Ofgem has issued proposals for a new approach to help more electricity interconnectors to be built between the UK and other nations.
Under the proposed “cap and floor” framework, developers would put forward proposals for interconnectors and build them while Ofgem would “assess, approve or reject individual plans” as well as regulate how much money a developer can earn from operating an interconnector.
If a project plan is successful, Ofgem will place a cap on the developer’s earnings and the amount above it would be returned to consumers. But if their revenue falls below the amount, then consumers would top it up to the confirmed level.
The level however would be specific to individual interconnectors and would be determined by assessing the costs of developing and operating the link.
Martin Crouch, Senior Partner – Transmission at Ofgem believes the current market-led approach has not encouraged sufficient investment in interconnection with neighbouring countries.
He added: “We are proposing a regulated framework that will deliver crucial energy infrastructure at a fair price for consumers. This sits alongside a range of reforms aimed at increasing energy resilience in Britain, including increasing charges for suppliers and generators when they fail to meet customers’ energy needs.”
Ofgem expects to start considering applications this autumn.
Earlier this month the regulator also announced reforms to strengthen incentives on generators and suppliers to ensure they generate or buy the right amount of power to meet customers’ needs.
When they fail to do so, National Grid incurs costs in taking action to meet demand and the generators or suppliers who cause the imbalance are charged for their errors.
Britain currently has four interconnectors, with a capacity of 4GW. A report published earlier this year suggested the UK could save up to £1 billion every year if it were to double its interconnector capacity by the end of the decade.