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RTE international - An interview with Simon Ludlam

Recorded by RTE international – 12 June 2023

Introduction to Simon Ludlam Simon Ludlam founded Etchea Energy in 2006. Since its creation Etchea Energy has provided a range of roles in the financial and energy sectors, most recently providing the senior management teams to a variety of interconnectors including MaresConnect and ElecLink and undertaking project director role for Greenlink. Simon advises a number of other offshore transmission projects as well as companies developing technologies to drive net zero and increase power transmission efficiency. Previously, Simon worked in private equity where he originated and subsequently developed energy and infrastructure projects including ElecLink, the interconnector through the Channel Tunnel. Simon spent 14 years in investment banking working in London, Paris and New York with responsibility for business origination at Lehman Brothers’ European Energy Group. Simon has broad experience in originating investment opportunities, M&A, debt and equity financing for energy companies and private equity funds and running development companies.


Morning Simon. Could you introduce yourself as well as Etchea Energy? Good morning, I’m the CEO of Etchea Energy, an advisory firm specializing in the energy sector particularly in interconnection. Our team consists of seven professionals, working from our offices in London and Dublin. We believe in a hands-on approach from our senior management in our projects, often taking a direct financial interest in the developments we facilitate. This aligns our interests with those of our investors. MaresConnect is a prime example of our approach. Within the interconnector sector, Etchea Energy has managed and is currently facilitating projects with a combined capital value of €4 billion.


Great. Could you give us some insight about MaresConnect? MaresConnect is our second HVDC interconnector between Ireland and Wales, with a capacity of 750MW. The team has recently come off the 500MW Greenlink interconnector, which is now in construction. MaresConnect is being financed by Foresight Energy Infrastructure Partners, a large European-based fund focused on the transition to net zero. We anticipate operations to begin by 2029. In the process of developing Greenlink, we identified a significant demand for additional interconnection due to Ireland’s potential to generate surplus wind power in the future. Taken with other factors such as geography and regulation, it was clear that advancing with MaresConnect was a logical next step.


At which stage is MaresConnect at the present time? MaresConnect is in the development phase. We have secured a grid connection and our interconnector license in Great Britain as well as securing development financing. In Ireland, the recent update of the electricity interconnector policy paves the way for further interconnection. The policy confirms that Ireland will support a further connection with Great Britain and to progress, as soon as possible, those projects with the best chance of connecting by 2030. In parallel, we are engaged in the long lead development items, which include the planning, land acquisition and obtaining environmental permits for both onshore and offshore.


On that note, can you explain the key stages or timeline of the development phase of HVDC interconnector projects? Focusing on the project development and setting aside well understood aspects like construction and operations, we observe four key milestones.

  • Firstly, the focus is on developing the revenue model, ensuring a regulatory solution and payment mechanism are firmly established.

  • Secondly attention is given to the long-lead items including land acquisition for the converter station and cable routes along with environmental and planning permits.

  • Thirdly, the procurement process is initiated to engage with the engineering, procurement, and construction (EPC) community. We prefer to undertake this step later in the process so we can demonstrate the project’s maturity and provide greater clarity as well as higher certainty that the project will get built. The EPC process typically takes between 9 and 12 months.

  • Fourthly, the project financing. Given the project’s advancement up to this point, we can demonstrate to the lending community the project’s lifetime revenues and costs on which to secure debt. This financing process typically lasts about a year.

There is clearly an overlap between the different workstreams but overall, the aim is to have a development period of 36 months culminating in financial close and commencement of construction.


You mentioned the key stage of finding an adequate revenue model / regulatory solution. Could you elaborate on this? Generally, in Europe, there are three solutions that the Regulators will consider:

  • The Regulatory Asset Base (RAB) model, which is commonly used by Transmission System Operators (TSOs). It’s consistent with the way TSOs are regulated for all their other assets allowing the TSO to obtain a fixed return on its interconnector development. However, it is mostly reserved to them and not available to private developers.

  • At the other end of the spectrum, one finds the Merchant Interconnector model, where the developer takes all the risks and rewards. The developer retains all revenues and profits, if any, but bears all potential losses. This approach was taken for ElecLink, for example.

  • In order to promote a less risky approach for both consumers and developers, the UK introduced a hybrid solution called the Cap & Floor interconnection model which, caps excess profits while also limiting losses. This model has now been adopted in Ireland and Belgium besides the UK. It provides a robust mechanism for private capital to come into the sector and is currently being explored for MaresConnect.

It’s important to note that the selection of the most appropriate model can change over time. In the case of ElecLink, initially a conventional RAB model was considered. However, as the project evolved, it appeared that a merchant approach could be justified given the forecast structural price difference between Great Britain and the rest of Europe, as well as the regulatory challenges for a private developer to access consumer support under a RAB model. So, we’ve got basically three models, full RAB, full merchant, and then in the middle, the Cap & Floor.


We are seeing quite a few HVDC projects being abandoned. What do you see as key criteria to be successful? Each HVDC interconnector project has its unique narrative and challenges, but looking at it broadly, there are a few key factors to ensure success.

  • To start with, it is vital to understand that interconnectors have high political significance. Their success hinges on approval at the highest political levels of both states involved. Gaining political support is crucial, and private developers need to demonstrate a reliable team and funding shareholders to gain that support.

  • Furthermore, HVDC interconnectors involve considerable technical complexities. Although the technology is mature, careful selection of cable routes both at land and at sea is required. Engaging with the public during the planning stage is essential as failing to consider this properly can lead to project abandonment.

  • A strong economic rationale is also essential. There should be a structural difference in prices between the connected zones, and it must be somewhat certain that this difference will persist over the life of the project. In carrying out our analysis we consider the expected amount of interconnection capacity in the future, changes in the generation stack in connecting countries, the growth of renewables, the level of intermittency in renewable generation as well as forecast commodity prices. Potential mitigating measures to price differentials include additional storage or using surplus power for hydrogen production, are also explored. It is worth noting that there are additional revenue streams available to interconnectors, including ancillary services to support the grid; fast frequency response, voltage stabilization and black start capabilities to name a few.

  • Lastly, the cost benefit analysis of any interconnector must withstand thorough stress tests. Recent hikes in project construction costs due to inflation have posed major challenges to projects in development. These changing market conditions have led to the disappearance of several projects.


Precisely, how do you protect HVDC projects against the volatility of project costs? We closely monitor market developments, recognizing that we are currently experiencing a unique moment not only in interconnection but across many major capital projects.

  • While escalation clauses may provide some protection, it’s important to acknowledge the cyclical nature of the market. Even though EPC contractors may currently be confident, pricing their services strongly, market dynamics can change. As prices rise, marginal projects drop out, reducing demand.

  • Additionally, the market needs to consider the entry of new players, particularly from Asia which could affect pricing models.

  • Lastly, while the European market remains strong with the steady growth of wind farm projects, new cable production capacity is being developed in regions with high growth potential, including North America and we expect a similar trend in Asia.

We consider demand will likely remain robust, but the market will respond and adjust accordingly.


Let’s take a step back. Could you tell us about the 1GW ElecLink project, the HVDC interconnection between France and Great Britain through the Channel Tunnel, commissioned in 2021? What aspects are you most proud of? Are there things you would have done differently today? ElecLink remains a fascinating project.

  • Prior to developing ElecLink, we looked at other interconnector projects. We learned that having a single or a few landowners reduces significantly negotiation complexities. Similarly, minimizing the number of environmental permits and connecting to an area already well-integrated into the local grids (thereby reducing the need for additional infrastructure) are also beneficial. Taking these factors into account, the Channel Tunnel emerged as an ideal location for an interconnector. It had a single landowner, limited environmental constraints due to the tunnel and existing electrical infrastructure.

  • Etchea Energy always looks for interoperability when examining infrastructure projects. Take, for instance, the extensive O&G infrastructure in the North Sea, which holds the potential to be repurposed for renewable energy projects.

For ElecLink, it was a similar approach, while the primary purpose of the Channel Tunnel is the transportation of people or goods, Eurotunnel recognized early on the benefits that a new interconnector could provide to communities in term of grid strengthening, a new revenue source by leveraging its existing asset. The solution proved to be highly successful, making ElecLink an outstanding project. In terms of pride, the technical solution developed for the HVDC cable installation was remarkable. We sought input from the EPC market and found an innovative solution with a curtain rail in the tunnel that allowed ElecLink to significantly reduce the number of cable joints. In addition, we solved an important regulatory hurdle. In France the operation of the 400kV infrastructure is reserved for the TSO (RTE). We therefore needed to obtain a derogation from the French Energy Regulator (CRE) and the European Commission. The negotiation process was challenging, but the achievement of a mutually acceptable solution marks a notable success. Reflecting on potential improvements, the selection of the equity partner could have been more judicious. Although we initially involved a private equity partner, Eurotunnel ultimately chose to fully acquire the project.


Thank you. Could you then provide more details about the 500MW Greenlink interconnector project? Following our success with ElecLink, we were brought in to assess the project. A Cap & Floor model was pursued in Great Britain, however there was no similar model in Ireland at that time – only a RAB based solution was available. So, we worked closely with the Irish regulator to develop a similar Cap & Floor solution but reflecting Irish elements (for example it had to be in Euros and Euro interest rates). It is interesting to note that if you can get a symmetrical regulatory solution in the two interconnecting countries, it simplifies the lending process for the banks. They can easily understand the borrower’s profile, how capital will be reimbursed, and how the interest will be paid. Symmetrical regulation also reduces the risk of an interconnector gaming between the two jurisdictions. Consequently, we could show that symmetrical regulation would lower the overall cost of debt, resulting in significant benefits to consumers. The development of a Cap & Floor model with the Irish regulator allowed Greenlink to execute a project financing with a single debt raising rather than multiple ones. This was the first project financing of a Cap & Floor interconnector and constituted a major breakthrough. We are seeking to replicate this success for MaresConnect.

Was Greenlink the first project to introduce “Cap & Floor” into the HVDC industry? Cap & Floor had been used in previous projects like IFA2 between Great Britain and France, but Greenlink requested specific modifications to the default Cap & Floor model to facilitate project financing and attract capital from private equity funds. These changes attracted substantial investments for Greenlink (500M€) and NeuConnect (2.7B€). These landmark transactions pave the way for further private capital to come into the sector. And this is essential, if we look at the broader picture, the amount of capital needed to interconnect the windfarms in the North Sea and other regions, in order to achieve net-zero emissions, totals hundreds of billions of Euros. It’s clear that reliance solely on Transmission System Operators (TSOs) is insufficient. The imperative is to draw in that private capital.


Looking ahead, how do you perceive the future of the HVDC industry and its key developments? I see two key things.

  • First, it’s essential for Northwest Europe to continue its development of wind energy. We view HVDC infrastructure as a vital backbone needed to integrate the development of existing and future offshore windfarms in an efficient manner. For example, we’re looking forward to seeing the development of France’s west coast where there is a huge wind resource. It is likely that HVDC will be the connecting thread. We are seeing a lot of activity around the development of multipurpose/hybrid multiterminal interconnectors that can link onshore convertor stations in two host countries while being also directly connected to one or more offshore wind farms, thereby minimising the offshore cable, landfall sites and convertor stations.

  • Second, we may see the emergence of ultra long-line HVDC interconnectors. At present time three of these are being developed: Xlinks (between Morocco-Great Britain), Sun Cable (Darwin-Singapore) and the Oman-India interconnector. There are rumours of a potential link between Europe and Canada. We’re particularly interested in East-West HVDC interconnectors, as they offer the advantage of leveraging solar energy across time zones. For instance, power generated at midday in Europe could be paired with the East Coast of America during its breakfast time. And reciprocally, when it’s midday in the Eastern Standard Time Zone we could see a reverse flow to power peak evening time in Europe.

While long-line HVDC interconnectors pose great technical challenges, I believe human endeavour and technical advancements will result in their construction. Establishing connections between allies and friends is crucial, as these interconnectors play a pivotal role in reaching net zero goals, both locally and globally.


How do you approach social, environmental and sustainability principles during the project development phase? We take them incredibly seriously, as they are crucial for the success of the project. I’m not going to talk about the environmental concerns of the supply chain, because that’s outside of my remit. But just in terms of developing interconnectors, I think HVDC is an interesting solution.

  • Public acceptance is essential, so we ensure that the local community is involved and supportive throughout the development process of new HVDC interconnectors. When we go into towns or village halls, the last thing people want to see is any of these assets being built near where they live. But during public meetings, we show residents before and after pictures of the landscape, emphasizing that with HVDC, all the cables can remain buried underground, resulting in no visible changes. The landscape is just the same after as it was before. This makes HVDC an attractive option to the public for grid strengthening.

  • As mentioned earlier, we seek interoperable solutions. Therefore, when identifying a landing site for our subsea cables, we conduct extensive surveys of hundreds of kilometres, seeking suitable locations or existing infrastructure that can be utilized. Increasingly, we are coordinating with wind farms, asking where they plan to make landfall and exploring the possibility of sharing the same location.

  • Compared with HVAC transmission, HVDC offers superior energy efficiency. This translates into fewer MWh that need to be sourced from elsewhere.

  • In addition to the environmental benefits mentioned above, when comparing the use of underground cable to overhead lines for transmission, the consenting process is much shorter thereby allowing projects to come on stream quicker, to the benefit of local communities.


What are your thoughts on the role of digitalization and AI in the context of HVDC interconnectors? Digitalization and AI represent interesting opportunities for the transmission sector. Currently, we lack the ability to trace the origin of power transmitted through interconnectors. Obviously, we can’t tag an electron. As a result, we transfer power from one country to another without a clear understanding of its source. If the power comes from France, we may assume that it comes from nuclear, but it might not always be the case. Furthermore, we don’t have a clear understanding of its destination. For example, for a nearby load centre, we can’t determine if the electricty consumed originates from an interconnector or from some other source such as a regional coal power plant. By adopting technologies such as blockchain we can help identify the source of each batch of electricity. This would enable us to differentiate between green and non-green energy and set appropriate prices. We are working with a small UK-based company, Rowan Renewable Energy, to develop a block chain solution for rooftop solar projects. This technology has the potential to scale up and could be used to track and certify green energy production at a wholesale level.


Eventually, do you see any policy or regulatory changes at the national or international level that would facilitate the development of HVDC interconnector projects? There are policy and regulatory changes needed to facilitate the development of HVDC interconnector projects. I think looking forward, we’ll need to have an even more integrated and interconnected energy market. And for this, we’ll need a commonality of regulation for example for the pricing of these assets. A collaborative effort, similar to the discussions at the North Sea Summit in Ostend, is necessary to establish common frameworks. This will enhance the transfer of power, benefit consumers, reduce costs, and accelerate the adoption of green energy.


Many thanks Simon, this concludes our interview. That was a wonderful exchange. We wish you all the best for your future projects. Thank you.



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