SSEN’s Orkney transmission link is too costly, says Ofgem

Tests set by Ofgem for approving a new subsea transmission cable to link the Orkneys with mainland Scotland threatens the viability of a project designed to tap into the islands’ rich wind and tidal power resources for the UK electricity grid.

SSE’s network arm Scottish and Southern Electricity Networks (SSEN) has submitted plans to build a 220MW subsea cable to connect Orkney to mainland Scotland.

In its final business case for the link, submitted in March 2018, the company asked Ofgem to approve the £260 million project on condition that by the end of next year 70MW of generation capacity on Orkney has been committed to use the link once it is constructed.

SSE says there is “significant” potential for renewable generation on Orkney, particularly wind and tidal, which can only be realised if a new transmission link to Orkney is constructed because otherwise the power cannot be exported.

The regulator has said it is minded to conditionally approve the final needs case for the Orkney transmission project.

However Ofgem has said that SSEN must demonstrate that at least 135MW of new generation on Orkney has by December 2019 either been awarded a contract for difference (CfD) or secured planning consent and finance. The next CfD auction is due to take place next spring.

The regulator defends its proposals on the grounds that SSEN’s proposals do sufficiently safeguard consumers against the risks of paying for a link that is bigger than needed.

Ofgem has also proposed that the cost of building the link can be cut by using the “competition proxy” model, which has previously been used for National Grid’s Hinkley C connection.

Under this model, SSE’s revenues for building and operating the connection will be set in line with the expected outcome if it had been competing for the project.

Ofgem said it will decide on the business case for the Orkney link in spring 2019 when it will also confirm whether it will use the competition proxy model.

However SSEN said it “strongly disagrees” with Ofgem’s view that 135MW of new generation is required before the project can be approved.

The company said that its judgement that no more than 70MW of new generation is required to justify the investment in the project is based on well-established, industry best practice, used to assess similar transmission projects.

And it said it is “unclear” why Ofgem is proposing a different test for Orkney, which conflicts with Ofgem’s own guidance on these types of transmission investments.

The combination of conditions proposed by Ofgem look “extremely challenging to achieve” and risks threatening the viability of the project, warned SSEN.

The company has also expressed concern about Ofgem’s decision to adopt the competition proxy model, which it said has still not been fully developed by the regulator, rather than the well-established strategic wider works model.

David Gardner, director of transmission at SSEN, said the announcement is a “crucial step forward” for the project and Orkney’s renewables industry after over a decade’s work on creating a transmission connection to Orkney.

“Whilst there are still several obstacles to overcome, having got this far it is important we don’t miss this opportunity to unlock Orkney’s vast renewables potential.

“We will therefore continue to work in close consultation with our generation customers and wider stakeholders to address the key points raised by Ofgem in its consultation.”

Ofgem is separately consulting on whether to approve a SSEN trial to prioritise generation projects which are most ready to connect and so preventing less ready ones from blocking the queue.