The future of electricity interconnection in Great Britain: key legal and regulatory developments
Introduction
On 25 March 2026, the Department for Energy Security and Net Zero (“DESNZ”) and the Office of Gas and Electricity Markets (“Ofgem”) published two complementary documents that collectively represent the most significant proposed redesign of the electricity interconnection framework in Great Britain in over a decade. DESNZ published a policy paper entitled “Next Steps for Electricity Interconnection in Great Britain”, while Ofgem launched a Call for Input on the “Future Strategic Approach to Interconnection” (with a response deadline of 1 May 2026).
These publications signal a fundamental shift in policy direction: moving from a developer-led approach to interconnector planning and delivery towards a strategically-led model coordinated through the National Energy System Operator (“NESO”). This transition raises significant legal, regulatory and commercial questions for developers, investors, lenders and other stakeholders across the interconnection sector.
In this article we provide an overview of the key legal and regulatory issues arising from these publications, examining the proposed changes to the delivery and financing frameworks for interconnectors and Offshore Hybrid Assets (“OHAs”), and considering practical implications for industry participants arising from these.
Policy and Regulatory Context
Current Market Structure
Great Britain currently has ten operational electricity interconnectors connecting its grid to those of Norway, Denmark, the Netherlands, Belgium, France, the island of Ireland (with separate interconnectors having landfalls in Northern Ireland and the Republic of Ireland), with a combined capacity of 10.3GW. An additional 1.4GW of capacity to Germany is under construction, and a further 6.05GW of projects are in development following regulatory approval from Ofgem in 2024.
The existing interconnector fleet has been developed under two principal regulatory models: (1) the merchant route, where developers bear full market risk and rely solely on wholesale price arbitrage; and (2) the Cap and Floor regime introduced by Ofgem in 2014, which provides a regulated revenue framework balancing risk between developers and consumers. The Cap and Floor regime has been instrumental in unlocking investment, enabling 5.3GW of new interconnection capacity to enter development since its introduction - approximately 60% of today’s operational fleet - delivered within just six years.
The Rationale for Reform
As Great Britain’s energy system transitions towards a renewables-dominated generation mix, the strategic case for interconnection is evolving. Historically, interconnectors primarily facilitated electricity imports during periods of high demand. In the future, their value will increasingly derive from their two-way flexibility: enabling exports of surplus renewable generation to reduce curtailment, while also allowing imports during periods of unfavourable weather or high demand. This changing value proposition, coupled with the Government’s Clean Energy Superpower Mission and Net Zero objectives, has prompted a re-evaluation of the regulatory framework.
The Proposed Strategic Planning Framework
Central to the proposed reforms is the introduction of coordinated strategic planning through two new strategic plans:
- The Strategic Spatial Energy Plan (“SSEP”): NESO is developing this first-ever spatial energy plan for Great Britain, which will identify zones where interconnector development delivers the greatest whole-system value. The SSEP is expected to be published in Autumn 2027, following a draft consultation in early 2027. It will specify the optimal location, capacity, connecting country and commissioning timing for potential projects.
- The Centralised Strategic Network Plan (“CSNP”): Building on the SSEP, the CSNP will provide a detailed and coordinated network build plan, identifying asset type, location and delivery timescales for transmission assets. The CSNP is expected by the end of 2028. Notably, the CSNP will determine whether interconnection should be delivered as a conventional point-to-point link or as an OHA. OHAs combine interconnector infrastructure with offshore wind generation and take two forms: (i) Multi-Purpose Interconnectors (“MPIs”), where the connected offshore wind farm is in Great Britain's waters; and (ii) Non-Standard Interconnectors (“NSIs”), where the offshore wind farm is in the connecting country's waters. Two NSIs have already received initial regulatory approval from Ofgem and are proceeding as supported pipeline projects.
Under this new approach, NESO will determine the location, timing and capacity of new interconnection, rather than these parameters being developer-led.
This represents a fundamental change: developers will retain ownership, construction and financing responsibility, but the strategic parameters of projects will be centrally determined. The new framework will apply only to projects identified through strategic planning; projects that have already received regulatory approval will continue under their existing regimes.
This change also affects the planning process for interconnectors. The overarching energy national policy statement EN-1 (the “NPS”), designated on 6 January 2026 and which sets the planning policy for nationally significant infrastructure projects, now provides that where a project is assessed and justified through a CSNP, the Secretary of State will take the need for that project as having been established and not question the need for that project during the consenting process. The NPS provides that the Secretary of State should consider spatial plans in the assessment of projects, and this represents a change to the status of such plans in the planning framework.
Transitional Considerations
A practical concern arising from the proposed reforms is the potential regulatory gap during the transition period. The SSEP will not be published until Autumn 2027 and the CSNP until the end of 2028, while Ofgem does not intend to consult on the high-level regulatory framework for the delivery and financing of new interconnection until the second half of 2026.
For now, it appears that this means the three point-to-point interconnectors approved in Window 3 and the two NSIs already approved by Ofgem are the last until this new regime has been developed.
Competition Models
Ofgem’s Call for Input sets out a detailed analysis of potential delivery mechanisms for strategically planned interconnection, examining how projects should progress from identification in the CSNP to developer-led construction.
Competition Models
Ofgem has defined four types of competition based on the stage at which developers or investors are invited to bid: (i) very early (before a solution is defined); (ii) early (pre-detailed design); (iii) late (post-design and consents, but pre-construction); and (iv) very late (post-construction, pre-operation). Ofgem proposes to discount the very early model (as incompatible with CSNP alignment) and the very late model (as it would require public bodies to progress projects beyond their remit and would fundamentally alter the investor profile).
The choice of competition model has significant implications for risk allocation between public bodies and developers.
- Under an early competition model, developers would retain responsibility for detailed development work, including surveys, consenting and detailed network design.
- Under a late competition model, a public body would progress the project to a more advanced stage, having completed surveys, consenting and detailed design work. This would de-risk the development phase for developers, potentially broadening market participation, but would require public bodies to assume responsibilities outside their current remit.
The viability of the early competition model will be intrinsically linked to developer risk appetite (given the significant devex funding exposure that developers (and, indirectly, their investors) will be exposed to) – if this model is adopted, we anticipate that the majority of developments will need to be progressed by way of joint ventures in order to ensure that the devex funding exposure is shared. The increased uncertainty (i.e. in terms of the pathway to final investment decision (“FID”)) means that deep pockets are likely to be required from the outset of development.
The final allocation of development risk between public bodies and developers will be a key factor in project economics and financing structures, and has been important in the development of the various support regimes across the energy sector in recent years.
Routes to Market
Ofgem has identified three principal routes to market under consideration:
- Ad-Hoc: Developers would bring forward proposals at any point, assessed individually against CSNP-aligned criteria without side-by-side comparison. While this offers flexibility for projects as they arise, Ofgem notes that it may present challenges for ensuring fairness and optimal outcomes and wider alignment with strategic goals.
- Strategic Investment Window: Applications would be submitted within defined timeframes and evaluated together against predefined criteria, similar to the current Cap and Floor application windows but with criteria aligned to CSNP outputs. This approach enables direct comparison and competitive evaluation.
- Tender: A formal competitive tendering process would be linked directly to specific system needs identified through the CSNP, with developers bidding against predefined requirements and assessment criteria.
Ofgem acknowledges that while the high-level delivery framework should be inclusive of all asset classes, specific arrangements may need to be tailored depending on the characteristics of the asset type being delivered.
Revenue Models
Alongside the proposed changes to delivery mechanisms, Ofgem is reviewing the revenue models available for interconnection projects. The choice of revenue model has fundamental implications for project economics, cost of capital and risk allocation between developers and consumers.
Cap and Floor Model
Ofgem’s starting position is that the Cap and Floor model remains the most suitable revenue regime for point-to-point interconnectors. The model has a strong track record: since 2014, it has enabled 5.3GW of new interconnection capacity, attracted a broader pool of investors including infrastructure funds, and returned over £200 million to consumers through above-cap revenues, with no floor payments required to date. It is currently being rolled out for Long Duration Energy Storage.
The Cap and Floor regime operates by setting a minimum revenue level (floor), ensuring developers can recover the cost of their debt, and a maximum revenue level (cap), ensuring value for consumers by capping returns at the cost of equity. If revenue falls below the floor, consumers contribute the difference; if revenue exceeds the cap, the surplus is shared with consumers. Crucially, under this model there is no direct financial contribution from consumers unless the floor is triggered-a significant distinction from the RAB model discussed below.
However, Ofgem acknowledges several challenges with the current model. External pressures including supply chain constraints and increasing capital expenditure costs are affecting project delivery as has been seen with the decision to amend the Window 3 IPA Conditions. The model also does not currently provide for pre-operation revenues-developers receive no regulated returns during development or construction phases (also unlike in a RAB model).
This limitation may be particularly significant for OHA projects with higher capital investment and longer delivery lead times, where the inability to receive any revenue during construction can place significant pressure on project cashflows and debt service obligations. DESNZ, Ofgem and NESO are working to develop a dedicated policy and regulatory framework for MPIs, including consideration of a pilot scheme to reduce first-mover risk. The Government emphasises MPIs' potential benefits: reduced infrastructure duplication and onshore landing points (with associated cost and environmental benefits); increased asset utilisation by combining wind export with cross-border flows; and more efficient export of surplus Great Britain’s offshore wind than via separate radial connections and point-to-point links.
Ofgem has made adjustments to the Cap and Floor model to address specific risk profiles. For pilot Non-Standard Interconnectors, a Narrow Cap and Floor model was developed, reducing the gap between the cap and floor levels to provide additional risk protection given the higher uncertainties these projects face relative to conventional point-to-point interconnectors. Ofgem has noted this is not a precedent for the broader regime, but it illustrates the regulatory flexibility that may be needed to accommodate different asset profiles. Ofgem is seeking views on whether different asset types (P2Ps, NSIs, MPIs) should be financed using different models, and if so, what parameters would be appropriate for each.
Regulated Asset Base (RAB) Model
Ofgem is exploring the RAB model as an alternative revenue model approach, particularly for more complex asset types. The RAB model is another form of economic regulation typically used in Great Britain for monopoly infrastructure assets such as water, gas and electricity networks (and is now being used for largescale projects in the new nuclear and CCUS sectors). It is also used extensively across Europe-including in France, Germany and the Netherlands-as the revenue model for interconnection.
Under the RAB model, companies receive regulated payments from consumers (via levies on energy suppliers) to cover the costs of construction and operation. Unlike the Cap and Floor model, some iterations of RAB models (e.g. for onshore transmission and new nuclear in Great Britain) allow for consumer payments during the construction phase, and in some cases prior to planning being obtained. This avoids the accumulation of interest on loans and can significantly lower the cost of capital. One of the most attractive features of the RAB model (from an investor perspective) which applies with respect to the “European” point of connection for certain pre-construction interconnectors between the UK and Europe is the ability for certain costs incurred during the development phase to be “reimbursed” prior to the taking of FID, which allows for capital recycling during the development phase.
However, Ofgem notes that it is currently exploring the legal limitations on using a RAB model for interconnection in Great Britain, to discover whether the current legal framework would allow a RAB model to be used to finance future interconnections. There is also a significant policy distinction: under the RAB model, consumers bear more direct financial exposure than under the Cap and Floor model, transferring some risk from developers to consumers at an earlier stage.
Additional Financial Parameters
Ofgem’s consultation seeks views on three additional financial parameters that will shape the economics and risk profile of future projects:
- Pre-operation revenue: This is not currently available under the Cap and Floor model. Ofgem is exploring whether it has the legal power to provide such revenues, drawing parallels with the Nuclear RAB regime and European approaches where several countries (including France, Germany and the Netherlands) provide revenue during development and construction for large infrastructure projects. For projects with significant capital investment and long construction periods, pre-operation revenue can reduce overall financing costs by reducing the cost of capital.
- Availability incentives: Under the current Cap and Floor model, interconnectors must meet a minimum availability level of 80% to receive floor payments, with the cap adjustable (upwards) by up to 2% based on availability out-performance. The consultation is considering whether adjustments are needed given the move to strategically-led planning. For comparison, the Offshore Transmission Owner regime applies a 98% availability target linked directly to revenue. Availability targets have significant implications for operational risk allocation and revenue certainty.
- Performance incentives: As interconnection becomes more strategically driven, Ofgem notes that sharper performance incentives may be needed to ensure continued effective technical and commercial performance. The current Cap and Floor model has a built-in commercial performance incentive (developers are encouraged to exceed the floor). The traditional RAB model typically has more limited performance incentives (although in Great Britain, Ofgem has been seeking to tighten this up with penalties for late delivery and for poor operational performance). The design of performance incentives will affect operating risk allocation and are likely to influence operational and maintenance obligations in project contracts.
Cross-Border and European Regulatory Considerations
Interconnectors are, by definition, international assets requiring regulatory approval in both Great Britain and the connecting country. The cross-border dimension introduces significant legal and regulatory complexity.
European Regulatory Alignment
Ofgem’s consultation seeks views on how the future approach should align with European regulatory and financing frameworks to ensure regulatory clarity and timely delivery. Misalignment between the UK’s future approach and European frameworks could create challenges for project development, particularly where there is uncertainty as to whether a project can achieve regulatory approval in both jurisdictions on compatible terms and timelines. Developers and their finance parties will need to achieve comfort on cross-border regulatory coordination before committing significant capital.
Trading Arrangements and the Internal Electricity Market
Following Brexit, Great Britain no longer participates in the EU Internal Electricity Market (“IEM”). Under the IEM’s implicit trading arrangements (i.e. power and capacity are traded together), market algorithms simultaneously determine prices and interconnector flows, ensuring flows follow price differentials and maximise social welfare. Since leaving the IEM, Great Britain trades interconnector capacity and energy separately, which has led to periods of inefficient or sub-optimal flows (where electricity may flow from a higher-priced market to a lower-priced one) and under-utilisation of interconnector capacity.
The Trade and Cooperation Agreement commits the UK and EU to develop arrangements for efficient electricity trade over interconnectors. Exploratory talks were concluded in December 2025, and the Government is now working towards negotiations on the UK’s potential participation in the IEM. A successful outcome could reduce trading costs, enhance supply security and support the development of offshore hybrid assets and grids.
International Cooperation and the North Sea Summit
At the North Sea Summit in Hamburg in January 2026, the UK and neighbouring European countries committed to a shared ambition for 100GW of “cooperation projects” (including OHAs) by 2050. They reaffirmed their shared ambitions to transform the North Seas into the largest clean energy hub in the world, building in particular on offshore renewable energy generation and strong-interconnection, and set out different objectives to secure their ambitions.
The Summit Declarations and Joint Declarations of Intent signed with Germany, Belgium, Denmark and the Netherlands establish a framework for closer working on regional planning, cost and benefit sharing principles and financing frameworks. The UK also committed to coordinated steps to secure maritime space and protect the increasingly interconnected offshore energy infrastructure against threats.
Supply Chain Considerations
Both DESNZ policy paper and Ofgem’s Call for Input acknowledge significant challenges in the delivery environment for interconnector projects. Global tightness in the supply chain for High-Voltage Direct-Current system components is impacting pipeline projects, escalating procurement costs and extending construction timelines. Interconnectors involve long delivery periods from conception through regulatory approvals, environmental assessments and construction, and supply chain constraints have disrupted this process.
A particular concern is that projects are now being required to make substantial financial commitments earlier in their development process-often ahead of final regulatory approval and Final Investment Decision. This creates challenges for the business case and regulatory approval process, and affects the sequencing of project financing. The Government is exploring mitigation options, including measures to develop the domestic supply chain for interconnection. For finance parties, cost overrun risk, delivery timeline uncertainty and risk allocation as between the supply chain and developers are key concerns that may affect debt sizing, covenant structures and completion support arrangements.
Alongside the Call for Input on interconnection, Ofgem published a separate Call for Evidence on “Growing Great Britain’s electricity network supply chains” on 25 March 2026 (with a response deadline of 10 May 2026). That publication addresses supply chain resilience and domestic manufacturing capability across Great Britain’s electricity networks more broadly. While the proposed reporting requirements on domestic sourcing apply only to onshore transmission and distribution networks (and not to interconnectors), the publication confirms Ofgem’s position that network owners-including interconnectors approved under the Cap and Floor regime-may take account of supply chain resilience, sustainability and economic growth benefits when selecting suppliers, and that additional costs incurred in doing so can be considered efficient where supported by evidence of long-term consumer value.
Implications for Existing Mature Projects
While the publications signal a move towards strategic planning, the Government is continuing to support the delivery of mature projects already in the pipeline. Three point-to-point interconnectors were granted regulatory approval in principle through Ofgem’s Cap and Floor Window 3, and two NSIs received regulatory approval in principle through the OHA pilot, which ran alongside Window 3.
Importantly, the new strategic planning framework will apply only to projects identified through strategic planning. Projects that have already received regulatory approval will continue under the regimes through which they were approved-providing regulatory certainty for those assets. Securing regulatory approvals in both Great Britain and the connecting country can be challenging and lead to delays. The Government is engaging with Ofgem and partner countries to support a smooth path to regulatory approval for current projects.
Conclusion
The DESNZ policy paper and Ofgem’s Call for Input collectively represent a pivotal moment for the development of electricity interconnection in Great Britain.
If you are an interconnector developer, the proposed shift from a developer-led to a strategically-led model means that you will need to understand how (and indeed when) interconnectors and OHAs will be identified, delivered and financed in the future.
Those interested in developing interconnector projects will be exposed to heighted risk under the early competition model – it seems likely that capital constrained developers (and also infrastructure funds who have historically been willing to take early development phase exposure) will need to carefully weigh the risks of incurring development expenditure against the inherent possibility that a project may never reach FID (with this risk being even more accentuated where there is no ability to receive subsidy payments (e.g. under a regulated asset base model) during the pre-construction phase). Moreover, such developers may ultimately need to reassess their plans and instead pursue those projects that are open to tender.
Conversely, a late competition model will favour investors with a lower cost of capital who are willing to acquire ready to build projects. The late competition model will also largely eliminate the inherent risk that exists under the current interconnector model of development delays eroding the hold period for financial investors who hold interests in interconnector projects via closed-ended funds.
The details of the new framework remain to be determined and much will depend on the outputs of the SSEP and CSNP, the final form of the delivery and financing arrangements, and the evolution of cross-border cooperation with European partners.
As an interconnector developer, you may welcome the re-evaluation of the new framework, as this will enable better coordination of key transmission assets with offshore wind projects and the wider Great Britain’s grid, and provides comfort that Great Britain is actively looking develop funding mechanisms to support future projects. However, this shift also creates considerable uncertainty for the many projects which are already under development but have not received regulatory approval under Great Britain’s new strategic planning. The timeline associated with this re-evaluation (and its ultimate determination) and the identification of projects through the CSNP will not ease that uncertainty.
Stakeholders with an interest in the future of electricity interconnection should consider responding to Ofgem’s Call for Input before it closes on 1 May 2026. The decisions that flow from these parallel workstreams will define the regulatory framework for years to come and will directly affect the development and financing of current and prospective projects.
EXPECTED TIMELINES
1 May 2026: Deadline for responses to Ofgem’s Call for Input.
Second half of 2026: Ofgem consultation on high-level regulatory framework for delivery and financing.
Early 2027: NESO consultation on draft SSEP.
Autumn 2027: Publication of SSEP.
End of 2028: Publication of CSNP.
