MULTI-PURPOSE OFFSHORE INTERCONNECTOR REGULATION

Introduction

A Multi-Purpose Interconnector (MPI) is an offshore electricity infrastructure asset that performs more than one function. Unlike a traditional point-to-point interconnector, which mainly transfers electricity between two electricity markets, an MPI can simultaneously connect offshore renewable generation, domestic transmission networks and neighbouring countries or electricity markets. Thus, it combines the functions of offshore transmission and cross-border interconnection.

The regulatory importance of MPIs has increased with the expansion of offshore wind and the development of integrated offshore electricity networks. In the United Kingdom, Ofgem has treated MPIs as a form of Offshore Hybrid Asset (OHA) and has developed a specific regulatory framework because conventional interconnector rules were not designed for assets combining generation connections with cross-border transmission.

Meaning and Features

A Multi-Purpose Offshore Interconnector generally contains:

Offshore renewable-energy connections, particularly offshore wind farms;

Subsea electricity cables connecting different jurisdictions;

Connections with national transmission systems;

Power-conversion and transmission equipment;

Cross-border electricity trading capability; and

Coordinated system operation involving different transmission and regulatory authorities.

The central feature is therefore multi-functionality. One physical infrastructure may carry electricity generated by an offshore wind farm to a domestic network while also enabling electricity flows between different national electricity markets.

Need for Regulation

MPIs create regulatory problems that are more complex than ordinary interconnectors. Traditional interconnectors are generally regulated as transmission assets connecting two markets. An MPI may simultaneously operate as:

an offshore transmission asset;

an interconnector;

a connection facility for renewable generation; and

an element of a wider integrated offshore grid.

Ofgem recognised that conventional point-to-point interconnector regulation was insufficient for these assets and therefore developed a separate framework for offshore hybrid assets.

The major regulatory issues include licensing, ownership, cost recovery, market access, transmission charging, congestion management, offshore-wind integration, cross-border allocation of costs, environmental approval and system operation.

UK Regulatory Framework

The UK provides an important example of MPI regulation. The Energy Act 2023 created a new licensable activity for Multi-Purpose Interconnectors. Operating an MPI without the appropriate licence is prohibited, and Ofgem was empowered to grant MPI licences.

Ofgem's earlier MPI Pilot Regulatory Framework was designed to establish eligibility requirements and a regulatory pathway for proposed projects. The framework addressed matters such as project selection and interaction with wider regulatory development.

The regulatory framework is intended to encourage investment while protecting consumers and maintaining electricity-system reliability.

Licensing Regulation

Licensing is fundamental because an MPI performs activities that may fall between conventional categories of electricity infrastructure.

A licensing regime can determine:

who may own and operate the asset;

technical and safety obligations;

access requirements;

information and reporting duties;

regulatory compliance;

market participation; and

enforcement mechanisms.

The Energy Act 2023 therefore represents an important legislative development because it expressly recognises MPIs as a distinct category of licensable electricity infrastructure.

Market Arrangements

MPIs create difficult questions regarding the electricity market in which generated electricity should be treated as entering.

For example, electricity produced by an offshore wind farm connected to an MPI may potentially:

flow into the domestic transmission system;

flow through the interconnector to another country; or

change direction according to market conditions.

Consequently, the regulatory system must establish rules for market coupling, balancing, congestion management, capacity allocation and cross-border trading.

Ofgem's 2023 consultation specifically addressed market arrangements for Offshore Hybrid Assets, including MPIs and Non-Standard Interconnectors.

Revenue and Cost Recovery

An MPI requires substantial investment in subsea cables, converters, offshore substations and associated infrastructure. Regulation must therefore determine how investment costs and operational risks are recovered.

Possible regulatory mechanisms include:

regulated revenue;

cap-and-floor arrangements;

market-based revenues;

connection charges;

cost-sharing arrangements; and

combinations of these mechanisms.

The appropriate model is particularly important because MPIs have a different risk profile from conventional interconnectors. Ofgem has recognised this distinction in developing its offshore-hybrid regulatory approach.

Cross-Border Regulatory Coordination

Because an MPI can connect two or more national electricity systems, regulation cannot be confined to one jurisdiction.

Coordination may be required between:

national energy regulators;

transmission system operators;

offshore wind developers;

governments;

environmental authorities; and

regional or international energy institutions.

Different rules concerning licensing, market access, transmission charging and environmental permissions can otherwise create regulatory conflicts.

Environmental and Planning Regulation

Offshore interconnectors also require consideration of:

marine spatial planning;

seabed use;

environmental impact assessment;

marine biodiversity;

fisheries;

navigation;

coastal infrastructure; and

protected marine areas.

The regulatory process must balance electricity-system development against environmental and other marine interests.

Important Case Laws

1. Aquind Ltd v Secretary of State for BEIS [2023] EWHC 98 (Admin)

This case concerned the proposed AQUIND Interconnector, a 2,000 MW subsea and underground electricity connection between southern England and Normandy in France. The project promoter challenged the UK Government's refusal to grant development consent.

The case demonstrates that major electricity interconnectors are subject to public-law requirements concerning planning, development consent and governmental decision-making.

Relevance to MPI regulation:
Although AQUIND was a conventional interconnector rather than a full MPI, the case illustrates the importance of planning consent, administrative decision-making and judicial review for cross-border electricity infrastructure.

2. Aquind Ltd and Others v ACER, Case T-735/18 (2020)

The EU General Court considered regulatory issues concerning an exemption request for a new electricity interconnector under the EU electricity-interconnection framework. The judgment concerned the powers and review of the Agency for the Cooperation of Energy Regulators (ACER).

Relevance:
The case demonstrates the importance of regulatory independence, statutory competence and appropriate regulatory procedures when determining special regulatory arrangements for interconnector infrastructure.

3. Aquind Ltd and Others v ACER, Case T-492/21 (2023)

The General Court subsequently considered the regulatory consequences of Brexit and the competence of EU regulatory institutions concerning the AQUIND interconnector. The Court addressed the interaction between EU energy law, the Withdrawal Agreement and the EU-UK Trade and Cooperation Agreement.

Relevance to MPIs:
This case is particularly useful for understanding how cross-border electricity infrastructure can create questions of jurisdiction, regulatory competence and applicable legal regimes.

4. Aquind Ltd and Others v European Commission, Case T-295/20 (2023)

This case concerned the proposed inclusion of AQUIND in the EU's list of projects of common interest. The General Court considered issues including the obligation to give reasons, good administration, equal treatment, legal certainty, legitimate expectations and proportionality.

Relevance:
MPI projects may similarly depend upon regulatory recognition and cross-border infrastructure status. The case illustrates the legal significance of transparent and reasoned administrative decision-making.

5. BritNed Development Ltd v ABB AB

The UK courts also considered litigation involving BritNed, a 1,000 MW submarine electricity interconnector connecting the Netherlands and the United Kingdom. The litigation arose from the European Commission's power-cable cartel decision.

Relevance:
The case demonstrates that the legal framework surrounding interconnectors extends beyond licensing and energy regulation to include competition law, procurement-related issues and infrastructure supply chains.

Regulatory Challenges

The principal challenges of MPI regulation are:

1. Asset classification:
Determining whether an MPI should be treated as an interconnector, transmission asset, generation connection or a hybrid asset.

2. Revenue uncertainty:
The asset may receive revenue from different functions, creating difficulty in designing an appropriate regulatory model.

3. Cross-border coordination:
Different countries may apply different licensing and market rules.

4. Congestion management:
Regulators must determine how limited transmission capacity is allocated between domestic renewable generation and international electricity trading.

5. Offshore wind integration:
Regulation must ensure that offshore wind generators receive appropriate grid access without undermining interconnector efficiency.

6. Consumer protection:
Regulatory arrangements must prevent excessive costs or inefficient risk allocation from being transferred to consumers.

7. Environmental protection:
Offshore construction must comply with marine environmental and planning requirements.

Importance for Future Energy Systems

MPIs can contribute to an integrated offshore electricity network by combining renewable-energy evacuation with cross-border electricity transmission. They may reduce the need for separate infrastructure where one coordinated asset can perform multiple functions.

Ofgem's policy work expressly identifies OHAs as a means of coordinating offshore wind and increasing interconnection with Great Britain.

Consequently, MPI regulation represents a movement away from single-purpose infrastructure regulation toward integrated and multi-functional energy-network governance.

Conclusion

Multi-Purpose Offshore Interconnector Regulation is an emerging field of energy law dealing with infrastructure that combines offshore renewable generation connections, electricity transmission and international interconnection. Its principal legal challenges concern licensing, market design, revenue regulation, cross-border coordination, environmental approval and allocation of risks.

The UK approach is significant because the Energy Act 2023 expressly created a licensable activity for MPIs, while Ofgem has developed an offshore-hybrid regulatory framework to accommodate their distinctive characteristics.

The Aquind and BritNed cases further demonstrate that interconnector projects operate within a broad legal environment involving administrative law, planning law, energy regulation, EU law and competition law. These principles provide an important legal foundation for the future regulation of multi-purpose offshore electricity networks.