MULTI-PURPOSE INTERCONNECTORS AND OFFSHORE REGULATION

Detailed Explanation with Case Laws

1. Introduction

Multi-Purpose Interconnectors (MPIs) are advanced offshore electricity infrastructure systems designed to perform multiple functions within a single network. A conventional interconnector generally links the electricity grids of two countries, whereas an MPI can connect offshore renewable-energy generation, domestic electricity networks and foreign electricity markets simultaneously.

MPIs are particularly important for the development of offshore wind energy because they can combine offshore transmission and cross-border electricity interconnection. This integrated model can reduce duplication of infrastructure and improve the utilisation of offshore transmission assets.

The Energy Act 2023 introduced a specific statutory framework for Multi-Purpose Interconnectors in the United Kingdom by making the operation of an MPI a licensable activity under the Electricity Act 1989.

2. Meaning of Multi-Purpose Interconnectors

A Multi-Purpose Interconnector may be defined as an offshore electricity infrastructure system which performs both transmission and interconnection functions.

An MPI may connect:

Offshore wind farms;

Offshore substations;

The electricity grid of one country;

The electricity grid of another country; and

Multiple electricity markets.

Thus, an MPI combines the functions of offshore transmission and international electricity interconnection.

3. Difference Between Conventional Interconnectors and MPIs

A conventional interconnector primarily transfers electricity between two electricity systems. An MPI, however, can simultaneously transmit electricity generated by offshore renewable projects and facilitate cross-border electricity trading.

The principal differences are:

Conventional interconnectors generally connect two electricity markets.

MPIs can connect multiple markets and offshore generation.

Conventional transmission infrastructure may require separate connections for offshore wind.

MPIs can integrate offshore generation and cross-border transmission.

MPIs therefore require more complex licensing and market arrangements.

4. Need for Offshore Regulation

Offshore electricity infrastructure involves several overlapping areas of law. These include:

Electricity licensing;

Transmission regulation;

Interconnector regulation;

Offshore renewable-energy regulation;

Marine spatial planning;

Environmental protection;

Seabed rights;

Cross-border electricity trading;

Grid connection;

Market coupling;

Ownership unbundling; and

Consumer and network protection.

Therefore, effective MPI regulation requires cooperation between governments, electricity regulators, transmission system operators, offshore developers and neighbouring countries.

5. UK Legal Framework

The United Kingdom provides an important example of MPI regulation.

The Energy Act 2023 amended the Electricity Act 1989 and created a specific regulatory framework for Multi-Purpose Interconnectors. Operation of an MPI became a licensable activity.

The purpose of this framework is to ensure that hybrid offshore infrastructure is properly regulated while maintaining appropriate separation between generation, transmission and interconnection activities.

The UK approach demonstrates that conventional electricity legislation may require modification when new infrastructure performs several regulatory functions simultaneously.

6. Role of Ofgem

Ofgem is the principal economic regulator for electricity and gas markets in Great Britain.

In relation to MPIs, Ofgem has considered issues such as:

Licensing;

Revenue regulation;

Market arrangements;

Offshore bidding zones;

Congestion management;

Curtailment;

Balancing;

Cross-border electricity flows;

Transmission access; and

Investment incentives.

The regulatory challenge is to create arrangements that allow investors to recover efficient infrastructure costs while ensuring that consumers and electricity markets are appropriately protected.

7. Market Regulation of MPIs

MPIs can create electricity flows between offshore renewable generation and several electricity markets.

For example:

Offshore Wind Farm → MPI → British Grid

or

Offshore Wind Farm → MPI → Foreign Electricity Market

Electricity may also potentially flow in the opposite direction depending upon market conditions and network arrangements.

Consequently, regulators must establish rules concerning:

Allocation of transmission capacity;

Congestion management;

Electricity pricing;

Bidding zones;

Balancing responsibility;

Curtailment;

Cross-border capacity allocation; and

Treatment of offshore renewable generation.

These issues demonstrate that MPI regulation is not merely an engineering matter but also an important component of electricity-market law.

8. Ownership Unbundling

Ownership unbundling is an important principle in electricity regulation.

Where the same corporate group is involved in generation, transmission and interconnection, there may be concerns about discriminatory access or preferential treatment.

Therefore, regulatory rules may require appropriate separation between:

Generation;

Transmission;

Interconnection; and

Electricity supply activities.

The objective is to maintain fair competition and non-discriminatory access to electricity networks.

9. Environmental and Marine Regulation

MPI projects require extensive offshore construction and therefore may affect the marine environment.

Important legal considerations include:

Marine biodiversity;

Fisheries;

Navigation;

Seabed occupation;

Offshore construction;

Submarine cables;

Environmental impact assessment;

Marine spatial planning; and

Onshore landing infrastructure.

An integrated MPI network may reduce duplication of offshore infrastructure and potentially reduce the number of separate cable routes and onshore connection points.

10. Case Law: Aquind Ltd v ACER, Case C-46/21 P

The Aquind litigation is an important European interconnector case.

Aquind concerned a proposed electricity interconnector between Great Britain and France. The project sought exemption from certain European electricity-market requirements.

ACER refused the exemption, particularly because the necessary investment-risk conditions were not considered satisfied. The matter ultimately reached the Court of Justice of the European Union.

The case illustrates the importance of regulatory scrutiny of requests for exceptional treatment of electricity interconnectors.

Legal Principle

The case demonstrates that regulatory decisions concerning complex electricity infrastructure and exemption requests remain subject to legal review.

Relevance to MPIs

The Aquind case is relevant to MPIs because hybrid offshore infrastructure may raise similar questions concerning:

Regulatory exemptions;

Investment risk;

Congestion revenues;

Third-party access; and

Application of electricity-market rules.

11. Case: Greenlink Interconnector

The Greenlink Interconnector provides another useful regulatory example.

Ofgem considered ownership-unbundling requirements applicable to Greenlink Interconnector Limited under the Electricity Act 1989.

The regulatory consideration demonstrates the importance of ensuring independence and appropriate ownership arrangements for electricity interconnection infrastructure.

Relevance to MPIs

Because MPIs combine generation-related and interconnection functions, ownership and control arrangements become particularly significant. The Greenlink example therefore provides useful guidance for understanding how regulatory authorities approach cross-border electricity infrastructure.

12. Case: NeuConnect Britain Limited

Ofgem also considered ownership-unbundling requirements in relation to NeuConnect Britain Limited.

The case concerned the regulatory separation applicable to an electricity interconnector and the relationship between transmission activities and generation, production and supply undertakings.

Legal Significance

The decision demonstrates the practical importance of ownership-unbundling principles in modern electricity infrastructure.

Relevance to MPIs

The same principles become especially important where offshore generation and interconnection infrastructure are integrated into one system.

13. Major Regulatory Challenges

A. Cross-Border Jurisdiction

An MPI may operate across the territorial jurisdictions of several countries. Determining which regulator has authority over particular aspects of the project can therefore be difficult.

B. Revenue Regulation

Regulators must determine how the costs and revenues of an MPI should be allocated between offshore generation, transmission and interconnection functions.

C. Curtailment

When offshore wind generation exceeds available transmission capacity, electricity generation may have to be curtailed. Rules must determine responsibility for such curtailment and compensation.

D. Market Coupling

Different countries may have different electricity-market structures, bidding zones and balancing mechanisms. MPIs therefore require coordinated market rules.

E. Ownership and Control

The integration of generation and transmission functions creates potential conflicts of interest. Effective unbundling and regulatory supervision are therefore essential.

F. Environmental Protection

Offshore cables and substations may affect marine ecosystems, fisheries and navigation. Environmental regulation must therefore be integrated into the MPI approval process.

14. Importance for Energy Transition

MPIs can contribute to the development of integrated offshore electricity networks.

Their potential benefits include:

Integration of offshore wind energy;

Increased cross-border electricity trading;

Better utilisation of transmission infrastructure;

Reduction of duplicated infrastructure;

Improved system flexibility;

Greater regional electricity integration; and

Support for renewable-energy development.

Therefore, MPIs represent an important development in the transition from traditional electricity networks toward interconnected offshore energy systems.

15. Conclusion

Multi-Purpose Interconnectors represent a significant development in modern offshore electricity regulation. Unlike conventional interconnectors, they can combine offshore renewable-energy transmission with cross-border electricity interconnection.

Their hybrid nature creates complex legal issues relating to licensing, ownership, market design, revenue regulation, environmental protection, grid access and cross-border jurisdiction.

The UK Energy Act 2023 represents an important legislative response by establishing a specific legal framework for MPIs. The Aquind litigation demonstrates the importance of regulatory scrutiny of electricity interconnectors, while the Greenlink and NeuConnect regulatory decisions illustrate the continuing importance of ownership-unbundling principles.

In conclusion, effective regulation of Multi-Purpose Interconnectors requires an integrated legal framework combining electricity law, offshore energy regulation, environmental law, market regulation and cross-border regulatory cooperation. Such a framework can facilitate offshore renewable-energy development while maintaining transparency, competition, network security and regulatory accountability.