Ofgem’s wind farm veto frustrates Scottish officials

Ofgem has vetoed a 600MW link to Scotland’s Western Isles, despite SSEN saying it would cost only 5 per cent more than a 450MW one, while having a third more capacity.

The blustery week of 11-17 March led to wind power generating 38 per cent of Great Britain’s electricity, according to RenewableUK and Aurora Research. And over the course of 2018, wind projects generated more than a sixth, or 17.1 per cent, of the UK’s electricity needs – a new record and three times as much as coal – according to government Energy Trends statistics published last week.

However, some fear a decision made by Ofgem on 19 March could put a brake on a potentially valuable new source of wind energy.

The government has recently relaxed its effective embargo on land-based wind by saying schemes located on “remote islands” can qualify for contracts for difference (CfDs). This refers to the Western Isles of Scotland (Outer Hebrides) and the Orkney and Shetland islands.

SSE is seeking to build up to 457MW of wind capacity on the Shetland islands with its Viking investment.

And in the Hebrides, EDF Energy-backed Lewis Wind Power has plans for a combined generating capacity of up to 369MW at its Stornoway and Uisenis wind farms.

Both sets of islands are cut off from the transmission grid, though – a situation Scottish and Southern Electricity Networks (SSEN) is attempting to remedy by building two new 600MW links to connect them to the Scottish mainland.

In an eagerly anticipated decision, Ofgem gave its verdict on both projects a fortnight ago. The energy regulator gave SSEN the green light for the 600MW subsea link with the Shetlands, subject to the Viking scheme winning support in next month’s CfD auction.

‘Significant uncertainty’

However, the regulator has thrown a small spanner in the works by vetoing a 600MW cable connection with the Western Isles.

Instead, it has given its blessing to the north of Scotland network operator’s initial application for a 450MW link, which the company later decided to upgrade.

SSEN’s case is that the potential for wind generation in the Hebrides is so great that any unused capacity will be in demand from other wind farm operators on the islands.

However, Ofgem has ruled that there is “significant uncertainty” about whether more than 530MW of capacity will be delivered on the Western Isles – the break-even point it believes will determine whether the interconnector provides value for money for UK consumers.

But SSEN says a 600MW link will only cost 5 per cent more to build than a 450MW one, while providing a third more transmission capacity.

The small gap between the costs of the two projects is explained by the fact that much work such as trenching will have to be done irrespective of how big it is.

Dr Jonathan Marshall, head of analysis at the Energy and Climate Intelligence Unit (ECIU), defends Ofgem’s stance: “A bigger connection costs more so will make the cost of getting wind power from that farm into the grid more expensive. The risk is of Ofgem signing off investment that isn’t needed.”

‘Pound foolish’

But Lewis Macdonald, energy spokesperson for Scottish Labour, says Ofgem’s decision fails to understand the untapped potential of wind power in the Western Isles: “Any simple economic calculation would say that there’s one hell of an element of risk aversion.

“When you have the best wind potential certainly in Europe and a 4 per cent level of risk against a 33 per cent potential gain, it seems a no-brainer. They are just being far too cautious, they need to go back again,” he says, adding the decision is a “real false economy”.

Angus MacNeil, Scottish National Party MP for the Na h-Eileanan an Iar constituency that covers the Western Isles, worries that a smaller connection will make generation less economic for the proposed Lewis wind projects. Allowing more capacity would enable the costs of transmission to be spread, lowering the costs for the Lewis plant.

Branding Ofgem’s stance as “pound foolish”, he says: “By having 450MW, they will have a zero MW provision and zero MW clean energy into the grid.”

And MacNeil says he is “confident” more capacity will come on stream than EDF’s project. “If we hit 450MW, we will have to build another line and the cost increase will not be 5 per cent but another 100 per cent.”

Once 150MW of generation has been built, 600MW is an “economic solution”, says Joe Mitchell, policy officer at Scottish Renewables.

Scottish first minister Nicola Sturgeon has pledged to put pressure on Ofgem to reverse its decision on the larger connection, telling Holyrood that “for the islands’ full renewables potential to be realised, a larger link is required”.

CfD concerns

Mitchell also expresses concern that Ofgem’s verdict increases the uncertainty surrounding the upcoming CfD auction.

“It [the decision] came at a late stage so will contribute a lot of risk and uncertainty for the developer and network operator when there is an upcoming CfD auction.”

A spokesperson for EDF says: “We are aware of Ofgem’s announcement and we now need to consider the detail of their proposals carefully before providing our response.”

Marshall is not confident that even though they may be allowed to bid for CfD contracts, remote island projects such as Lewis will be winners in May’s auction. Pointing to recently published Department for Business, Energy and Industrial Strategy figures that show electricity generated by wind farms on remote islands will be more expensive than that produced offshore, he says: “The connection side is largely driven by capacity, which is largely driven by policy.

“No-one is expecting remote island wind to take up a vast amount of the next CfD budget because the cost of offshore wind has fallen even further and although onshore is cheaper, it’s more expensive if you do it on an island.”

Ofgem has a tough job weighing up, but it has clearly won few friends north of the border with this decision.