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The government will not subsidise the development of interconnectors, the Energy and Climate Change Committee (ECCC) was told on Tuesday.
Energy minister Matthew Hancock told MPs that the government would not fund any interconnectors and that they would have to be commercially funded.
He told the committee: “Building interconnectors needs to be paid for so needs to be a decent commercial proposition for those going to pay for them because we don’t propose to pay for them from the Department of Energy and Climate Change.”
Hancock added: “I don’t think at this stage it is necessary to publically subsidise interconnection.
“There is a clear revenue stream to make them a viable commercial proposition.”
Interconnectors will provide a return when there is a price differential between the interlinked markets, and energy flows across the link, with the interconnector operator being paid for doing so.
The energy minister accepted that developing interconnectors would create “planning and logistical challenges” for the UK’s transmission system, but said “they come with the same impacts on transmission as a new power station built offshore – very similar to offshore wind.”
He also acknowledged that interconnectors could be “negative power station” and export energy “if we can afford to send it” but stated that this was a positive because it was an export and an income opportunity for the UK.
Hancock dismissed the notion that the potential for interconnectors to export energy out of the UK was a threat to energy security, calling them “the first best response to a tightening [margin]”.
He also stated that greater interconnection would also have “a positive price impact by making the market more liquid”.
The ECCC also heard from the energy minister that the RIIO price control for electricity and gas distributors was “more dynamic” and passed on the benefits to consumers better than the previous RPI minus X regime.
However, Hancock added that there were “more advantages to be unlocked” in this system to ensure that the distribution companies passed on cost efficiencies and benefits to consumers more effectively.
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