SSEN Statement - Support For Shetland Transmission Link To Mainland But Not For Western Isles

19th March 2019

Shetland.

SSEN welcomes Ofgem's decision to provisionally approve its proposed 600MW Shetland transmission link, subject to sufficient connection of renewable electricity generation.

The project, which will link Shetland to the mainland GB electricity network for the first time, is required to connect new renewable electricity generation and remains subject to key renewable developments securing Contracts for Difference (CfD) support at this year's auction.

If completed, the project will consist of a single 600MW subsea circuit from Kergord on Shetland to Noss Head in Caithness on the Scottish mainland, connecting into SSEN’s recently completed Caithness-Moray transmission link.

Shetland whole system solution

As referenced in the consultation, SSEN awaits Ofgem’s decision on its proposal for a whole system solution, submitted by its electricity distribution licensee, SHEPD, in November last year.

Shetland’s current electricity needs are met from on-island sources, predominately Lerwick Power Station. As Lerwick Power Station is nearing the end of its operational life, there is a requirement to secure an alternative to meet future energy demand on Shetland.

As the Distribution System Operator for Shetland, SSEN has explored multiple options to deliver future security of supply. Ofgem rejected a plan to replace Lerwick Power Station in 2013 and subsequently rejected a competitively-tendered electricity distribution link in 2017.

SSEN has now recommended a whole system solution which would share the costs of the proposed transmission link to meet local electricity demand needs. SSEN believes this proposal, which is estimated to reduce costs to consumers by £150m compared with alternative options, represents the best value for Shetland and GB consumers. The principles of the solution are also being explored for Scotland’s other island groups.

Colin Nicol, Managing Director of Scottish and Southern Electricity Networks, said:"Ofgem’s decision to provisionally approve SSEN’s 600MW proposed transmission link is an important milestone in connecting Shetland to the mainland electricity network and helping to unlock its significant renewables potential.

"There are still a number of steps to be taken before we can proceed with the transmission connection, in particular the requirement for renewable developments to secure CfD support in this year’s auction, and we will continue to engage with key stakeholders during this consultation period.

“We also await clarity from Ofgem on their assessment of our proposed whole system solution. This decision will be important in reducing costs for consumers and securing the best economic case for delivery of renewable development in Shetland and Scotland’s other island groups."

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Western Isles

SSEN is calling on Ofgem to reconsider its provisional decision to reject SSEN’s needs case for a 600MW link in favour of a smaller 450MW connection.

The link, which is expected to bring up to £2bn in local and national socio-economic benefit, is required to connect renewable electricity generators on the islands to the main GB transmission system, taking advantage of the significant renewable potential of the Western Isles.

SSEN’s investment case for the 600MW link, supported by independent analysis by the electricity system operator, clearly demonstrates that once just 156MW of generation is connected, a 600MW link represents an economic solution, providing significant benefits for the GB consumer.

A 600MW link would also allow for additional renewable projects on the Western Isles to come forward and connect, taking advantage of the area’s natural resources and meet the substantial community interest in developing further renewable projects. From SSEN’s experience of developing and operating the north of Scotland transmission network, any additional spare capacity would be quickly utilised.

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.

Moving to a 450MW link at this late stage introduces significant risk and uncertainty to both SSEN and the Western Isles developers who are currently preparing to enter the upcoming CfD auction. This uncertainty may also jeopardise the ultimate delivery of the link.

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."

Ofgem’s proposed ‘competition proxy’ financial delivery model

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

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.

For more information about SSEN Transmission’s Shetland project, please visit the dedicated project website, https://www.ssen-transmission.co.uk/projects/shetland/

For more information about SSEN Transmission’s Western Isles project, please visit the dedicated project website, https://www.ssen-transmission.co.uk/projects/western-isles/