Ofgem has made a final decision on a series of variations to the cap and floor regime requested by the developers of the Greenlink and NeuConnect interconnectors to Ireland and Germany.
The scheme allows interconnectors to receive top up payments from consumers if their revenues fall below an agreed floor. In return, they must hand back any revenues that exceed the accompanying cap.
To help them service their debts, the regulator has approved a request for consumers to continue making top up payments if the interconnectors fail to meet their 80 per cent minimum availability target. This money will be repaid to consumers in future years.
Ofgem also approved the developers’ request to settle payments on an annual basis rather than once every five years – again to help them service their debts – and to broaden the definition of force majeure to cover strikes, lockouts and other industrial disturbances. All three of these asks were given preliminary approval by the regulator in October 2019.
At the time, Ofgem denied their request to calculate their caps and floors based on their actual, rather than notional, cost of debt. However, the regulator has since changed its mind in response to feedback from lenders. Ofgem said this variation will transfer more risk to consumers, but it will seek to mitigate the effect.
In line with its minded-to decision, Ofgem has rejected their request to maintain the default 25-year contract length if projects are delayed for reasons beyond developers’ control or if a delay is in the interests of consumers.
By allowing more projects to go ahead or be completed sooner, Ofgem said the changes it has approved are expected to benefit consumers by between £569 million and £910 million. The regulator said ruling out the worst-case scenarios concerning the treatment of the cost of debt increases this range to between £717 million and £1,006 million.
Both the Greenlink (500MW) and NeuConnect (1.4GW) interconnectors are scheduled for completion in 2023.