NATO-Link: The obvious answer to the UK’s energy security concerns?

The concept of interconnectors is not new to the UK or the European continent. They have been and continue to be used to link the electricity grids of countries to allow them to send and receive energy. They are an optimal solution to ensure excess generation is not wasted and allow countries to ramp up usage or even satisfy demand without being limited to the scope of local production capacity.

If private investor interest in NeuConnect – an interconnector that will link the grids of England and Germany – is anything to go by, these assets could almost be classified as safe investments that do not require public sector funding to make them commercially viable.

So far, these subsea links have been used to link neighbouring and nearby countries. NeuConnect has a rated capacity of 1.4GW and is just 720km long. However, longer ones are in the works. Xlinks, a project not long ago dismissed for being implausible, which proposes to transmit energy generated in Morocco to the UK using a 4,000km cable, is close to securing a "multi-billion-pound" debt package to fund phase 1 works.

So why not build a slightly longer one? One that connects the grids of the UK and Canada. One that allows both countries to take advantage of the different weather conditions and contrasting peak energy use times to cut back on curtailment costs and, more importantly, provide firming for intermittent renewables generation.

In theory, the proposal for NATO Link (NATO-L) almost seems obvious. Using a proven method to shore up energy supply between countries that are culturally and politically (for the time being at least) aligned. But is it practical? A circa 4,500km-long subsea link and a connection to a country that has no previous history with this asset class.

Inspiratia sat down with Laurent Segalen, the man behind the seemingly audacious plan, to discuss the rationale and feasibility of this venture.

How did the concept for this project come about?

I have traded and invested in Clean Energy for the past 25 years. Among my numerous transactions, between 2018 and 2022, I worked closely with a group of people who were developing interconnectors through the Irish Sea. In September 2022, the Nord Stream gas pipelines exploded, which caused panic on the continent. Energy security was already a hot topic since the Ukrainian invasion, but the Nord Stream incident drove home the urgency for supply guarantees, and that is when it clicked for me.

The technology and supply chain are there, and we will be dealing with people we can depend on. For me, it was an obvious solution.

Think about it, what is the alternative? Nuclear? That is not exactly going to plan, is it? Hinkley Point C is plagued with cost overruns, and the delivery date still remains unclear. EDF, which is the project developer, tried to spread out the cost of its French reactors by upcharging its customers, and that did not work. The consumers revolted, and the CEO was fired. It will be the same in the UK. The economics of nuclear do not work; they will have to be heavily subsidised by the state, but how much cost can the consumers bear?

Then we have SMR (small modular reactors), which are supposed to be more cost-effective but only exist in theory. Same with the various proposals for hydrogen. At current rates, a barrel of green hydrogen or a derivative costs around $300/bbl to produce; currently, you can buy oil at $60/bbl. The extra cost will have to be subsidised by the government, and the price for consumers keeps going up.

Interconnectors, on the other hand, are proven, bankable and more importantly, they are not reliant on future projections.  

How receptive was the market to this proposal?

The market was more receptive to the plan than you would think. I think it was mostly because the project is not a pipe dream. It is very much feasible and has been successfully implemented on a smaller scale across Europe.

Why Canada?

One of the main concerns we are trying to address with this project is energy security, and for that to work, we need to work with and rely on partners we can trust.

The recent political turmoil has shown us that some countries are moving away from a system built on laws in favour of a system based on deals.

The link to Canada is natural. We are culturally aligned and, more importantly, they are dependable, which is vital right now given the turbulence in the US market. Projects are being blocked during construction, and they appear to be erasing all the progress they made on renewables. A project like this will not work with a partner whose long-term goals can be reversed so quickly.

Take countries like the UK, Norway, Denmark, Germany, the Netherlands, Belgium and France. A set of like-minded countries that continue to work together to develop energy infrastructure in and around the North Sea. Our energy goals are aligned and very similar to those being adopted by Eastern Canada.

Canada is new to subsea interconnectors, but it makes sense for them. Nuclear is too expensive and has long lead times, and hydro capacity is maxed out. The only commercially viable way to ramp up energy generation to meet their electrification needs and facilitate the build-out of large energy consumers like AI data centres is through wind and solar.

So, how will this work?

Let us be clear: the cable is a balancing asset. So, we model to see the flows going eastwards 5,000-7,000 hours per year and 1,500-3,500 hours per year westwards. But if they suffer from a drought, cold snap or heat waves, the westward flows could be more important. The cable provides optionality and resiliency.

Last year alone, the UK paid wind asset owners around £1 billion not to produce energy. That is the cost of curtailment and it is ultimately borne by the taxpayers. We also see more and more negative prices on the European grids.

Canada has a similar issue; 15% of the time, their grid is at max capacity, and the remaining 85% of the time, they still have the generation but no demand. There is considerable wastage on both sides because we currently do not have a way to store the excess energy for future use.

Now, we can use this excess generation on both sides to firm up each other's supply. When you look at energy usage, every country has a morning peak and an evening peak. It so happens that peak usage for the UK and Canada does not line up.

From a production standpoint, we need two different weather zones. The difference in generation periods between the UK and Canada makes the countries ideal partners that can use an interconnector to balance each other's supply.

By joining our grids, we can save on curtailment costs and increase energy generation in a commercially feasible manner.

How challenging would it be to connect two countries that are so far away from each other?

We are currently at the early planning phase. We have been liaising with public authorities on both sides to test appetite, and so far, the reception has been quite positive.

Preliminarily, we are considering three connection routes:

• The Arctic Route (4,300km) – via Greenland. This will add to the cost (a substation at Cape Farewell), but it is more favourable in terms of water depths and will have less energy loss during transmission
• The Southern Route (4,600km) – via the South of Ireland, into the Channel, up into the North Sea
• The Northern Route( 4,100km) – via the North of Scotland, down into the North Sea

Each route has its own set of merits and drawbacks, but at the end of the day, the connection point will be up to the respective governments. We are only here to outline the options available.

We anticipate the permitting process to be relatively straightforward in Europe. These assets are proven here, and we have an existing supply chain. It could be a bit trickier in Canada, where you would need to establish a supply chain, build cable manufacturing factories and nearshore transformer manufacturing.

It is not going to be a difficult sell, they see the benefit in a project like this. It will not only help reduce energy costs but also create thousands of jobs locally.

How much will something like this cost?

We are currently in the process of launching a fundraise to cover initial permitting costs. In the first round, we have a target of raising £20 million (€23.5m $26.8m). In three years, we will look for an additional £80 million to cover FEED work, and maybe in five years' time, we hope to raise £500 million, which will see the project through to final investment decision.

At current estimates, delivery costs should amount to around £30 billion, which will be funded through a combination of commercial debt and equity.

This is not a project that will require a significant amount of government subsidy to work. The project economics itself make it a bankable asset. We have pitched the proposal to some venture capital funds, which told us that this is not risky enough for them.

We are using technology that exists and a reliable supply chain, where is the magic, they asked us. In those circles, an interconnector is as good as a traditional pure-play infrastructure asset.

Who will you target for the fundraise?

We would like to avoid any investors that are not geographically linked to the project. There has to be an element of nationalism to this project because, at the end of the day, it is about energy security and working towards common goals.

If we end up in a situation where the only investors for this project happen to be non-European or non-American, then we will reassess the situation. But from our early discussions, we already see a lot of appetite to join what will be one of the biggest infrastructure projects of this century.