From the Telegraph:
National Grid is to be guaranteed a minimum of £1.3bn income for building the world’s longest subsea power cable to import electricity from Norway.
Energy regulator Ofgem on Tuesday announced plans for consumers to guarantee the utility giant at least £53m annual revenues for 25 years in return for its 50pc investment in the £1.4bn North Sea Link interconnector.
The 450-mile cable from Blyth in Northumberland to Kvilldal in Norway is due to be built by 2021 andwill be the first electricity link between the two countries.
It will be able to import or export up to 1.4 gigawatts (GW) of electricity – enough to power about three quarters of a million UK homes.
Interconnector owners make their income by selling companies access to their cable to trade power.
However, Ofgem is keen to encourage investment in the cables and has introduced a “cap and floor” regime guaranteeing developers a minimum income, backed up by consumer subsidies if needed, while also limiting their total revenues.
Ofgem said the minimum £1.3bn revenue that National Grid would be guaranteed by consumers compared with estimated benefits to consumers of £3.5bn by accessing cheaper power from Norway.
The proposed cap has been set at £94m a year, or £2.3bn over the 25 year support regime. Beyond that, any revenues would be paid back to consumers.
The “cap and floor” guarantee covers revenues from selling of capacity and any payments received under the capacity market mechanism. Not included is revenue from actual electricity sold.
The cost of the arrangement is passed onto consumers, and is indexed to RPI.
Ofgem have based the guarantee on capacity utilisation of 93%, which therefore would yield 11.4 TWh annually. With a range of £53 to £94 million, this would yield a cost of £4.65 to £8.24 / MWh, on top of the electricity purchased from Norway.
It remains to be seen what price the latter will be.
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