Ofgem approves National Grid's early payment of interconnector revenues

4C Offshore | Tom Russell
By: 13/05/2022 National Grid

National Grid has offered to pay £200m of interconnector revenues ahead of schedule rather than at the end of the standard five-year review period to play its part in reducing household energy bills.

Ofgem has approved National Grid’s request to make early payments to consumers of £200 million over the next two years as part of the regulatory regime for electricity interconnectors.

Ofgem’s cap and floor regime sets a yearly maximum (cap) and minimum (floor) level for the revenues that the interconnector licensees can earn over a 25-year period. Usually, revenues generated by the interconnector are compared against the cap and floor levels over five-year periods. Top-up payments are made to the interconnector licensee if revenues are lower than the floor; and similarly, the licensee pays revenues in excess of the cap to consumers.

Ofgem’s approval enables National Grid to make payments of above cap revenues earlier than originally planned, which is expected to contribute to reducing consumer energy costs over the next two years. National Grid stated that it is now working with Ofgem to explore how to ensure the early payments can have the most impact for consumers.

National Grid is investing more than £2 billion in interconnector capacity. By 2024, it aims to have almost 8 GW of capacity in operation, which is expected to provide enough electricity to power around 8 million homes.

John Pettigrew, National Grid CEO, said: “While National Grid’s impact on customer bills is relatively small, we strive every day to keep our costs as low as possible. Given how challenging the current rise in overall energy costs is for people across the country, we want to play our part in helping reduce consumer bills.

“That’s why we have requested this change to our standard regulatory process and are working with Ofgem to accelerate payments over the next two years to make a difference now.”

Jonathan Brearley, Ofgem CEO, said: “This early payment of £200m ensures consumers get value for money sooner from our regulatory framework.

“Our regulatory approach for interconnectors not only protects the interests of consumers, but it also promotes new investment in affordable, modern energy infrastructure."

He added: “We’re now working at pace to ensure this money is returned to the consumer in the fastest and most impactful way.”

The interconnector cap and floor regulatory regime covers a number of undersea cables operated by National Grid, including two to France (
IFA and IFA2), one to the Netherlands (BritNed) and one to Belgium (Nemo Link). It also covers a link to Norway (North Sea Link) and a project linking the UK to Denmark (Viking Link, expected to be operational 2024).

For more information on interconnector projects worldwide, click here