Ofgem introduces new framework to encourage new electricity interconnectors
23 May 2014 12:36 PM
- Regulated framework will
encourage new interconnectors to be built
- Greater interconnection
will improve Britain’s security of energy
supply
- Ofgem’s robust
assessment process will ensure any new interconnector provides value for
consumers
- New framework
complements Ofgem’s electricity balancing reforms to support security of
supply
Ofgem has today published
proposals for a new regulated approach to help more electricity interconnectors
to be built.
Electricity interconnectors are
cables that allow electricity to flow from one country to another. They enable
countries to import power at times of shortage and export when in surplus. They
can help to lower electricity supply prices and cut the cost of delivering
security of supply. Britain already has four interconnectors, with a capacity
of 4GW, but more interconnection is needed.
Under Ofgem’s proposed
‘cap and floor’ framework, developers will identify, propose and
build interconnectors. Ofgem’s role is to assess, approve or reject
individual plans and regulate how much money a developer can earn from
operating an interconnector. Ofgem’s rigorous assessment process will
evaluate consumer benefits to help ensure that only projects that are in
consumers’ interests are approved.
If an interconnector plan is
successful Ofgem will place a cap on the revenue the developer can earn.
Anything above this cap is returned to consumers. Conversely, if their revenue
falls below the floor then consumers top up developers’ revenue to the
level of the floor. The level of the cap and floor will be specific to
individual interconnectors and be determined by assessment of the efficient
costs of developing and operating the interconnector. We expect to start
considering applications in the autumn.
Martin Crouch, Senior
Partner, Transmission, said: “The current market-led
approach has not encouraged sufficient investment in interconnection with our
neighbouring countries. We are proposing a regulated framework that will
deliver crucial energy infrastructure at a fair price for consumers. This sits
alongside a range of reforms aimed at increasing energy resilience in Britain,
including increasing charges for suppliers and generators when they fail to
meet customers’ energy needs.”
Ofgem has also announced reforms
to strengthen incentives on generators and suppliers to ensure they generate or
buy the right amount of power to meet customers’ needs. When they fail to
do so, National Grid incurs costs in taking action to meet demand, and the
generators or suppliers who cause the imbalance are charged for their errors.
Ofgem has reviewed these charges – known as ‘cash-out’
– so that they better reflect the costs that National Grid incurs in
dealing with these imbalances. Our reforms mean that generators and suppliers
will face stronger incentives to deliver security of supply. Our reforms will
support the efficient flow of energy through interconnectors, in particular
incentivising in-flows during times of system stress.
-Ends-
1. Cap and floor framework and
Electricity Balancing Significant Code Review
You can read the full cap and floor
consultation on our website.
We published our decision on reforms to balancing
arrangements on 15 May 2014
2. About
Ofgem
Ofgem is the Office of the Gas
and Electricity Markets, which supports the Gas and Electricity Markets
Authority, the regulator of the gas and electricity industries in Great
Britain. The Authority's functions are set out mainly in the Gas Act 1986,
the Electricity Act 1989, the Competition Act 1998 and the Utilities Act 2000.
In this note, the functions of the Authority under all the relevant Acts are,
for simplicity, described as the functions of Ofgem.
For further press
information contact:
Dafydd Wyn: 020 3263
9943
Chris Lock: 0207 901 7225
Out of hours media contact
number: 07766 511470