existing relationships, consenting expertise, and balance sheets. It also favours consumers if NESO's modelling is right, because capacity gets built where the system needs it rather than where developers see merchant returns. Who loses: Developer-led innovation. The current regime produced routes that planners might not have identified — the market found value in connections to Norway and Denmark that were not in any system plan. Moving to central planning means the state decides how much cross-border capacity GB needs. If the calculation problem applies anywhere, it applies here: NESO cannot know the future value of interconnection to markets it does not control.
#### Competition models: route-specific tenders versus open competition
Route-specific tenders mean NESO identifies a corridor (say, GB–Germany via the North Sea), Ofgem runs a competition, and developers bid on cost and delivery. This is clean but narrow — it assumes the planner knows which routes matter.
Open competition means developers propose their own routes and compete on a broader set of criteria including system benefit, deliverability, and cost. This preserves more market discovery but makes comparison harder and risks gaming.
Who wins from route-specific tenders: New entrants who can compete on cost without needing existing seabed rights. The tender defines the route, removing the first-mover advantage of developers who have already secured consents. Who loses: Developers who have spent years and millions securing seabed rights and environmental assessments for routes they identified. If NESO designates different corridors, those sunk costs are stranded.
#### Investability and financing: cap and floor versus RAB-style models
The cap and floor regime gives interconnector developers a revenue band. Below the floor, consumers top up. Above the cap, consumers claw back. The developer bears construction risk, merchant risk within the band, and operational risk. This has worked for point-to-point links where the revenue model is simple: buy low in one market, sell high in the other.
For OHAs, the revenue model is more complex. A hybrid asset earns from both wind generation and cross-border trading, and the two revenue streams interact — when the wind is blowing, the cable carries wind power rather than traded electricity. Adapting the cap and floor to handle intertwined revenue streams is technically possible but creates allocation problems. The alternative is a RAB-style model where consumers underwrite construction cost directly (as with Sizewell C), and the developer earns a regulated return. This shifts construction risk entirely onto consumers.
Who wins from RAB: Developers get lower cost of capital and guaranteed returns. Projects that might not clear a merchant hurdle rate get built. Who loses: Consumers take on construction risk for assets that may not deliver the system benefits modelled. The floor mechanism already socialises downside revenue risk; RAB would socialise construction risk too. Over £200m has been returned to consumers under the cap mechanism — that flow depends on interconnectors earning above-cap revenues, which is a market signal that the asset is valuable. Remove the market signal and you remove the discipline.
#### Offshore Hybrid Assets: new regulatory category
LionLink (GB–Netherlands) and Nautilus (GB–Belgium) are testing how to regulate assets that are part wind farm connection, part interconnector. The fundamental problem is jurisdictional: offshore wind connections are regulated as generation assets under one framework; interconnectors are regulated under cap and floor. An OHA is both, and the rules for each pull in different directions.
Key unresolved questions: who regulates the offshore platform where wind and interconnection meet? How are costs split between GB consumers and the connected market's consumers? If the wind farm underperforms, does the interconnector function still get floor payments? If the interconnector is curtailed to prioritise wind dispatch, who compensates whom?
Who wins from a clear OHA framework: North Sea wind developers who want integrated grid connections rather than separate, expensive cable routes to shore. The efficiency gains are real — sharing offshore infrastructure reduces the number of cables, landfall points, and onshore substations. Who loses: Simplicity. Every OHA creates a bespoke cost allocation negotiation between two countries' regulators, two countries' consumers, and multiple asset owners. The transaction costs of defining property rights for an asset that spans jurisdictions, technologies, and regulatory regimes are substantial. If Coase teaches anything, it is that these transaction costs will determine whether OHAs actually get built, regardless of how elegant the framework looks on paper.
Questions being asked
#### Route to market
- What should the route to market be for future interconnection projects? [Should developers continue to propose routes and seek cap and floor approval, or should NESO identify strategic corridors and Ofgem run competitions for them?] - How should strategic need be identified and by whom? [Who decides how much interconnector capacity GB needs, and on what basis — NESO's system modelling, DESNZ's policy objectives, or revealed market demand?]
#### Competition
- What types of competition could be enabled for interconnection development? [Route-specific tenders, developer-led proposals assessed against system need, or a hybrid?] - How can competition frameworks ensure fair access for new entrants? [How do you prevent incumbents with existing seabed leases and consents from having an insurmountable advantage in any competitive process?]
#### Investability
- How can we ensure future interconnection projects remain investable? [Is the cap and floor regime sufficient, or do hybrid assets need a different risk-sharing model?] - How should financing models evolve to reflect new asset configurations? [Should OHAs get RAB-style treatment where consumers bear construction risk, or should the market continue to price that risk?]
#### Offshore Hybrid Assets
- How should regulatory frameworks adapt to support combined offshore wind and interconnection assets? [Who regulates what, and how are costs split between GB and the connected market?] - What lessons from the LionLink and Nautilus pilots should inform the enduring regime? [What has actually gone wrong or proved unworkable in the pilot process that needs fixing before more OHAs are approved?]
How to respond
The source text does not specify a closing date, submission method, or contact details for this call for input. The blog directs readers to Ofgem's separate call for input document, "Future strategic approach to interconnection," which will contain the response details. Check the Ofgem website for the full call for input document, which should specify the deadline and how to submit responses.
Source text
Interconnection: moving towards a strategically planned energy system | Ofgem Please enable JavaScript in your web browser to get the best experience. BETA This site is currently in BETA. Help us improve by giving us your feedback . Close alert: Interconnection: moving towards a strategically planned energy system Beatrice Filkin Director - Major Projects - Infrastructure Private Office Publication type: Blog Publication date: 15 April 2026 Topic: Electricity interconnectors, Offshore electricity transmission, Security of supply Print this page Share the page Share on Facebook Share on Twitter Share on LinkedIn Our national grid is connected to other countries with large cables under the sea which carry electricity. These interconnectors allow us to import lower-priced electricity and to export surpluses, helping to reduce system costs, improve energy security and enable decarbonisation. This blog post will explain how interconnectors are already supporting the grid as we move to clean power, and how developing our interconnection infrastructure will mean we can respond to electricity demand efficiently and keep costs as low as possible for consumers. How consumers are benefitting from interconnection As we begin to look ahead to the future role of interconnection within a more strategically coordinated energy system, it is a good moment to reflect on the benefits interconnectors are already providing today. Operational interconnector projects have been instrumental in minimising shocks to wholesale electricity prices in Great Britain (England, Scotland and Wales) and have returned over £200 million to consumers in recent years through our cap and floor regime. For each interconnection project, we set an upper limit on the revenue the developer can earn. This is known as the cap. When revenues are high, excess profits above the cap are returned to consumers, lowering network charges on consumer bills. We also set a minimum revenue level, known as the floor. If revenues fall below this level, top-up payments apply. This reduces risk for investors, helping to support much needed investment in new clean energy infrastructure. With a number of additional projects also in development, interconnection is playing an increasingly important role in Great Britain’s clean power transition. Strengthening flexibility, renewable access and security across the system Interconnectors form a significant part of the government’s Clean Power 2030 ambition, enabling Great Britain to draw energy from across neighbouring markets at times of reduced renewable domestic generation and providing a means to share surplus renewable energy generated in Great Britain. We currently have ten operational interconnectors, linking us with seven neighbouring markets through 10.3 gigawatts (GW) of capacity. These links play a crucial role in providing access to lower cost power, while also easing network constraints and helping to lower overall system costs for consumers. In the year to September 2025, interconnection enabled us to import around 43 terawatt hours (TWh) of electricity, around 13% of our total supply, reducing reliance on more expensive fossil fuel generation and supporting our renewable energy infrastructure. Over the same period, around 12 TWh of electricity was exported, supporting the efficient use of surplus renewable generation. This level of cross border trading is crucial to how our energy system balances supply and demand. Interconnectors also strengthen security of supply, offering network resilience during periods of high demand or unexpected system events, an increasingly important consideration as more renewable energy connects into Great Britain’s network. If we want to remove the influence international wholesale gas costs currently have on our electricity prices, interconnection will play a vital role in making sure renewable energy can meet demand. Alongside our operational projects, there is an additional 1.4 GW of new capacity now in construction, with a further approximate 8.9 GW in development following regulatory approval by Ofgem, demonstrating continued momentum in delivering a more connected, flexible and secure electricity system. Harnessing the power of offshore wind In Great Britain, offshore wind farms and interconnectors currently operate independently, and each connects to the shore separately. Offshore Hybrid Assets (OHAs) offer the potential for offshore wind and interconnection to work together as a combined asset. By 2030, Great Britain is expected to become a net exporter of energy with traditional point-to-point links continuing to play a role. In parallel, OHAs present a new opportunity to connect multiple markets through an integrated North Sea network, further increasing network resilience, grid flexibility and access to more affordable energy. To explore how OHAs could work in practice, we are running an OHA pilot scheme for non-standard interconnectors. Through our two pilot projects, LionLink and Nautilus, we can test how existing regulatory frameworks might need to adapt to support these more complex offshore configurations. As a result of its geographical position, Great Britain is one of the best places in the world for wind power. The relatively shallow waters of the North Sea mean it is already home to some of the world's biggest offshore wind farms. At the recent North Sea Summit in Hamburg, governments from across the North Sea region, including the United Kingdom and its European neighbours, reaffirmed a shared ambition for the North Sea to operate as an interconnected clean energy hub. OHAs will be central to making that vision a reality. Our role in shaping the future strategic approach Over the last year, we have been working alongside the Department for Energy Security and Net Zero (DESNZ) and the National Energy System Operator (NESO) to shape the enduring regulatory approach for future interconnection as we move towards a more strategically planned energy system. As part of this work, we have published a call for input on the future strategic approach to interconnection which invites feedback on a range of topic areas, including: the potential route to market for future projects the types of competition that could be enabled possible ways in which we can ensure projects remain investable how financing models might need to evolve to reflect new asset configurations The call for input was published alongside DESNZ’s next steps for electricity interconnection in Great Britain policy paper which sets out the government’s current position on the role interconnection. Over the coming months, we will continue to engage with the sector to test our thinking, gather evidence and build a framework that supports timely, efficient and strategically aligned interconnection for the decades ahead. Read and respond to our call for input: Future strategic approach to interconnection Print this page Share the page Share on Facebook Share on Twitter Share on LinkedIn Close