Scheduled to be completed in 2019, the £0.5bn project will be developed by National Grid subsidiary National Grid Nemo Link and Elia, the system operator for Belgium.
The interconnector, which will run between Zeebrugge in Belgium and Richborough in Kent, will enable energy trades and flows between the two markets as well as will improve energy generation access, making energy supplies more secure and resilient for consumers.
The Project Nemo will be developed under the cap and floor regime, which aims to support new investment in interconnector projects that will deliver good value for consumers.
Ofgem chief executive Dermot Nolan said: "Our cap and floor regime has already attracted interest from other potential projects, and looks set to be an effective gateway to new investment that will make energy supplies more secure and increase competition in the market, to the ultimate benefit of households and businesses."
The annual revenue floor has been set at £50.4m over the 25 year duration of the regime for Nemo project and the annual revenue cap at £80m.
State Secretary Ed Davey said: "This is a major landmark in our ambition to greatly increase interconnection with our neighbours, to improve our energy security and lower bills.
"By linking us to Belgium, Project Nemo will enable enough electricity to flow between our countries to power up to three million homes. The new cap and floor regime will unlock billions of pounds of investment in interconnectors, and I expect more projects to come forward next year."
