‘Final piece in the jigsaw’: Orkney link gets green light

Ofgem has given a green light to a project to connect the Orkney islands to the Scottish mainland via a 220MW subsea cable.

The new link will enable proposed onshore wind farms on the archipelago to export electricity to the rest of Britain. Scottish and Southern Electricity Networks (SSEN) said the project represents the “final piece in the jigsaw” to connect all three of Scotland’s main island groups to the transmission network.

The project is being progressed through the Large Onshore Transmission Investment (LOTI) process, which replaced the Strategic Wider Works (SWW) mechanism as part of the RIIO T2 price controls.

SSEN originally applied to undertake the project through the SWW process and submitted a final needs case to Ofgem in March 2018.

In September 2019, Ofgem decided to approve the project subject to the condition that at least 135MW of new generation projects on the islands were awarded a contract for difference or were likely to go-ahead anyway.

The regulator said this represented the mid-point between the 70MW ‘break-even point’ at which the costs of the project would be equal to the constraint costs it relieves, and the 199MW ‘tipping point’ at which a 220MW connection would be cost-efficient than the alternative option of a smaller 132MW link. It said meeting the mid-point should ensure the tipping point is reached by 2030.

The SWW mechanism was subsequently replaced by the LOTI process when the RIIO T2 price controls came into effect in April 2021.

At the end of March this year, Ofgem issued a consultation on its minded-to decision to revoke its previous conditional decision and approve the needs case for the project under LOTI. The regulator said it did not consider it proportionate or necessary for SSEN to make a further needs case submission under the new process.

Ofgem noted that, as of December 2022, the total onshore wind generation pipeline in Orkney had exceeded the 135MW threshold for approval, including 108.2MW that had secured contracts for difference and 38.1MW that had obtained planning permission. The regulator said it was therefore confident that the new link would not be underutilised and would provide a net benefit to consumers.

Although it meets all three eligibility criteria – new, separable and high value (more than £100 million) – Ofgem said it did not believe it was appropriate to apply a late competition delivery model to the Orkney project.

The regulator said the application of either the Competitively Appointed Transmission Owner and Special Purpose Vehicle models could cause delays to delivery and it did not have sufficient confidence that the Competition Proxy Model used for the Hinkley Seabank connection project would provide a benefit to consumers.

Ofgem has now confirmed all aspects of it minded-to decision in March, meaning the project will now progress to the third and final stage of the LOTI process – project assessment – in which the proposed costs and delivery plan will be assessed to enable the regulator to set delivery targets and allowances.

In 2018, SSEN estimated the cost of the project at £262 million (2018/19 prices) but has since raised its cost estimate by £109 million – or 41% – to roughly £371 million. The transmission owner said this was partly the result of increased costs for cable and plant apparatus amid significant global demand and constrained supply. It said it is also facing cost pressures relating to commodities and exchange rates as well as a general increase in construction costs.

The 57-kilometre subsea cable will be connected to new substations at Finstown in Orkney and Dounreay in Caithness. SSEN said all planning consents are already in place for the project.

“Orkney is home to vast amounts of renewable energy and we have long championed the need to provide a transmission connection to help unlock its abundant green energy potential,” said Rob McDonald, managing director of SSEN Transmission.

“We are delighted Ofgem has today granted final approval for the need for the project, which will unlock Orkney’s renewable potential and is the final piece in the jigsaw in connecting Scotland’s three main island groups.

He continued: “As well as supporting 2030 government targets, our future energy security and a pathway to net zero emissions, the Orkney transmission link and associated onshore infrastructure will deliver significant local and national socio-economic benefits and we look forward to engaging with local businesses next month to try and maximise the benefits of this investment in the local economy.

Hornsea Two OFTO 

Meanwhile, Ofgem has issued a notice confirming the appointment of Diamond Transmission Partners as the Offshore Transmission Owner (OFTO) of the connection for the Hornsea Two wind farm located 89 kilometres off the coast of Yorkshire. The 1.3GW wind farm, comprising 165 turbines, was developed by Orsted and entered commercial operation in August last year.

Following a competitive tender, Diamond Transmission Partners, a consortium between Mitsubishi Corporation and HICL Infrastructure, was selected by Ofgem in September 2022 as its preferred bidder to own and operate the assets for the next 24 years.

Alongside the notice confirming the appointment, the regulator also revealed the final transfer value for the assets, which Diamond Transmission Partners will pay the developer to acquire them.

The indicative transfer value was calculated at £1,189.5 million in January 2022 but the figure has been lowered by almost £50 million to £1,141.2 million due to a combination of factors, including a reduction in capital expenditure of £6 million, a reduction in interest costs of £9.9 million and the removal of a £28.5 million contingency.

Interconnector licences

Furthermore, Ofgem has issued granted interconnector licences to two subsidiaries of National Grid Ventures, which are developing the 1.8GW LionLink (formerly EuroLink) and 1.4GW Nautilus interconnectors to the Netherlands and Belgium respectively.

The projects are planned to be multi-purpose interconnectors linking to offshore wind farms part way through their route. Both received approval from Ofgem in December to take part in its multi-purpose interconnector pilot scheme.