Energy regulator Ofgem has set maximum and minimum revenues for the Viking Link project, a 1.4GW connection from Lincolnshire to Denmark that is expected to see £5.2 billion in consumer benefits over 25 years.
The Viking Link project is one of several new interconnectors that have been proposed to link Great Britain with neighbouring countries.
Akshay Kaul, Networks Director at Ofgem, commented on the project: “Interconnectors boost competition and increase security of supply by allowing us to import from a wider, deeper and cheaper pool of electricity available in neighbouring countries.
“Ofgem regulates interconnector revenues, making them attractive to investors while encouraging competition from a more diverse range of market participants.”
Work on the 765km long undersea cable linking Bicker Fen in Lincolnshire with Revsing in Denmark began in July.
In its cap and floor scheme, Ofgem sets the cap on the maximum revenue a developer can earn and a floor for the minimum.
If developers do not make enough from charges to use the link, their revenue will be ‘topped up’ to the floor level.
The top-up funds ultimately come from small increases to the high voltage grid charges consumers pay as part of bills.
Excess revenue above the cap is paid out to customers through small reductions in these charges.
Ofgem has published its Final Project Assessment for the Viking Link project, setting a provisional cap level of £111.5 million per year and floor level of £61.7 million per year.
These levels are lower than those in Ofgem’s initial assessment (which were a cap of approximately £115.2 million and floor of £66.5 million).
The decrease reflects a combination of our decisions on allowed costs and cost savings against the forecasts made by the developers.