The NSN project is scheduled to begin operating in 2020 and would have a capacity of 1.4GW.
The decision follows Ofgem’s consultation on its proposals in December last year, where it analysed development costs, design specifications, and tendering arrangements to ensure these would deliver good value for money for customers.
National Grid said the decision on cap and floor prices was “an important step” to reaching a final investment decision on the project.
In a letter, the regulator’s electricity transmission partner Kersti Berge wrote: “We will consult on our detailed cost assessment at the final project assessment stage and our decision will be used to set a provisional cap and floor for NSN.”
Ofgem said the project will “bring benefits to UK consumers” by “reducing the wholesale price of electricity, improving the operation of the UK transmission system and increasing security of supply”.
The cap and floor regime was developed by regulator Ofgem to encourage investment in interconnector projects that deliver good value for customers.
In August, the National Grid partnered with Norway’s Statnett, Denmark’s Energinet.dk and French transmission operator RTE in developing plans for a total of 3.4GW in additional interconnector capacity.
Earlier this month, Ofgem said it was consulting on abandoning plans to offer financial support to the Greenlink power cable to Ireland through its ‘cap and floor’ support regime, saying it does not offer value for money. By contrast three interconnector projects, of which two link to France and a third connects the UK to Denmark, would provide around £8 billion of benefits to UK consumers, Ofgem said.
Britain’s electricity market currently has 4GW of interconnector capacity: 2GW to France (IFA); 1GW to the Netherlands (BritNed); 500MW to Northern Ireland (Moyle); 500MW to the Republic of Ireland (East West).