October 18, 2016 / 9:38 AM / 9 months ago

UK regulator cuts proposed earnings cap for Norway power link

3 Min Read

(Reuters) - British energy regulator Ofgem said on Tuesday it has revised down provisional upper and lower levels for National Grid's (NG.L) annual revenues from a planned electricity interconnector to Norway by around 30 percent, meaning British consumers were likely to benefit more than previously expected.

The revisions mean that National Grid's revenues from the cable operations under the cap and floor regime will be lower, while consumers were more likely to get a reduction in high voltage grid charges.

The North Sea Link (NSL), the world's longest subsea power cable, is expected to start delivering cheaper power from Norway, which generates more than 95 percent of its electricity from hydropower, to Britain by 2021.

Ofgem said it has revised the proposed floor, or minimum level of guaranteed annual revenues, to 53 million pounds, down from 75 million proposed in December 2014.

It also proposed to set the upper limit of allowed revenues at 94 million pounds, down from 140 million pounds.

Ofgem said in 2014 that the interconnector could deliver benefits to British consumers of around 3.5 billion pounds over 25 years, mainly due to wholesale price reduction.

"We don't have an updated figure on consumer benefits, however it is safe to say that the benefits will have increased from the 3.5 billion pounds," an Ofgem spokesman said in an email to Reuters.

Consumers were likely to benefit from reductions in electricity grid charges, ultimately meaning lower consumer bills, he added.

Under the scheme, excess revenue above the set cap is paid out to customers through reducing grid charges.

Lower floor levels mean consumers are less likely to have to subsidise returns for the developer, if revenues fall below the minimum level.

The changes apply to National Grid's 50 percent share of total cost and revenues of the project, while revenues of Statnett, Norway's power grid operator, are regulated by Norwegian rules.

Ofgem said the cap and floor levels for National Grid, Britain's grid operator, were changed because estimates for total capex were revised down by 13 percent to 604 million pounds from 697 million pounds last year, and were a third lower than the initial assessment of 900 million pounds.

The final cap and floor levels will be set once construction is finished, Ofgem said.

A spokesman for Statnett said Ofgem's decision didn't affect the Norwegian grid operator and it hasn't changed its cost estimates.

"We still estimate the costs to be in a range of 1.5-2 billion euros ($1.65 billion-$2.20 billion)(for the whole project)," he said.

Contracts totalling 1.5 billion euros have been already awarded to cable and converter station suppliers.

Reporting by Oleg Vukmanovic in Milan and Nerijus Adomaitis in Oslo; Editing by David Goodman and Adrian Croft

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