Ofgem is proposing changes to Scottish and Southern Electricity Networks’ (SSEN) plan to build a 220MW high voltage link to connect Orkney to mainland Scotland which would save consumers money.
The electricity link, estimated to cost around £260m, would be completed in 2022 and help new wind farms and tidal power projects on Orkney to send electricity to the rest of Great Britain.
Ofgem regulates network companies including SSEN, which is a subsidiary of SSE. All energy consumers pay for the cost of investment in new capacity so the regulator ensures that it obtains the best deal possible for them.
SSEN submitted a final business case for the link in March 2018. The company asked Ofgem to approve the project on condition that by the end of 2019, 70MW of generation capacity on Orkney committed to use the link once it is built.
Ofgem believes that SSEN’s proposals do not do enough to protect consumers from the risks of paying for a link that is bigger than needed.
Ofgem is consulting on approving the Orkney link subject to SSEN demonstrating, by no later than December 2019, that at least 135MW of new generation on Orkney has either
- been awarded a Contract for Difference (CfD) in the government’s 2019 CfD auction; or
- secured planning consent and finance to construct its project.
Ofgem also plans to reduce the cost to consumers of building the link by seeking to replicate the outcomes of competition. The regulator is minded to use the ‘Competition Proxy’ model, where it will set the revenue that SSEN can earn from building and operating the Orkney link 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.
Ofgem will make a decision on the business case for the Orkney link in spring 2019. It will confirm whether it will use the Competition Proxy model at the same time.
Ofgem is consulting on approving an SSEN trial to improve the management of the queue of generators wanting connections on Orkney. Prioritising generation projects which are most ready to connect would move them up the queue and prevent other projects from holding up the queue . The trial could also help SSEN to meet Ofgem’s target for the amount of generation that must be committed to use the link.*
Notes to editors
1. Link to Final Needs Case consultation: https://www.ofgem.gov.uk/publications-and-updates/orkney-tranmission-project-consultation-final-needs-case-and-potential-delivery-models
Link to Alternative Approach consultation: https://www.ofgem.gov.uk/publications-and-updates/derogation-request-scottish-hydro-electric-power-distribution-plc-shepd-implement-proposed-trial-their-alternative-approach-orkney
2.* SSEN is also proposing to temporarily reduce the financial commitments that generators have to make to ensure the Orkney link can be built. Ofgem is minded to reject this proposal as it passes on too much risk to consumers, who would have to pay additional costs if a generator decided not to go ahead with its connection.
3. Ofgem has previously decided to use the ‘Competition Proxy’ approach for National Grid to deliver the upgrade needed to connect the new Hinckley Point C nuclear power station: https://www.ofgem.gov.uk/publications-and-updates/tougher-set-price-controls-move-step-closer
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