Decision on 2024-25 Interest During Construction rates for offshore transmission projects and cap and floor interconnectors and modification to inflation metrics
Summary
Ofgem sets 2024-25 Interest During Construction rates at 9.48% (pre-tax nominal) for offshore transmission projects and 5.38% (vanilla real-CPIH) for Window 3 interconnectors reaching Final Investment Decision this year. The regulator also switches from RPI to CPIH as the inflation index for calculating IDC rates. These rates compensate developers for borrowing costs during construction phases before assets enter operation.
Why it matters
The rate adjustment reflects current financing costs but the inflation metric change from RPI to CPIH reduces the real cost of capital for developers, as CPIH typically runs lower than RPI. This incremental benefit flows to offshore transmission and interconnector projects, potentially improving project economics at the margin.
Key facts
- •OFTO IDC rate: 9.48% pre-tax nominal for 2024-25 FIDs
- •Window 3 interconnector IDC rate: 5.38% vanilla real-CPIH for 2024-25 FIDs
- •Inflation metric changed from RPI to CPIH for IDC calculations
- •Applies to projects reaching Final Investment Decision during 2024-25
- •Five responses received to November 2023 consultation
Timeline
Areas affected
Related programmes
Memo
Decision on 2024-25 Interest During Construction rates for offshore transmission projects and cap and floor interconnectors and modification to inflation metrics | Ofgem Please enable JavaScript in your web browser to get the best experience. BETA This site is currently in BETA. Help us improve by giving us your feedback . Close alert: Decision on 2024-25 Interest During Construction rates for offshore transmission projects and cap and floor interconnectors and modification to inflation metrics Publication type: Decision Publication date: 28 March 2024 Topic: Offshore electricity transmission, Electricity interconnectors Decision for: Consultation on moving from RPI to CPIH as the inflation index for the Interest During Construction rate for projects under the Offshore Transmission Owner regime and Window 3 electricity interconnectors Print this page Related links Decision on 2023-24 Interest During Construction (IDC) rates for offshore transmission projects and cap and floor interconnectors Share the page Share on Facebook Share on Twitter Share on LinkedIn In November 2023, we published a consultation on proposed changes to the inflation index used to calculate the Interest During Construction (IDC) for offshore transmission (OFTO) projects and Window 3 cap and floor electricity interconnectors. We received five responses to the consultation. Following consideration of these responses, we have decided to proceed with these changes. This letter also sets out our decision on the IDC rates for offshore transmission projects and Window 3 cap and floor electricity interconnectors, to apply to projects which take a Final Investment Decision (FID) during 2024 to 2025. Following a public consultation process and a careful consideration of stakeholders’ views, we have decided the following: OFTO projects IDC – to confirm the IDC cap rate at 9.48% (pre-tax, nominal) for projects reaching FID during 2024 to 2025 Window 3 Interconnector IDC – to confirm the rate at 5.38% (vanilla, real-CPIH) for projects reaching FID during 2024 to 2025 Main document 2024-25 IDC Decision letter [PDF, 212.92KB] Print this page Related links Decision on 2023-24 Interest During Construction (IDC) rates for offshore transmission projects and cap and floor interconnectors Share the page Share on Facebook Share on Twitter Share on LinkedIn Close