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Interconnectors set to return £200 million after high prices bust revenue cap

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National Grid’s interconnector business will return some £200 million to consumers in the next two financial years because it revenues from its interconnectors have exceed the cap agreed with Ofgem.
The IFA2 and Nemo interconnectors, with France and Belgium respectively, are among those built under a ‘cap and floor’ regime, in which consumers underwrite low revenues and are paid back if the revenue cap is exceeded.
The interconnector operator’s position is usually assessed against a five-year assessment period but ‘within period’ adjustments may be made under some circumstances. Now National Grid’s request to do so, on the grounds of “pre-empting a material cap and floor adjustment at the end of the five-year assessment period”, has been granted by Ofgem.
IFA2 saw revenues rise over its cap by £85 million in the period between January 2021 and March 2022 – following on from a £28.2 million revenue over the cap that Ofgem agreed in October could be returned to consumers. Ofgem also previously agreed a revenue reduction with regards to the Nemo link, which saw revenues of £116.9 million above the cap in the period 1 January 2022 to 31 December 2022.
Nine interconnectors totalling over 10GW have been developed or are being developed under the cap and floor regime.
National Grid’s first interconnector with France, IFA1, precedes the regime. Other interconnector developers such as ElecLink, also with France, have chosen a fully merchant framework.
In December Ofgem withdraw the cap and floor regime awarded in principle to NorthConnect, which plans a 1.4GW electricity interconnector between Norway and GB, in January 2018. Ofgemn said its decision was contingent on conditions including timely delivery of the project. It said, “With the project having encountered significant delays and with no realistic prospect of it being delivered in the coming years in the form assessed at the IPA stage. We consider it necessary to withdraw the cap and floor regime”.
NorthConnect has submitted an application to the Mult-Purpose Interconnector (MPI) Pilot scheme and Ofgem said it “look forward to discussing the application with them in due course”.