Two interconnector operators may receive ‘floor’ payments even when they do not meet the minimum levels of availability, under changes in regime planned by Ofgem.
The regulator is minded to make changes in the interconnector ‘cap and floor’ regime that will make it more attractive for investors in two upcoming projects, Greenlink and Neuconnect, which are currently seeking finance. Greenlink will have a capacity of 500MW and link Wexford in Ireland and Wales, while Neuconnect will have a capacity of 1.4GW and will link GB directly with Germany. Both are due to go into operation in 2023. A third project, FABLink, is in discussions with Ofgem about similar changes.
The two developers have both asked Ofgem to make the projects more attractive for private financing. The regulator agrees that three changes will be beneficial. Instead of cancelling ‘floor’ payments for any year when the interconnector does not achieve the minimum 80% availability level, it will continue to make payments and claw back the payment over several years. The change is intended to make investor revenue flows more predictable and able to service debts. The regulator will also assess revenues on an annual basis (instead of five-yearly as planned) so investors can access payments due from customers more quickly.
Finally the developers want to expand the definition of ‘force majeure’, in which outages would not result in lost revenues.
Ofgem admits that the changes will shift risk towards consumers. But it says that risk is outweighed by reduced costs because developers will be able to access a broader pool of investors, will not have to use more expensive ‘on balance sheet’ finance and are less likely to see projects delayed.