Ofgem consults on the review of interest during construction for interconnectors and offshore electricity transmission
On 24 May 2013, Ofgem issued a consultation on the proposed scope and review of a review of interest during construction (IDC) for the offshore transmission and interconnector regulatory regime.
IDC is the allowance for the cost of financing the development and construction of electricity transmission assets. An allowance, in the form of an explicit or implicit rate, is provided for IDC by Ofgem in all three electricity transmission regulatory regimes: offshore transmission, regulated electricity interconnectors and onshore transmission.
Under the offshore transmission regime, for generator build projects, offshore generators are responsible for the development and construction of the transmission assets connecting the generator to the onshore transmission network. These transmission assets are then transferred to an Offshore Transmission Owner (OFTO) selected through a competitive tender exercise to operate those assets. Ofgem determines the transfer value that is paid by the OFTO to the offshore generators based on Ofgem's assessment of the costs of the completed offshore transmission assets that ought to have been economically and efficiently incurred. A component of the determined transfer value is IDC. Ofgem is now reviewing its approach for calculating and setting IDC for generator build projects.
Ofgem is developing a new regulatory regime, the cap and floor regime, for electricity interconnector investment for application to project NEMO, the proposed interconnector between GB and Belgium. This regime is being developed with Belgian regulator, CREG, and will be initially applied on NEMO. As with the offshore transmission regime, under the proposed regime designed for NEMO, Ofgem and CREG will allow NEMO to recover economic and efficiently incurred capital expenditure. It is envisaged this will be done following an ex-post cost assessment with an allowance in the form of an explicit rate for IDC provided. In the NEMO consultation, Ofgem proposed that IDC would cease to be payable when the cap and floor commences, i.e. the link is operational.
The deadline for the response is 21 June 2013. Ofgem hopes to issue a consultation on its minded to position, with a view to reaching a decision on the treatment of IDC in offshore transmission and for NEMO by the end of 2013.
For more information please click here.