Ofgem publishes consultation on new GB Interconnector regime

Ofgem, the regulator of GB energy market, and CREG, the Belgian electricity regulator, have published a joint consultation on new regime for regulating future investments in electricity interconnectors. This consultation proposes a ‘cap and floor’ regime for the upcoming NEMO interconnector project between GB and Belgium. The ’cap and floor’ regime will allow the regulators to set a cap on returns from interconnector operations and any excess will be returned to consumers (via future investments). The regime will also support the interconnector owner with supplementary funds if the revenues fall below the floor.

In Europe, it is usual that the interconnectors are developed by the national transmission company and complies to European Union (EU) legislation on third-party access, congestion management and use of revenues (Article 16(6) of Electricity Regulation). In summary, the interconnectors are regulated. Elia, the Belgian transmission operator and the partner in NEMO project, has been delivering all required interconnection as regulated assets and recovering the cost from transmission tariffs agreed with CERG. However, there is a provision for applying an exemption from Article 16(6). In a recent times, BritNed successfully applied for exemption but in return, the European Commission (EC) imposed certain conditions including a cap on BritNed’s returns.

In GB, the interconnectors have been developed mostly as a merchant interconnector and no regulated returns are expected. It exposes the investors to full upside and downside of their investments. Additionally, the level of uncertainty surrounding the EC exemption process and the likely conditions that may be imposed can scare the investors away.

Project NEMO is a planned 1000 MW HVDC electricity interconnector between Zeebrugge (Belgium) and Richborough in Kent (Great Britain). The interconnector is being jointly developed by National Grid International Limited (NGIL) and Elia. The two partners have also expressed interests in proposed new regulatory regime for interconnectors. The NEMO interconnector is expected to be operational in 2016-2018.

Ofgem is also consulting to extend this ‘cap and floor’ regime to other subsea interconnector projects in Great Britain and make this as an enduring regime. The current subsea electricity interconnectors in GB are IFA (with France), Moyle (with Northern Ireland) and BritNed (with Netherlands).

Read the full text of Ofgem-CREG joint consultation at Ofgem’s website.

Why not check the map of subsea HVDC interconnectors in Europe?