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GB–Norway interconnector will deliver more benefits to consumers

Consumers are likely to see greater benefits from the development of the 1.4GW NSL electricity interconnector between Northumberland and Norway after Ofgem proposed lower levels for the range in revenues that the developers of the link can earn.

The NSL project is one of seven new interconnectors that have been proposed to link GB with neighbouring countries. They will make an important contribution to security of supply and will take GB interconnector capacity to over 11GW (including the four existing links).

Dermot Nolan, Ofgem Chief Executive, said: “Greater interconnection is good for GB security of supply as we can import from a wider, deeper and cheaper pool of electricity available in neighbouring countries. Ofgem’s cap and floor regime, which regulates interconnector revenues, is one of the reasons why so many new projects are being proposed, as it encourages this investment. More interconnection also enables access to wider market areas and diverse market participants, which is good for competition.”

In its cap and floor scheme, Ofgem sets the cap on the maximum revenue a developer can make and a floor for the minimum. If developers don’t make enough from charges to use the link, their revenue will be ‘topped up’ to the floor level. The top-up funds ultimately come from small increases to the high voltage grid charges consumers pay as part of bills. Excess revenue above the cap is paid out to customers through small reductions in these charges.

Yesterday Ofgem published its final assessment for the NSL link and is proposing a provisional cap level of £94 million per year and floor level of £53 million per year. These levels are lower than those in Ofgem’s initial assessment (which were a cap of approximately £140 million and floor of £75 million). This is because the developers have cut the construction costs for the link. Developers have a strong incentive to do this as the cap and floor regime encourages commercial behaviour, including reducing costs where possible.

Lowering the cap and floor levels means it is more likely that consumers will receive small reductions in high voltage grid charges and less likely that they will have to subsidise returns for the developer if revenues are below the floor level.

Notes to editors

  1. The NSL link is still to be built so the final cap and floor levels will only be determined once Ofgem has completed a post-construction assessment. This will check how efficiently the developers have managed changes to the construction costs. 
  2. See our infographic on energy security of supply for details of existing and proposed interconnectors.
  3. See more information about interconnectors and the cap and floor regime.

About Ofgem

Ofgem is the independent energy regulator for Great Britain. Its priority is to make a positive difference for consumers by promoting competition in the energy markets and regulating networks.

For facts, figures and information about Ofgem’s work, see Energy facts and figuresor visit the Ofgem Data Portal

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Further information

For further press information contact:

Chris Lock 020 7901 7225

Joseph Moss 0207 901 7178

Out of hours 07766 511470

 

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