Business Energy Broker
Ofgem has approved the National Grid to make an early payment for interconnector revenues to assist in reducing energy bills over the next 2-years.
The Nation Grid has offered to pay £200 million ahead of its standards 5-year review period schedule for interconnector revenues. This payment will enable the operator to play their part in reducing energy bills for their consumers.
Early payment has been approved by the industry regulator, Ofgem, and will be made over the next 2-years as part of the regulatory regime for electricity interconnectors.
The previous standard 5-year review period originates from Ofgem’s cap and floor regime; this sets a yearly maximum (cap) and minimum (floor) for interconnector revenues made by licensees over a 25-year period. If interconnector revenues are lower than the floor, the licensee is provided with payment, and if revenues are higher than the cap, the licensee pays revenues in excess to consumers.
In standard conditions, interconnector revenues are compared against the cap and floor regime over 5-year periods. The Nation Grid will now make their excess cap revenues much earlier than planned with Ofgem’s approval. The early payment will contribute to reducing energy bills over the next 2-years.
Interconnectors enable links between energy networks in different countries to support safe, secure and affordable energy. Importantly, they can share excess low-carbon electricity to support net-zero goals and will be a critical tool for ensuring efficient, clean energy.
The NeuConnect is the latest interconnector in the UK’s portfolio, connecting the UK and Germany for the first time. By 2030, it is estimated that interconnectors will help the UK reduce 100 million tonnes of CO2 emissions.
National Gris CEO, John Pettigrew, commented:
“While National Grid’s impact on customer bills is relatively small, we strive every day to keep our costs as low as possible. Given how challenging the current rise in overall energy costs is for people across the country, we want to play our part in helping reduce consumer bills.”
Ofgem CEO, Jonathan Brearley, also commented:
“This early payment of £200m ensures consumers get value for money sooner from our regulatory framework.
We’re now working at pace to ensure this money is returned to the consumer in the fastest and most impactful way.”
Ofgem will work closely with the National Grid to ensure that the early payments will have the most effective impact on consumers. Additionally, Nation Grid will be investing over £2 billion in interconnector capacity to increase energy security and balance supply and demand. This investment will result in around 8 GW of capacity by 2024, enough for around 8 million homes.