Your independent energy adviser
0800 051 5770

Ofgem Plans New Interconnectors

ofgem logoOfgem, the much maligned energy regulator and rarely the bearer of positive news, has announced plans to build new interconnectors between the UK and continental Europe with a view to cutting energy costs.

The proposed interconnectors with France, Norway, Denmark, Belgium and Ireland, if all went to plan, would be built by 2020 and the subsea power lines would see an influx of cheap energy to the UK.

The existence of such ‘super’ cables are not new, already four such cables, totalling 4GW capacity, exist between the UK, France, Holland, Northern Ireland and the Republic of Ireland. However, to date, their usage and their impact on the cost of energy is viewed by Ofgem as limited with the UK still using the majority of its power within its own borders whilst imports and exports are limited by comparison.

Ofgem’s planned investment for these 7 new interconnectors is expected to cost £6bn and deliver an additional 7.5GW of interconnected energy, enough to power 15m homes.

The forecast impact on energy bills is not small beer either, with one keen bidder for the right to install the cables, National Grid, claiming that merely doubling the current 4GW interconnected capacity would bring savings of £1bn a year to energy costs in the UK.

This is because, specifically with regards the potential interconnect with Norway, a new and valuable link would be created to exploit the cheap hydroelectric power on offer from there.

However as with seemingly all schemes associated with energy these days, subsidies are writ large in the small print.

The interconnector developers via a ‘cap and floor’ scheme will be guaranteed a minimum level of revenue to ensure viability of the project. This will then be ‘topped up’ by the market if required, or in other words the consumer. Ofgem however propose safeguards for excessive profit taking by requiring developers to repay revenues above a maximum allowable number.

Martin Crouch, Ofgem’s Senior Partner for Transmission said:

“These five new projects, if approved and then built, could provide real benefits to consumers. They can help to lower electricity supply prices, lower the cost of delivering security of supply and support the decarbonisation of energy supplies.”

Ed Davey, Secretary of State for Energy and Climate Change, added:

“This is superb news and shows that our plan is working. These interconnectors could have the capability to power up to 15 million homes and, along with those already assessed, bring £6bn of investment into the UK and allow vast amounts of energy to be moved between countries, driving down prices for all”.”

One note of caution in all this ‘good’ news however is that interconnectors inherently work both ways. Cheap(er) energy can potentially be imported more cost effectively than a ramp up in indigenous production but equally so can precious reserves be exported to premium markets placing additional pressures on the domestic energy price.

Indeed the existing interconnectors have not been without controversy in these matters as accusations of energy flowing out the UK impacting UK consumers have been frequently levelled.

A connected Europe may sound nirvana on paper but its impact needs to be carefully managed if Ofgem are to deliver on their promises – cheaper energy.