There was a storm of protest today (Tuesday March 19th) after renewable energy plans for Lewis and Harris were thrown into doubt.
Energy regulator Ofgem says today that it is minded to approve a proposal by Scottish and Southern Energy Networks (SSEN) to build a 600MW subsea electricity transmission link from Shetland to mainland Scotland.
But Ofgem is minded to reject SSEN’s separate proposal to build a 600MW transmission link to connect the Western Isles to the mainland.
It says the Western Isles project is based on two Lewis Wind Power wind farm projects being awarded subsidies through the CfD auction.
The rejection is because of the risk of consumers paying for a significantly under-utilised 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.
The Shetland link would 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 estimates that the costs to consumers of building the Shetland and Western Isles links could be reduced significantly. Ofgem 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 the regulator’s experience in cutting the costs of connecting offshore wind farms to the grid by tendering the ownership of these links.
Ofgem regulates network companies including SSEN, which is a subsidiary of SSE. All energy consumers pay for the cost of investment in new capacity through their energy bills and the regulator ensures that it obtains the best deal possible for them.
Ofgem will make a decision on the business case for the Western Isles and Shetland links in mid-2019.
Comhairle nan Eilean Siar says it "has noted the position of Energy Regulator, OFGEM, to approve a resubmitted proposal for a 450MW transmission link to the Western Isles based on the two LWP projects being successfully awarded a CfD (Contract for Difference) in the 2019 allocation round. This is a step in the right direction and it opens the way to the establishment of significant new industry in the islands. The Comhairle is, however, extremely disappointed that OFGEM's preference is for a 450MW link rather than the 600MW cable which stakeholders have called for. There are significant Megawatts presently in the development pipeline and it appears short-sighted in the extreme to limit connection to 450MW. A 600MW connection is essential to ensure community and off-shore renewables projects are delivered."
Comhairle Leader, Councillor Roddie Mackay, said, "The Comhairle has been making the case for this cable since 2005 and we welcome OFGEM's consultation. The present consultation is a step in the right direction and one that opens potential for significant development opportunity in the islands. I am, however, extremely disappointed at the short-sightedness of OFGEM’s position of being minded to approve a 450MW connection rather than 600MW. I am confident that the present pipeline of renewables projects will quickly fill a 600MW cable and that OFGEM’s fears around 150MW of stranded assets are ill-founded. It will be in the GB consumers interest for a 600MW connection to be built rather than risk the high costs of a second inter-connector in a short number of years.
“I note that OFGEM would consider the case for a 600MW transmission link if consumers were more appropriately protected from the additional costs of funding a potentially oversized link. The cost differential between a 450MW connection and a 600MW connection is marginal in the overall connector cost. I would, therefore, urge SSE and LWP to work together to find methodologies to remove the additional costs to give OFGEM the confidence to approve at 600MW."
The Comhairle will be using the consultation period to work with the UK and Scottish Governments and other local and national partners to make a robust case for a 600MW connector. I firmly believe that a 600MW connector is in the local interest, the national interest and in the interest of all GB consumers”.
Isles MP Angus MacNeil has reacted with dismay to the announcement by Ofgem, Mr MacNeil will discuss the situation with officials from Ofgem later today (Tuesday). Mr MacNeil said: “This has been a long drawn out process, it would be a mistake to build 450MW instead of 600MW. This would mean that the project would be unlikely to go ahead in an area which has the strongest wind resource in Europe.
“It is clear from all the developers that 450MW is not in the real world and the extra cost of adding a further 33 per cent to the capacity would only be seven per cent added costs.
“It is unlikely that any project from the big developers to community wind will happen with the 450MW option and it is difficult to see how they could come to the conclusion that this is the best option. However that is the legislation and the UK and the bureaucratic narrow approach of UK Government legislators such as Ofgem in its interpretation.
“I would appeal to Ofgem to go back and think again and do what is best for the environment and the economy and to ensure that we deliver good clean energy, not just for the British Isles but to power into the European power network as part of the energy union.”
Alasdair Allan MSP said:“I am extremely disappointed by this decision.
“The difference in cost between the 600MW and 450MW transmission link is less than 5% of the total project cost, but it would deliver an additional 30% of socio-economic benefit to the Western Isles and allow the plethora of community groups with ambitions for their own renewables projects to connect to the grid.
“This is a completely short-sighted decision which calls into question OFGEM’s decision making and the level of attention they have given to the Western Isles. Renewables projects from the Western Isles have the potential to produce some of the cheapest and greenest electricity in the country while providing up to £2 billion in local and national socio-economic benefit. However, obstacles such as today’s announcement continue to be placed in our way.
“The Western Isles has been waiting a long time for a transmission connection to mainland GB. We should not have to wait any longer. I urge OFGEM to reconsider this decision.”
Labour candidate, Alison MacCorquodale called for “a united voice” from the Western Isles in response to the interconnector consultation launched by Ofgem, the energy regulator.
She said that although Ofgem’s initial view that a 600MW link could not be justified on the basis of existing projects, the consultation offered the opportunity to make the case and back it up with hard evidence.
Ms MacCorquodale said: “I don’t believe that a 600MW link would be significantly under-utilised. In addition to the major proposed developments, we have a vibrant community sector in the Western Isles and many groups have already developed successful wind farm projects.
“The reason that more community projects have not come forward is because of the uncertainty around the interconnector and the considerable risk and financial outlay associated with speculative plans.
“Ofgem must also consider the potential for marine renewable generation which at some point is very likely to yield results with the Western Isles a prime location. It would be foolish not to plan for future potential.
“SSEN are still working to bring down the costs associated with the interconnector, so it would be short-sighted of Ofgem to close the door at this stage. The link to the Western Isles must allow our local communities to capitalise on the investment. Approval for only 450MW will not do this.
“The consultation period allows for these arguments to be made with renewed force and focus and everyone should now work together to make sure that the Western Isles speaks with a united voice”.
Highlands and Islands Labour MSP, Rhoda Grant said of the decision: “Ofgem is only taking into account development by multi-nationals and is having no regard whatsoever for the large number of community schemes that could be developed and would provide a greater boost to the local economy.
“Neither does it take into account wave and tidal energy and the waters to the west of the islands which are the most energetic in Europe. What will happen is that either these developments will never come to fruition or customers will be forced to pay double to capitalise from them. Given the way Ofgem makes these decisions, it’s apparent that it is totally unsuitable for the Western Isles.”
Scottish and Southern Electricity Networks (SSEN), operating under licence as Scottish Hydro Electric Transmission Plc, is calling on the energy regulator, Ofgem, to reconsider its provisional decision on the proposed Western Isles transmission link.
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.
In its consultation, Ofgem has proposed the transmission project is 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 this project. SSEN will continue to engage with Ofgem on this issue and is considering all options available to address these concerns.
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 consultation is open until 3 May and can be found via the following link: https://www.ofgem.gov.uk/publications-and-updates/western-isles-transmission-project-consultation-final-needs-case-and-delivery-model
(CnES, SSEN, MSO and MP comments added after first publication)