The expected increase of wind power production in the North and Baltic Seas will substantially increase the variability of the generation portfolio in Northern Europe. Access to available resources of flexible power production will be necessary to support the power system against this variability. Since the Nordic hydro-based power system can provide such resources, a stronger interconnection between continental Europe and the Nordic region seems to be beneficial. This paper assesses the challenges related to wind power production variability, especially offshore, in the North and Baltic Seas. Assessment on the transmission grid needed for both harvesting the available wind production located far away from load centres and to enable the optimal use of hydropower flexibility is studied in a long-term cost-benefit analysis. Special focus is devoted to the role of an offshore grid structure and the impact of onshore grid constraints. The analysis includes two interrelated simulation steps. The first step focuses on the strategic use of hydro energy in the day-ahead market, where detailed modelling of water courses and hydro production in the Nordic region is considered. Then, in a second step, flow-based simulations are conducted on a detailed grid model for the whole European system. The results show that long-term strategies for the expansion of offshore and onshore grids must be defined in a coordinated way to ensure optimal developments. Copyright © 2014 John Wiley & Sons, Ltd.