Proposed Interest During Construction for Offshore Transmission for 2017/18 and proposal to extend annual methodology to Interconnectors granted the Cap and Floor Regime

Publication date
21st December 2016
Closing date
27th January 2017
Policy area

Developers of generator build offshore transmission assets, invest capital during the planning and construction phase with no return on this investment until the project is complete. In determining the final asset values that developers receive when the ownership of the assets is transferred to Offshore Transmission Owner we include the efficient cost of capital for construction through Interest During Construction (IDC). IDC is accrued on the actual cash flow when payments are made against the contracts for developing and constructing the transmission assets. We have determined that IDC should be allowed up to the point where the transmission assets are available for use for the transmission of electricity.

Similar conditions apply to Interconnector construction being developed through the Cap and Floor regime and we propose to move to annual updates of IDC for Interconnectors to align the two IDC calculations as set out in this note. This will be more efficient and give Interconnectors clarity as to what the IDC will be for a particular project in development. It is intended this process will apply only to projects yet to make Final Investment Decision.

This letter presents the capped rate of IDC Ofgem is minded-to apply to offshore transmission and interconnectors within the Cap & Floor regime for the 2017-18 financial year (April 2017 to March 2018) this being 6.83% OFTOs (pre-tax, nominal),and 5.10% Interconnectors (vanilla, real), which would be applied to all assets that reach final investment decision (FID) during that period. We would like to invite interested parties to respond to the position set out on this letter by 27 January 2017.