Ofgem publishes decisions on proposed transmission links

Energy regulator Ofgem has approved a proposal by Scottish and Southern Energy Networks (SSEN) to build a 600MW subsea electricity transmission link from Shetland to mainland Scotland.

Ofgem publishes decisions on proposed transmission links

But it has rejected SSEN’s separate proposal to build a 600MW transmission link to connect the Western Isles to the mainland.

The Shetland link will allow new wind farms on Shetland to export renewable electricity to the rest of Great Britain and help ensure security of supply on the islands.

SSEN estimates the link would cost around £709 million and would be completed in 2024. Ofgem is consulting on approving the link subject to SSEN demonstrating, by the end of 2019, that the Viking Energy Wind Farm project planned for Shetland has been awarded subsidies through the UK Government’s Contracts for Difference (CfD) auction. This would protect consumers from the risk of paying for a link that it is bigger than needed.

Ofgem is minded to reject SSEN’s separate proposal to build a 600MW transmission link to connect the Western Isles to the mainland based on two Lewis Wind Power wind farm projects being awarded subsidies through the CfD auction because of the risk of consumers paying for a significantly underutilised link.

Ofgem would instead support an alternative proposal that “more appropriately protects consumers from the additional costs of funding a potentially significantly underutilised link”. This could be either a 450MW or 600MW transmission link depending on any revised proposals SSEN put forward.

SSEN’s initial estimate for the proposed Western Isles 600MW link put the cost at around £663 million, and would be completed in 2023. SSEN’s equivalent initial estimate for the 450MW link put the cost at around £617 million.

SSEN has called on Ofgem to reconsider this provisional decision.

Colin Nicol, managing director for Scottish and Southern Electricity Networks, said: “Whilst we welcome Ofgem’s recognition of the need for network reinforcement, we strongly encourage them to reconsider and approve a 600MW link.

“A 450MW link would be short sighted, limiting the potential for community schemes to benefit from renewables expansion. Moving to a 450MW at this late stage also introduces risks and uncertainty which, in turn, could impact on the delivery of a transmission link to the Western Isles.

“We call on Ofgem to look again at the robust, comprehensive analysis that underpins the 600MW investment case and listen to the broad view of stakeholders who strongly support the need for a larger link.”

Based on SSEN’s analysis, the cost differential between a 450MW and 600MW link is less than 5% of the total cost of the project; but would provide a third more capacity for new renewable electricity generation and deliver an additional 30% of socio-economic benefit to the Western Isles.

Ofgem has proposed both projects are delivered via a new Competition Proxy Model (CPM) rather than the Strategic Wider Works mechanism.

The regulator estimates that the costs to consumers of building the Shetland and Western Isles links could be reduced significantly and plans to reduce costs by seeking to replicate the outcomes of competition. The regulator is minded to use the ‘Competition Proxy’ model, setting the revenue that SSEN can earn from building and operating these links based in part on its experience in cutting the costs of connecting offshore wind farms to the grid by tendering the ownership of these links. 

In a statement SSEN  said that it believes this proposed delivery model is “fundamentally flawed”.

The statement said: “SSEN continues to have significant concerns with this proposed delivery model which is fundamentally flawed and effectively re-opens a regulatory price control for no consumer benefit.  Additionally, there has been no regulatory impact assessment undertaken specific to the application of this untested model to these projects. SSEN will continue to engage with Ofgem on this issue and is considering all options available to address these concerns.”

Ofgem will make a decision on the business case for the Western Isles and Shetland links in mid-2019. It will confirm whether it will use the Competition Proxy model at the same time.

Consultations on both projects will run until 3 May.


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