Ofgem consults on Shetland and Western Isles links

Ofgem is minded to approve a proposal by Scottish and Southern Energy Networks (SSEN) to build a 600MW subsea electricity transmission link from Shetland to mainland Scotland.

The link would allow new wind farms on Shetland to export renewable electricity to the rest of Great Britain and help ensure security of supply on the islands.

SSEN estimates the link would cost around £709 million and would be completed in 2024. Ofgem is consulting on approving the link subject to SSEN demonstrating, by the end of 2019, that the Viking Energy Wind Farm project planned for Shetland has been awarded subsidies through the UK Government's Contracts for Difference (CfD) auction. This would protect consumers from the risk of paying for a link that it is bigger than needed.

Ofgem is minded to reject SSEN's separate proposal to build a 600MW transmission link to connect the Western Isles to the mainland 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 underutilised link

Ofgem 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.

SSEN's initial estimate for the proposed Western Isles 600MW link put the cost at around £663 million, and would be completed in 2023. SSEN's equivalent initial estimate for the 450MW link put the cost at around £617 million.

Ofgem estimates that the costs to consumers of building the Shetland and Western Isles links could be reduced significantly. Ofgem plans to reduce costs by seeking to replicate the outcomes of competition. The regulator is minded to use the 'Competition Proxy' model, setting the revenue that SSEN can earn from building and operating these links based in part on the regulator's experience in cutting the costs of connecting offshore wind farms to the grid by tendering the ownership of these links. 

Ofgem regulates network companies including SSEN, which is a subsidiary of SSE. All energy consumers pay for the cost of investment in new capacity through their energy bills and the regulator ensures that it obtains the best deal possible for them.

Ofgem will make a decision on the business case for the Western Isles and Shetland links in mid-2019. It will confirm whether it will use the Competition Proxy model at the same time.