Ofgem will open an application window in mid 2022 for new interconnectors between Great Britain and other power markets, which will be underwritten by consumers. The ‘interim’ window will be ‘locationally targeted’ and will favour interconnectors that are able to connect by 2030, who will be able to operate in a ‘cap and floor’ structure, where minimum return is guaranteed but profits are capped. They can also choose to take a ‘merchant’ approach.
GB currently has seven interconnectors that last year provided 7% of GB’s power. That includes some new interconnectors built under the cap and floor regime which – with other links under development or in construction – covers nine interconnectors totalling 10.9GW.The government wants more links, initially to reach 18GW of interconnection by 2030.
The regulator will simultaneously open a pilot cap and floor scheme in 2022 for so-called multi-purpose interconnectors (MPIs), which combine cross-border interconnection with another purpose, such as transmission for offshore generation. It said MPIs “could deliver significant benefits and are important for the delivery of policy objectives such as the delivery of 40GW of offshore wind by 2030. We therefore think it is important to ensure that there is a regulatory pathway to maintain momentum on the development of these assets.”
Longer term, Ofgem said it wants interconnector planning to be “integrated within more strategic network planning processes”, with outputs informing future investment and more cyclical investment rounds that give more predictability ahead of time for developers and create more opportunities for projects to come forward. It admitted that the price differentials currently driving interconnector development would narrow, and said in future “we can no longer automatically assume a direct correlation between price signals and consumer welfare.” It said it would be “increasingly important to critically assess future projects to ensure that they are beneficial, and we therefore envisage future windows being increasingly targeted in scope (location, timing, capacity) to achieve this.”