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Ofgem's Competition Proxy "fundamentally flawed"

By: Tom Russell 20/03/2019 SSEN

Cables General Grid Interconnectors Windfarms

The Office of Gas and Electricity Markets (Ofgem) has announced its initial decisions regarding two High Voltage Direct Current (HVDC) interconnector projects seeking to connect mainland Scotland with the Scottish Isles.

Whilst Ofgem initially approved the Shetland Link project, it rejected the Western Isles Link project which was met with criticism from project developer Scottish and Southern Electricity Networks (SSEN).

SSEN also criticised Ofgem's initial decision to the use the ‘Competition Proxy’ model for the two projects rather than the Strategic Wider Works mechanism. Ofgem claims that it will use the system to reduce costs by seeking to replicate the outcomes of competition by 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.

SSEN hit back stating that it has "significant concerns" with the proposed delivery model which it claims is "fundamentally flawed". The transmission company outlined that there has been no regulatory impact assessment undertaken specific to the application of this untested model to these projects.

Ofgem has now opened a consultation on its Final Needs Case for both projects for which responses will be gathered until 3 May 2019. It will make a decision on the business case for the projects in mid-2019 and provide decision on whether it will use the ‘Competition Proxy’ for the two projects.

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.

The Shetland Link project is being developed to enable wind farms on Shetland to export renewable electricity to the rest of Great Britain and to improve the security of electricity supply on the islands. The initial approval is subject to the success off renewable energy projects in the upcoming Contracts for Difference (CfD) auction in May 2019.

The 600 MW project is being developed to wind farms on Shetland to export renewable electricity to the rest of Great Britain and whilst improving the security of electricity supply on the islands. The approval is subject to the success off renewable energy projects in the upcoming Contracts for Difference auction in May 2019. For more information on the Shetland decision, click here.

Ofgem's rejection of the Western Isles Link project is 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 under-utilised link. Ofgem stated it 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. The decision was met with criticism from SSEN.

For more information on interconnector projects worldwide, click here. Alternatively you can view projects worldwide using 4C Offshore's interactive map.

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Ofgem's Competition Proxy "fundamentally flawed"

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