WIREDGOV

• New transmission cable from Belgium to Britain to deliver 1GW additional power 
• Greater efficiencies in wholesale energy markets from increased competition and trade
• Increased security of supply at efficient cost to consumers

Ofgem today announced its final decision on the financing and regulatory regime for Project Nemo, an interconnector which, on completion in 2019, will bring an additional 1 gigawatt (GW) electricity capacity to Great Britain. The final decision on proceeding with the project is now with the developers. The total cost of the project is expected to be £0.5 billion. Nemo will run between Zeebrugge in Belgium and Richborough in Kent and will allow energy trades and flows between the two markets, increasing access to energy generation and making energy supplies more secure and resilient for consumers.

Nemo is expected to be the first interconnector built under the cap and floor regime, which has been developed by Ofgem in partnership with the Belgian energy regulator, CREG. The goal of the cap and floor regime is to encourage new investment in interconnector projects that will deliver good value for consumers.     

For Project Nemo, the annual revenue floor has been set at £50.4m over the 25 year duration of the regime; and the annual revenue cap at £80m. These levels reflect Ofgem’s view of efficient construction costs and return on capital. They will be adjusted following a final assessment of costs post-construction.

Dermot Nolan, Ofgem chief executive said: “Today’s announcement is good news for consumers. Our cap and floor regime has already attracted interest from other potential projects, and looks set to be an effective gateway to new investment that will make energy supplies more secure and increase competition in the market, to the ultimate benefit of households and businesses.”

Secretary of State, Ed Davey, said: “This is a major landmark in our ambition to greatly increase interconnection with our neighbours, to improve our energy security and lower bills. By linking us to Belgium, Project Nemo will enable enough electricity to flow between our countries to power up to three million homes. The new cap and floor regime will unlock billions of pounds of investment in interconnectors, and I expect more projects to come forward next year.”

Notes to editors

1. Interconnectors are transmission cables that allow electricity to flow from one country to another. Interconnector operators make money through capacity auctions, selling energy on the market with the highest price. Electricity interconnection has many benefits for consumers. It can help drive wholesale competition and more efficient prices by creating larger markets. It can also make energy supplies more secure by increasing access to more sources of generation. Finally, it has the potential to replace fossil fuel-based generation with renewable energy sources. For more information on interconnectors, see Ofgem factsheet.

2. Under the cap and floor approach, if developers’ revenues exceed the cap, then revenue above the cap is returned to consumers. If their revenues fall below the floor then consumers top up revenues to the level of the floor. Consumer gains and costs are passed on through the network costs element of their energy bills, and, for Nemo, will be evenly split between Belgium and Britain. Developers are protected by the revenue floor from the full financial risks of the project, while consumers are protected by the revenue cap from underwriting excessive profits. Projects are only awarded a cap and floor where there are clear benefits to trade and consumers. For Nemo, the risk of consumers having to pay for top ups is low.

3. Ofgem is currently undertaking the initial project assessment of a further five new interconnector projects following its decision to roll out the cap and floor regulatory regime to new interconnectors that could be completed by 2020. If approved, the new interconnectors would connect Great Britain’s electricity network to Norway and Denmark and provide additional connections to France and Ireland, improving security of supply. See press release of 16 October 2014. 

4. The developers for Nemo are National Grid Nemo Link Ltd (a subsidiary of National Grid Plc, the system operator for Great Britain) and Elia (the system operator for Belgium). Today’s decision finalises a number of areas of the Nemo cap and floor regime following extensive consultation.

For further press information contact:

Dafydd Wyn:   020 3263 9943
Kate Wilcox:   020 7901 7113
Chris Lock:     020 7901 7225

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