Chapter VIII - Cap and Floor Regime: The New Approach to Electricity Interconnector Regulation in Great Britain

Summary

INTRODUCTION

Over recent years a new regime has been developed in Great Britain (GB) to encourage investors to bring forward and build costly and technically complex subsea electricity interconnectors as well as to increase insufficient interconnection levels with the neighboring European Union (EU) and European Economic Area (EEA) Member States.

This chapter contains an analysis of this new interconnector regime, called both colloquially and formally the ‘cap and floor regime’. It focuses on the historic context of this regime, its principles and design, and the assessment of applicant projects under it as well as the applicable legal framework.

The chapter also describes the opportunities and challenges for the cap and floor regime projects at the GB and EU level. It looks into the potential effect of this regime on GB and the wider European interconnector landscape.

POLICY AND REGULATORY BACKGROUND

POLITICAL SUPPORT AT THE NATIONAL AND EU LEVEL

The cap and floor regime has been developed in quite a favorable political climate. Both the UK Government (the ‘Government’) and the European Commission (the ‘Commission’) recognize the importance of developing crossborder electricity interconnection and support it.

The Government sent a clear message of support for building new electricity interconnectors in its December 2013 statement. It expressed its belief in further interconnection being beneficial for GB, GB's consumers and GB's European partners. The Government also pointed to the potential contribution that further interconnection can make to the three pillars of the GB's energy policy: affordability, security and decarbonization. In this statement, the Government also identified potential benefits that further interconnection can provide, like improved security of supply (by giving access to generation beyond national borders), lower energy bills and enhanced integration of intermittent sources of energy.

At the EU level, the goal of increased interconnection has been long encouraged and is now expressly included in one of the five dimensions of the Energy Union strategy, namely that of the fully integrated internal energy market. This aim is further reinforced in the Commission's recent Energy Union Package. In the Interconnection Communication forming part of this Package, the Commission sets a target of the minimum 10 per cent interconnectivity level by 2020, both at the EU and the Member State level.