Over $86 million to be split between UK and Belgium consumers as 1 GW subsea interconnector’s ‘remarkable’ revenues exceed Ofgem’s cap

An interconnector between Great Britain (GB) and Belgium, which is the first subsea electricity cable link to be regulated under the cap and floor regime set by the UK’s regulator Office of Gas and Electricity Markets (Ofgem) to spur further interconnector developments, will be giving back more than $43 million to consumers in each country.

Ofgem’s first end of period assessment (EPA) on the operation and financial standing at the end of the initial five-year assessment period has been disclosed for the Nemo Link interconnector, the UK regulator’s inaugural electricity interconnector to be regulated under the cap and floor regime, which has managed to incentivize four interconnectors to become operational, with two in the construction phase and a further two holding cap and floor regimes in principle.

After Nemo Link Limited (NLL), the company licensed to operate the Nemo Link interconnector was granted the cap and floor regime in December 2014, Ofgem subsequently set the cap and floor levels for the project in 2019, providing a minimum and maximum return that the interconnector developers can earn during the operational period of 25 years, with this return being evaluated every five years after the regime start date for the default regime.

Ofgem highlighted: “Having operated the interconnector through highly volatile energy prices, NLL have reported high operational availability and efficient commercial operations. This has resulted in cumulative above-cap revenues for the period between 2019 and 2023 of £185.0 million. Ofgem approved a request from NLL in 2022 for a Within Period Adjustment (WPA), which resulted in £58.5 million being returned to consumers in GB during the network charging cycle 1 April 2023 to 31 March 2024.

“Taking this into account, NLL’s current position results in an above-cap level of £68.0 million at the end of the first relevant assessment period 1 on 31 December 2023, which will be paid on a 50/50 basis to GB and Belgian consumers. The payment to GB consumers will begin from 1 April 2025.”

The project developers of the 1 GW Nemo Link electricity interconnector between Zeebrugge in Belgium and Richborough, Kent in Great Britain are National Grid Interconnector Holdings (NGIH) and Elia Transmission Belgium (Elia), the Belgian transmission system operator (TSO), with each owning 50% of the shares.

As a result, the revenue earned above the cap in any relevant assessment period is returned to the GB and Belgian system operators (SOs) on a 50/50 basis to reduce the network charges for users in their countries. If revenue falls below the floor in any relevant assessment period, then Nemo Link would be compensated by the SOs up to the floor level, who would recover costs through their respective network charges.

According to Nemo Link Limited, this is the first interconnector to reach what the firm has described as a “key milestone” for the cap and floor regime’s pilot project, achieving a cumulative five-year revenue of £185 million (around $235.2 million) above the cap – said to be a “remarkable” financial accomplishment for the interconnector project. With the capacity to power up to 1.7 million UK homes a year, the interconnector has facilitated the transport of about 29 TWh of power.

Furthermore, the company has explained that £117 million (close to $148.8 million) was returned to consumers in 2022, which has now been expanded by an additional £68 million ($86.5 million) being allocated to be shared equally between Belgian and British consumers. Nemo Link Limited claims that this achievement would not be possible without the availability rate of 97.78% over the first five years and the support of its customers.

Lisa Kettle, Nemo Link’s Operations Director, commented: “Ofgem’s recent report on Nemo Link’s end of period assessment is a testament to how carefully considered collaboration between the regulators and the developers of energy infrastructures can benefit the public, the environment and the economy. Our team are proud to be delivering clean, low cost electricity to households in the UK and Belgium.

“The Nemo Link interconnector has not only been developed and operated at zero cost to consumers but also has had a positive effect to the tune of £185 million to energy bills across both countries. As we enter the next 5-year period we strive to continue safe, reliable and efficient operations.”

The Nemo Link is believed to have saved over 1.4 million tonnes of carbon since its start-up, equal to taking 650,000 cars off the road. Many new interconnector projects are springing up across Europe, as a way to ramp up green electricity and decarbonization efforts to reach climate targets.

The £1.7 billion Viking Link, which started operating on December 29, 2023, is said to be the world’s largest interconnector and has a capacity of 1.4 GW and stretches for 475 miles under land and sea, joining the Bicker Fen substation in Lincolnshire, UK, with the Revsing substation in southern Jutland, Denmark.