Qualitative Summary Table 6 shows that the results of the qualitative commercial models assessment. The MNSP scenario (Base Case 1) generates the greatest risk transfer and utilisation, though this comes at the expense of funding suitability, whereas the dual regulated scenario (Alternative Case 3) offers the greatest suitability for funding, though this comes at the expense of risk transfer and utilisation of the second interconnector. Table 6: Qualitative Score Summary Criteria Importance Base Case 1 Base Case 2 Alt. Case 1 Alt. Case 2 Alt. Case 3 Hybrid Case 1 Hybrid Case 2 Both MNSP’s Both MNSP’s – Commercial Restrictions on 2IC Basslink MNSP, 2IC Regulated Basslink Regulated, 2IC MNSP Both Regulated Partially MNSP Partially Regulated Risk Transfer High Operational Utilisation Medium Energy Security Medium Suitability for Funding Low Financing Costs Medium Market Appetite High Score 10 8 12 7 12 8 14 Weighted Score 23 19 24 24 24 16 29 The Hybrid Case 2 model ranks highest as it takes the best parts of the regulated model (a minimum transmission charge to support funding), whilst transferring some MNSP revenue risk exposure to incentivise asset utilisation and enable higher investor returns. The ability of this model to generate further returns (over and above the transmission charge) provides an additional benefit of incentivising asset owners to ensure the link is utilised, as they are able to share a portion of the arbitrage revenues that they otherwise wouldn’t in a traditional regulated model.
Should an MNSP commercial model with a capacity charge be the preferred choice, a Build Own Operate Transfer (“BOOT”) delivery model should deliver an optimal outcome BOOT transfers majority of construction, maintenance, operations and ownership to the private sector. Bidders would compete on what their minimum Capacity Charge is to deliver and operate the asset over the project life Maintains strong incentives for the asset owner to ensure the asset is available and maintain and maintain and operate the asset to reduce transmission losses. Much like the commercial model analysis, procurement decisions cannot be considered in isolation. Ideal procurement outcomes are a derivative of both the government’s goals and objectives of the second interconnector. This analysis also highlights the importance of the level of the need to consider the implication of the one vs. two ownership structure may also have on the procurement and long term viability of two interconnectors.
The cap is the maximum amount of revenue for an electricity interconnector. Should an interconnector’s revenue exceed the cap, the interconnector then transfer’s excess revenues back to the system operator, which is used to reduce transmission charges. The cap on revenues provides benefits in return for their exposure in managing the floor price. For the interconnectors, it supports an investment route to underpin viability. Figure 4: NEMO Link Project: European Cap and Floor Interconnectors The cap and floor model is designed to encourage greater investment into electricity interconnectors as they are structured to strike a balance between commercial incentives and risk mitigation to enable predictable revenue streams to support development.