National Grid’s early payment of interconnector revenues to cut household bills

Ofgem has approved National Grid’s request to make early payments to consumers of £200 million over the next two years as part of the regulatory regime for electricity interconnections.

National Grid has offered to pay interconnector revenues ahead of schedule rather than at the end of the standard five-year review period to play its part in reducing household energy bills.

Ofgem’s cap and floor regime sets a yearly maximum (cap) and minimum (floor) level for the revenues that the interconnector licensees can earn over a 25-year period.

Usually, revenues generated by the interconnector are compared against the cap and floor levels over five-year periods. Top-up payments are made to the interconnector licensee if revenues are lower than the floor, and similarly, the licensee pays revenues in excess of the cap to consumers.

The approval enables National Grid to make payments of above cap revenues earlier than originally planned, which is set to contribute to reducing consumer energy costs over the next two years.

The two parties are now working to explore how to ensure the early payments can have the most impact for consumers.

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“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,” said John Pettigrew, National Grid CEO.

“That’s why we have requested this change to our standard regulatory process and are working with Ofgem to accelerate payments over the next two years to make a difference now.”

National Grid is investing more than £2 billion in interconnector capacity. By 2024, it will have almost 8 GW of capacity in operation, producing enough clean electricity to power around 8 million homes.

By 2030, it is estimated that National Grid’s interconnector portfolio will help the UK avoid around 100 million tonnes of carbon emissions that would otherwise have been generated by more carbon-intensive domestic generation.

The interconnector cap and floor regulatory regime covers a number of subsea cables operated by National Grid, including the Nemo Link to Belgium, opened in 2019, IFA2 connecting to France, launched in 2021, North Sea Link, also opened last year and connects to Norway, and Viking Link which will connect to Denmark when it opens in 2024.