Cap and floor regime: Initial Project Assessment for the NSN interconnector to Norway

Publication date
17th December 2014
Closing date
3rd February 2015
Policy area
Status

Electricity interconnectors can offer significant benefits to existing and future consumers, but interconnection between GB and other markets remains limited. This is why we have put in place our cap and floor regime for new electricity interconnectors. We want to facilitate the delivery of more interconnection in a way that’s economic, efficient and timely.

We think developing the NSN interconnector under the cap and floor regime would be in the interests of existing and future consumers. We are therefore minded to award NSN a cap and floor regime in principle and subject to no material escalation in costs. We are now seeking views on this minded-to position.

About the NSN project

Our first cap and floor application window closed in September 2014. We received five eligible project applications. We have finished our Initial Project Assessment (IPA) of the NSN project, which is being developed by National Grid Interconnector Holdings Limited (NGIH) and Statnett. This interconnector would link the GB and Norwegian electricity systems via a subsea cable, allowing GB and Norway to trade power. At just over 700km, it would be the longest subsea interconnector in the world. It is scheduled to start operating in 2020 and would have a capacity of 1.4GW. Project costs and revenues would be split 50:50 between GB and Norway, so half of these would be covered by the GB cap and floor regime.

What our assessment shows

Our assessment suggests that NSN will bring benefits to GB consumers by reducing the wholesale price of electricity, improving the operation of the GB transmission system, and increasing security of supply. Under the Base case scenario that we have modelled, the interconnector would deliver benefits to GB consumers of around £3.5 billion over the 25-year cap and floor regime. The benefits to GB consumers remain positive even in the Low scenario (which represents a downside case for the value of the interconnector).

About this consultation

The IPA stage assesses the five projects’ impacts on GB consumers and GB welfare, including how the projects interact. As the most advanced project, NSN has been progressed ahead of other projects because we don’t want to delay its investment decision. We will consult on our IPA of the other four projects in early 2015.

This consultation document forms our impact assessment for the NSN project. Subject to consultation responses, we expect to publish our decision in March 2015.

We have also started our final project assessment (FPA) for the NSN project where information was provided as part of the September submission. The FPA is where we assess the efficiency of project costs, finalise the regulatory regime and set the provisional level of the cap and floor. NSN’s procurement process is ongoing and NGIH (the GB developer behind NSN) plans to submit its detailed cost information once this is complete. So far, our analysis covers development costs, technical design and tendering strategy and process.

Next steps

We will consult on our detailed cost assessment next year and our decision will be used to set a provisional cap and floor for NSN. When the project is near the end of construction (about 2019) we will finalise our cost assessment to take into account efficient expenditure needed to address risks arising and also to set the opex allowance.