SSE warns against root and branch wholesale reform

The government should not go back to the drawing board with its mooted electricity market review, SSE has argued, whilst warning that introducing locational wholesale pricing will “significantly increase uncertainty” for investors in large-scale energy projects.

In an updated response to the House of Lords Economic Affairs Committee’s ongoing inquiry into energy supply and investment, the company raised concerns about the Review of Electricity Market Arrangements (REMA), which was announced in the government’s recently published energy security strategy.

Pointing to the level of investment it has already committed to decarbonisation of UK electricity supply by 2030, SSE says the REMA should be an “evolution” of existing market frameworks rather than an exercise that goes “back to the drawing board”.

The response also urged the government to ignore calls to introduce locational pricing into the wholesale electricity market.

In a recent report, National Grid Electricity System Operator (ESO) described the wholesale electricity market as “no longer fit for purpose” and called for the introduction of nodal pricing, whereby the transmission network would be split into a number of nodes, each with their own wholesale price reflecting the cost of supplying electricity at that location. An earlier report from Octopus Energy and the Energy Systems Catapult found that locational pricing could reduce energy system costs by £30 billion by 2030 based on modelling of the less granular option of zonal pricing.

However, SSE’s response to the Economics Affairs Committee said that breaking the market down in this way would “significantly increase uncertainty” for investors in large-scale renewable energy infrastructure.

It said other options could deliver similar outcomes with “less disruption”. Any benefits local pricing delivered in terms of system costs would be “outweighed” by the “detrimental” impact it could have on capital financing costs in low carbon infrastructure, the company argued.

The response also urged “fast-track” implementation by the government of a “strategic” compensation mechanism for the potential adverse impacts of renewable projects.

It said a government-led approach to offsetting environmental effects and reducing delays is required because it is “increasingly clear” that delivering this kind of compensation on a project-by-project basis is becoming “unsustainable”.

As an example of a strategic compensation measure, the closure of North Sea sand eel fisheries would help to enable consent for several projects in Scotland, including SSE’s 4.1GW Berwick Bank project located in the Outer Firth of Forth, according to the company.

It also said all projects in the Crown Estate’s ScotWind seabed leasing round must be included in the Holistic Network Design (HND) for the UK’s offshore transmission network, which is currently being developed by Ofgem and the ESO. 

With only 10.7GW of 25GW currently able to connect by 2030, failing to incorporate these projects into the HND, will “undermine” renewable energy investment in Scotland and “threaten” the delivery of the government’s target of 50GW of offshore wind by 2030, the response said.

Allied with this, SSE said the amount of wind projects that receive Contracts for Difference should not be “artificially” limited in the current allocation round and the Department for Business, Energy and Industrial Strategy should procure as much offshore wind as possible from developers able to meet a “competitive” strike price level.