Ofgem consults on consumer benefits case for new subsea link between GB and Norway
Press release
Publication date
Industry sector
Transmission Network
Related links
- New transmission cable from Norway to Britain to deliver up to 1.4GW additional power
- Project will link GB system to flexible and competitively priced Norwegian hydropower generation
- Benefits to GB consumers expected to exceed £3bn over 25 years
Ofgem has today launched a consultation on proposals to approve the case for awarding a cap and floor regulatory regime to the NSN interconnector project. The interconnector, which is expected to be operational in 2020, will link the GB and Norwegian electricity systems via a 700km subsea cable, allowing the two countries to trade power.
Ofgem’s consultation follows its assessment of the consumer benefits that the project is expected to deliver. These include more competition in the wholesale electricity market and lower wholesale prices, a more varied and secure supply of electricity, and increased access to renewable sources of energy at a lower cost. The benefits of the project are described in the initial project assessment, published today for consultation. Ofgem has already begun analysing development costs, design specifications and tendering arrangements to ensure that these deliver good value for consumers, and will consult on detailed cost assessments next year, before setting provisional cap and floor levels for NSN’s future revenues.
Dermot Nolan, Ofgem chief executive said: “Our goal is to encourage new investment in interconnectors that will make energy supplies more secure and increase competition in the market, to the ultimate benefit of households and businesses. Our consultation today sets out our analysis and evidence base and seeks views from all stakeholders. We expect to make a decision on the justification for the investment in March next year.”
Secretary of State, Ed Davey, said: “This is a crucial milestone in connecting Britain to Norway’s vast hydro resources. The interconnector would bring benefits to our energy security, providing enough green electricity to power up to four million homes and helping to lower consumer bills.”
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. 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.
3. Ofgem is currently undertaking the initial project assessment of a further four new interconnector projects following its decision to roll out the cap and floor regulatory regime to new interconnectors that could be completed by 2020. The first cap and floor application window closed in September 2014. 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 NSN are National Grid Interconnector Holdings Limited (a subsidiary of National Grid Plc) and Statnett (the system operator for Norway).
For further press information contact:
Dafydd Wyn: 020 3263 9943
Kate Wilcox: 020 7901 7113
Chris Lock: 020 7901 7225
Out of hours media contact number: 07766 511470