MULTI-PURPOSE OFFSHORE INTERCONNECTOR REGULATION

1. Introduction

Multi-Purpose Offshore Interconnectors (MPIs) are a modern form of electricity infrastructure designed to perform several functions through a single offshore network. Unlike a traditional interconnector, which primarily transfers electricity between two electricity systems, an MPI may simultaneously connect offshore renewable-energy generation, domestic electricity networks and neighbouring electricity markets.

For example, an offshore wind farm may be connected through the same subsea infrastructure to the electricity grid of Great Britain and to another European electricity market. Consequently, the same infrastructure can facilitate both renewable-energy transmission and cross-border electricity trading.

MPI regulation is therefore concerned with licensing, transmission, market access, revenue regulation, ownership, system operation, environmental protection and cross-border regulatory coordination.

2. Meaning of Multi-Purpose Offshore Interconnector

A Multi-Purpose Offshore Interconnector may be understood as an offshore electricity infrastructure system that combines:

Offshore renewable-energy connection;

Cross-border electricity interconnection;

Offshore transmission;

Subsea electricity cables;

Converter stations; and

Connections with different electricity markets.

The principal difference between an ordinary interconnector and an MPI is that an ordinary interconnector generally connects two electricity systems, whereas an MPI combines interconnection with the transmission of electricity generated by offshore renewable-energy projects.

Thus, an MPI is a hybrid infrastructure asset having both transmission and interconnection characteristics.

3. Need for Regulation

Traditional electricity legislation generally separates generation, transmission and interconnection activities. MPIs challenge this traditional classification because one physical infrastructure system can perform several legally different functions.

MPI regulation is therefore necessary to ensure:

licensing certainty;

investor confidence;

non-discriminatory access;

efficient electricity-market operation;

proper allocation of revenues and costs;

consumer protection;

independence of network operators;

environmental protection; and

coordination between different countries and regulators.

The Energy Act 2023 in the United Kingdom created a specific legal framework for the licensing and regulation of multi-purpose interconnectors.

4. Licensing of MPIs

Licensing is one of the most important aspects of MPI regulation. An MPI operator must possess the necessary regulatory authorisation before operating the infrastructure.

The UK Energy Act 2023 established a specific licensable activity concerning the operation of multi-purpose interconnectors. This provides greater legal certainty than attempting to regulate MPIs entirely through conventional interconnector or transmission licences.

The licensing framework may regulate:

construction and operation;

technical standards;

system access;

financial requirements;

ownership;

independence;

reporting obligations; and

compliance with regulatory directions.

5. Role of Ofgem

The Office of Gas and Electricity Markets (Ofgem) plays an important role in the regulation of MPIs in Great Britain.

Its regulatory functions include:

granting and supervising licences;

developing market arrangements;

regulating revenues;

protecting consumers;

monitoring compliance;

ensuring network independence;

coordinating with transmission system operators; and

developing arrangements for offshore hybrid assets.

Ofgem has recognised that MPIs require specialised regulatory treatment because they combine characteristics of conventional interconnectors and offshore transmission infrastructure.

6. Cap-and-Floor Revenue Regulation

Traditional electricity interconnectors in Great Britain have been regulated through the cap-and-floor model.

Under this system:

the floor provides a degree of revenue protection to investors;

the cap limits excessive revenues;

investment risk is shared between investors and consumers; and

the regulatory framework provides greater revenue certainty.

For MPIs, however, the conventional model may require modification because an MPI can obtain economic value from both interconnection and offshore renewable-energy transmission.

Therefore, MPI regulation must determine how revenues and risks are allocated between:

the MPI operator;

renewable generators;

electricity consumers; and

the wider electricity system.

7. Market Arrangements

Market design is a central issue in MPI regulation.

An MPI may connect an offshore wind farm with two or more electricity markets. Consequently, regulators must establish rules concerning:

electricity trading;

bidding zones;

transmission capacity;

congestion management;

balancing;

curtailment;

cross-border flows; and

allocation of market revenues.

The regulatory objective is to ensure that the MPI operates transparently and does not create discriminatory advantages for particular market participants.

Ofgem has developed an Offshore Bidding Zone model for the future regulation of MPI market arrangements.

8. Ownership and Independence

Independence is particularly important where an MPI operator has relationships with offshore generation or electricity suppliers.

If the same undertaking controls both generation and interconnection infrastructure, there may be a risk of discriminatory access or preferential treatment.

Therefore, MPI regulation may impose requirements relating to:

ownership;

operational independence;

certification;

information separation; and

non-discriminatory access.

The Energy Act 2023 contains provisions dealing with independence requirements applicable to MPI operators.

9. Cross-Border Regulation

MPIs create complex jurisdictional questions because their cables may cross different maritime zones and connect different national electricity systems.

Regulatory coordination may therefore be required between:

national energy regulators;

transmission system operators;

electricity-market operators;

environmental authorities;

national governments; and

neighbouring countries.

Cross-border coordination is necessary to determine:

Which regulator has jurisdiction;

Which market rules apply;

How congestion is managed;

How revenues are allocated;

Who is responsible for system balancing; and

How technical standards are harmonised.

10. Environmental Regulation

MPIs are major offshore infrastructure projects and may have significant environmental effects.

Environmental regulation can concern:

seabed disturbance;

marine ecosystems;

fisheries;

offshore construction;

cable routes;

coastal infrastructure;

marine spatial planning; and

cumulative environmental impacts.

Consequently, MPI development must comply with applicable environmental-impact assessment and marine-planning requirements.

11. Curtailment and Congestion

One of the principal regulatory challenges is curtailment.

If offshore wind generation exceeds the available transmission capacity, some electricity generation may have to be curtailed.

The regulatory framework must determine:

who bears the cost of curtailment;

whether compensation is payable;

how transmission capacity is allocated; and

how congestion revenues are treated.

This becomes particularly complex where an MPI simultaneously connects offshore generation and several electricity markets.

12. Relevant Case Laws

A. ACER v Aquind Ltd, Case C-46/21 P

The Aquind litigation concerned a proposed electricity interconnector between Great Britain and France and the regulatory treatment of an exemption application.

The case demonstrates the importance of specialised regulatory decision-making in relation to cross-border electricity infrastructure.

Relevance to MPI Regulation:
MPI operators similarly require regulatory approvals and may seek special regulatory treatment where their infrastructure does not fit easily within traditional electricity-market categories.

B. Baltic Cable AB v Energimarknadsinspektionen, Case C-454/18

The Baltic Cable case concerned the regulatory treatment of revenues associated with an electricity interconnector.

Relevance to MPI Regulation:
The case illustrates that interconnector revenues and congestion-related income can be subject to specific regulatory requirements rather than being treated as completely unrestricted commercial revenues.

This principle is important for MPIs because a single asset may generate revenue through several interconnected functions.

C. Aquind Ltd and Others v European Commission, Case T-295/20

The case concerned the regulatory treatment of the proposed Aquind electricity interconnector and issues surrounding its consideration within the EU framework for major energy infrastructure.

Relevance to MPI Regulation:
The case illustrates the importance of transparent and legally structured decision-making in the development of cross-border energy infrastructure.

D. Essent Netwerk Noord BV v Aluminium Delfzijl BV, Case C-206/06

This case concerned electricity-network charges and the application of European electricity-market principles.

Relevance to MPI Regulation:
It demonstrates the importance of ensuring that network-related financial arrangements comply with electricity-market rules and do not improperly distort competition.

E. Essent and Others, Joined Cases C-105/12 to C-107/12

These cases concerned the independence and ownership structure of energy network operators.

Relevance to MPI Regulation:
The principles concerning network independence and separation from generation or supply interests are relevant to MPI regulation because hybrid infrastructure may create conflicts between generation and network interests.

13. Major Regulatory Challenges

1. Legal Classification

The regulator must determine whether the MPI should be treated as an interconnector, transmission asset, offshore transmission infrastructure or a distinct hybrid asset.

2. Revenue Allocation

Rules are required to determine how revenue from interconnection, transmission and renewable-energy integration should be allocated.

3. Curtailment

The legal framework must determine responsibility for financial losses caused by limitations in transmission capacity.

4. Cross-Border Jurisdiction

Different countries may have different electricity, environmental and maritime laws.

5. Market Integration

The MPI must be integrated into electricity markets without creating discriminatory advantages.

6. Investment Risk

MPI projects require substantial investment. Regulation must therefore provide reasonable certainty while preventing excessive costs from being transferred to consumers.

14. Importance for Energy Transition

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

Instead of constructing completely separate infrastructure for:

Offshore Wind → National Grid

and

National Grid → Foreign Electricity Market

a multi-purpose system can combine these functions.

This can potentially:

improve offshore renewable integration;

increase cross-border electricity trading;

reduce duplication of infrastructure;

improve utilisation of offshore transmission assets;

strengthen electricity-system connectivity; and

support the development of offshore renewable-energy networks.

15. Conclusion

Multi-Purpose Offshore Interconnector Regulation represents an important development in modern energy law. MPIs combine offshore renewable-energy transmission with international electricity interconnection and therefore cannot always be regulated effectively through traditional legal categories.

The principal regulatory concerns include licensing, revenue regulation, market access, ownership and independence, congestion management, curtailment, environmental protection and cross-border coordination.

The United Kingdom's Energy Act 2023 provides an important statutory foundation for MPI regulation, while Ofgem has developed specialised regulatory and market arrangements for offshore hybrid assets.

The cases such as ACER v Aquind Ltd, Baltic Cable, Aquind v Commission, Essent Netwerk Noord and Essent provide useful legal principles concerning cross-border interconnection, regulatory decision-making, network revenues, market regulation and network independence.

Therefore, the future legal framework for MPIs must balance energy-transition objectives, investor certainty, competitive electricity markets, consumer protection and effective cross-border governance.