Decision for the market arrangements regime for Multi-Purpose Interconnectors

What changed

Ofgem and the Government have decided that Multi-Purpose Interconnectors (MPIs) will operate under an Offshore Bidding Zone (OBZ) model with implicit trading, rather than a Home Market (HM) configuration. The decision, published on 13 March 2026, closes out the June 2023 consultation that drew twenty-two responses from offshore wind developers, transmission operators, system operators and trading parties. It is the first substantive market-arrangements call for MPIs, the asset class that combines cross-border interconnector capacity with offshore wind generation on the same connection.

Under OBZ, the offshore wind farm sits in its own price zone alongside the interconnector links to each shore. Power flows clear implicitly through the day-ahead market coupling algorithm, so the wind output is settled at the offshore zonal price and the interconnector capacity is allocated as the by-product of price differences between zones. The alternative HM model would have placed the wind farm inside the GB price zone and required explicit auctions for the interconnector legs. Ofgem and DESNZ judged that OBZ delivers higher market efficiency, fewer adverse flows against the price gradient, and better integration of offshore renewables. The decision does not yet resolve how OBZ interacts with the Contracts for Difference (CfD) regime, curtailment compensation, or balancing arrangements; those are flagged as open workstreams in the wider regulatory framework.

What this means in practice

For offshore wind developers planning MPI projects, the revenue stack now has a known shape but unknown numbers. The wind output will be paid the offshore zonal price, which will sit between the GB price and the connected continental price depending on flow direction. When the interconnector is exporting from GB, the offshore zone tends to clear near the higher continental price, lifting wind revenue. When GB is importing, the offshore zone clears near the lower continental price, depressing wind revenue. The variance of merchant revenue is therefore wider than for a conventional GB-connected offshore wind farm, and the distribution depends on the correlation between GB-continental spreads and wind output, which is not symmetrical.

The CfD interface is the live commercial question. A standard CfD pays the difference between the strike price and a reference price defined against the GB day-ahead market. An MPI wind farm sitting in an offshore zone does not capture the GB reference price. Without a redesigned CfD reference, the contract either over-pays the generator (when offshore prices are below GB) or under-pays (when offshore prices are above GB). Ofgem has acknowledged the issue but not resolved it. Developers bidding into future allocation rounds with MPI projects need either a bespoke reference price methodology or a clear position on whether they bear the basis risk. This is the single largest commercial unknown left by the decision.

Interconnector revenue under OBZ comes from the price difference between zones, captured through the implicit auction mechanism. This sits inside the cap-and-floor regime, which insulates merchant revenue between defined bounds. How the cap-and-floor calculation treats OBZ congestion rents, and whether the wind farm's curtailment when the interconnector is full counts as a system cost or a developer cost, are both still to be specified. Balancing and operability arrangements for the offshore zone also need building: who balances the offshore zone, what counts as a constraint action, and how curtailment instructions are priced.

Stakeholders flagged all of these issues in the consultation. The decision document acknowledges them and commits to further engagement rather than resolving them. That is the right sequencing if you read it as Ofgem and DESNZ locking down the high-level architecture before negotiating the parameters, but it leaves the cost stack incomplete for anyone trying to underwrite an MPI project today.

What happens next

The decision sets the template for future MPI projects, but the implementing detail comes through several parallel workstreams. The CfD reference price treatment for MPI wind is the most urgent: without it, MPI projects cannot bid sensibly into CfD allocation rounds. Expect a DESNZ consultation on this in 2026, with any changes needing to land before MPI projects enter the next AR cycle.

The cap-and-floor regime for MPI interconnector capacity will be developed under Ofgem's existing interconnector framework, with adjustments for the OBZ context. The Office for Offshore Coordination work on offshore network design will need to specify how MPI assets fit alongside conventional radial offshore wind connections and the offshore hybrid assets (OHAs) already in development. Cross-border arrangements depend on continued engagement with the European Commission under the 2025 UK-EU Common Understanding, since OBZ implicit trading requires market coupling with EU bidding zones. That is a political dependency, not a technical one.

Three near-term tests of whether the decision sticks: the first MPI project to commit to OBZ under a CfD; the first cap-and-floor application that prices OBZ basis risk; and the first balancing-arrangements consultation that allocates curtailment costs between the wind farm, the interconnector, and the system operator. Until those three are resolved, the decision is architecture rather than a working regime.