Ofgem reviews Greenlink final cost allowances

Ofgem has opened its post-construction review of the Greenlink electricity interconnector, beginning the process of setting final cap-and-floor levels for the Great Britain side of the project after commercial operation started on 29 January 2025.

The consultation, published on 18 September, revisits project costs that were not fixed at earlier regulatory stages and assesses whether expenditure arising during construction was incurred efficiently. Ofgem will use that work to determine the Post Construction Adjustment terms applied to the preliminary revenue cap and floor already established for Greenlink.

Greenlink is a high-voltage direct-current connection between Pembrokeshire in Wales and Great Island in County Wexford, Ireland. The project has a 500MW nominal capacity and uses approximately 190km of subsea and underground cable between converter stations on either side of the Irish Sea.

At the terminals, alternating-current electricity from each national transmission system is converted to direct current for transmission and then converted back to AC at the receiving end. The Welsh connection is at National Grid’s 400kV Pembroke substation, while the Irish side connects to EirGrid’s 220kV Great Island substation.

Commercial operation brought the project into the final stage of Ofgem’s cap-and-floor regulatory process. Greenlink was granted a cap-and-floor regime in principle in 2015, followed by a Final Project Assessment and preliminary financial levels before construction was completed.

The regime establishes a minimum regulated revenue floor and an upper cap rather than guaranteeing a fixed return. The project remains exposed to market revenues between those limits, with the regulatory mechanism defining how returns are treated when revenue moves outside them.

Actual project costs therefore feed directly into the final financial model. Capital expenditure assessed as efficient contributes to the regulated calculation, while expenditure judged inefficient may not receive the same treatment. The post-construction review compares delivery outcomes with the assumptions and allowances established before the asset entered operation.

Ofgem says it is revisiting elements of the cost assessment that were not fixed during earlier stages and evaluating the efficiency of Greenlink Interconnector Limited’s responses to events that materialised during construction. The resulting values will determine the Post Construction Adjustment terms used to modify the preliminary cap-and-floor levels.

The regulator is consulting on those adjustments alongside related changes to Greenlink’s interconnector licence and updated versions of the project’s cap-and-floor financial models and handbooks. Responses are due by 16 October, with a final Ofgem decision targeted for December.

The review follows a separate consultation by Ireland’s Commission for Regulation of Utilities on Greenlink’s post-construction position. The two regulators oversee the interconnector from their respective markets, while Ofgem’s assessment applies to the Great Britain side of the regulatory regime.

Greenlink’s operating value comes from controlled power transfer between neighbouring electricity markets. Differences in generation, demand and wholesale prices can create flows in either direction, subject to available capacity and the trading arrangements governing the interconnector.

Greater renewable penetration increases the value of that flexibility without guaranteeing that the link will always flow towards the same market. Wind conditions and demand patterns in Ireland and Great Britain do not move identically, so cross-border transmission provides another balancing route alongside domestic generation, storage and demand response.

The physical asset also concentrates a substantial amount of electrical equipment into two converter stations and a long cable route. Converter halls contain high-power semiconductor valves, transformers, filters, switchgear, cooling systems, protection and control equipment, while the subsea and underground circuits must operate reliably across approximately 190km.

HVDC is suited to long subsea transmission because it avoids the charging-current limitations associated with long high-voltage AC cable systems. Converter stations add cost and complexity at both ends, but they allow controllable bulk power transfer between the connected AC networks over the full cable route.

The post-construction review closes the regulatory loop between the infrastructure that was approved and the infrastructure that was actually delivered. Construction programmes can encounter inflation, supply-chain disruption, design changes and site conditions that shift expenditure from original forecasts, but the cap-and-floor model does not automatically pass every additional cost into the regulated allowance.

Ofgem must therefore separate efficiently incurred changes from expenditure that should remain with the project company. Its December decision will not determine whether Greenlink is built or energised — the interconnector is already operating — but it will establish the final regulated revenue boundaries applied to the completed asset.

The consultation leaves the physical operating role of the 500MW link unchanged while its financial treatment moves towards completion. Once the final Post Construction Adjustment terms are set, Greenlink will move from project-delivery assessment into the long-term cap-and-floor regime governing the interconnector through its remaining regulatory life.