Consumers may now see more benefits from the development of 1.4GW interconnector between the UK and Norway, after Ofgem confirmed it expects construction costs for the project to be lower than its initial estimations.
The regulator proposed lower levels for the range of revenues developers will be able to generate from the link.
The 450-mile interconnector, which is being developed by National Grid and Norway's Statnett, is anticipated to come online by 2021.
The project is being backed by a cap and floor regime for new interconnectors whereby Ofgem sets a maximum revenue developers can earn from a project as well as a minimum revenue floor.
Developers revenue will be topped up to the floor level if they don’t make enough from charges to use the link.
For the NSL electricity interconnector between Northumberland and Norway, Ofgem is proposing a provisional cap level of £94m per year and floor level of £53m a year.
Initially, Ofgem’s assessment of revenue for the interconnector stood at £140m and £75m per year. Cap on revenue has been revised because of the decrease in the projected construction costs by National Grid and Statnett.
According to Ofgem, the cap and floor scheme encourages developers to decrease their cost wherever and whenever possible, which in itself is a commercial behaviour.
It also noted that consumers are more likely to receive small reductions in high voltage grid charges and are less likely to subsidise returns for the developer, if revenues are below the floor level.
Ofgem chief executive Dermot Nolan said: “Greater interconnection is good for GB security of supply as we can import from a wider, deeper and cheaper pool of electricity available in neighbouring countries.
“Ofgem’s cap and floor regime, which regulates interconnector revenues, is one of the reasons why so many new projects are being proposed, as it encourages this investment. More interconnection also enables access to wider market areas and diverse market participants, which is good for competition.”
Image: Ofgem revises revenues for the GB-Norway interconnector project. Photo: Courtesy of antpkr/FreeDigitalPhotos.net.