A three-mile tunnel is being built under the Humber estuary to house a pipeline which will carry around 20 per cent of the UK’s gas supply during the winter from Norway and natural gas fields offshore.
Initially National Grid had asked for £140m for replacing the pipeline.
But in August the energy regulator proposed to refuse the request "challenging the company to provide better evidence of why this would be in consumers’ interests."
Today it announced it had changed its stance after new evidence was submitted by National Grid on the impact to the energy system if the pipeline is not replaced.
It added: "The company will only be allowed to recover £111m from consumers as Ofgem considers that the project can be delivered more efficiently."
National Grid said: "We welcome Ofgem’s decision on this important project, which will carry up to 20 per cent of the country’s gas, and we will continue to focus on delivering it safely and reliably at the lowest cost to bill payer.”
The tunnel, from Goxhill, north Lincolnshire to Paull, near Hull, is around a third of the way across and should be finished by March 2019.
It will then take another year for the pipe to be inserted and connected.
The pipeline has a lifespan of 40 years after which it can be revalidated and work for longer.