Ofgem proposes changes to Orkney tidal power link

UK energy regulator Ofgem has put forward changes to Scottish and Southern Energy Networks’ (SSEN) plan to build a 220MW high voltage link that would facilitate the transmission of clean electricity generated from tidal power from Orkney to the rest of Great Britain.

The changes have been proposed as 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, according to the regulator.

The electricity link, estimated to cost around £260 million, 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.

SSEN submitted a final business case for the link in March 2018, asking 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.

In order to ‘save consumers money’, according to Ofgem, the regulator said the approval of the link is 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.

Reacting on the conditions, SSEN said it strongly disagrees with Ofgem’s view that 135MW of new generation is required before it will approve the project.

SSEN, energy company which delivers electricity to over 4 million homes and businesses in northern Scotland and Central Southern England, also noted Ofgem’s proposal in contrast to SSEN’s Needs Case, which proposed that no more than 70MW of new generation is required to justify the investment in the project.

According to SSEN, its figures are based on well-established, industry best practice, used to assess similar transmission investments across the UK.

“It is unclear why Ofgem is proposing a different test for Orkney, which conflicts with Ofgem’s own guidance on these types of transmission investments,” SSEN said.

Ofgem also plans to reduce the cost to consumers of building the link by seeking to replicate the outcomes of competition.

The regulator is contemplating using 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.

The decision on the business case for the Orkney link will be made in spring 2019, along with the determination on whether the Competition Proxy model will be used, the regulator said.

Ofgem is also  looking into approving an SSEN trial to improve the management of the queue of generators wanting connections on Orkney. Prioritizing 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, according to Ofgem.

 
In addition, SSEN is proposing to temporarily reduce the financial commitments that generators have to make to ensure the Orkney link can be built, Ofgem said, adding it plans to object to 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.

According to SSEN, Ofgem has proposed a number of conditions that Orkney renewable developers will have to achieve before it will approve the project, with these conditions intended to demonstrate the commitment of those developers.

“Whilst SSEN recognizes developer commitment is an important factor in Ofgem’s determination, Ofgem is again proposing tougher rules for Orkney than that applied for similar transmission investments elsewhere in Great Britain.

“As the combination of the conditions proposed by Ofgem look extremely challenging to achieve, they risk threatening the viability of the project unless changed. SSEN will now undertake a round of engagement with its generation customers and other stakeholders with an interest in the Orkney transmission reinforcement to help shape its response to Ofgem’s consultation,” said SSEN.

Finally, SSEN has noted Ofgem’s minded-to proposal regarding delivery model, in which Ofgem has proposed the project is delivered via its Competition Proxy Model, which has still not been fully developed by Ofgem, rather than the well-established Strategic Wider Works model.

SSEN said will continue to engage constructively with Ofgem and other stakeholders as part of this process, it will also consider all options available to ensure the integrity of the price control is maintained and the development of existing projects continues.