Northern Ireland sets out first policy framework for electricity interconnection

The Department for the Economy has published its first interconnection policy statement (13 pages/147KB PDF), establishing the principles that will guide decisions on future electricity interconnection projects linking Northern Ireland with neighbouring markets. The policy is intended to support the development of a secure, affordable and decarbonised electricity system, while ensuring that the costs, benefits and risks of new projects are allocated fairly.

The policy comes against a backdrop of increasing focus on energy security, decarbonisation and system resilience. It will sit alongside ongoing work by the Utility Regulator on the financing and regulatory arrangements for future interconnector projects, as well as recent modelling on the costs and benefits of additional interconnection and energy storage.

Matthew McMurray, energy law expert at Pinsent Masons, said: “As part of an islanded electricity system, Northern Ireland has a particular interest in ensuring that policy and regulation support the development of strategic interconnection infrastructure.”

Unlike Great Britain and the Republic of Ireland, Northern Ireland has not previously had a dedicated interconnection policy. The new statement sets out to fill this policy gap and provide a clear framework against which projects will be assessed.

The framework is built around three core principles: evidence-based whole-system assessment and long-term resilience; cross-jurisdictional cooperation; and positive consumer outcomes through the fair allocation of costs, benefits and risks.

The policy is expected to be particularly relevant to interconnector developers, financiers and generators operating in Northern Ireland.

For prospective developers, projects will be required to demonstrate that they can deliver long-term benefits for consumers and the wider electricity system, in addition to the usual commercial considerations.

Catherine Burns, construction expert at Pinsent Masons, said: “To demonstrate clear benefits for consumers and the wider electricity system, developers will need to invest more in the early stages of any proposed project and will be expected to engage with key stakeholders early and often.”

“Cross-jurisdictional co-operation is also important, with the recent designation of the North-South Interconnector project as a ‘critical infrastructure’ project in the Republic of Ireland a further positive signal of a stronger strategic commitment to cross-border energy infrastructure across the island,” she said.

Alongside publication of the policy statement, attention is now turning to how future interconnector projects will be financed and regulated. The Utility Regulator is considering a number of possible revenue and financing models for future developments.

The options include a ‘cap and floor’ model, similar to that used by Ofgem in Great Britain, which seeks to balance developer revenue certainty with consumer protection by limiting both downside risk and excessive returns. Other models under consideration include a regulated asset base (RAB) approach, which is already used to support network infrastructure and would allow developers to earn a regulated return overseen by the Utility Regulator.

Alternative proposals include a mutualised model, under which consumers bear development risk but also benefit from project returns, and a fully merchant approach, where developers assume both the commercial risks and potential rewards associated with a project.