19th Mar 2019 09:33
LONDON (Alliance News) - Ofgem on Tuesday said it "is minded" to approve a GBP700 million link between the Shetland islands and mainland Scotland but may reject one with the Western Isles.
Scottish & South Energy Networks, part of SSE PLC, wants to build the 600 megawatt subsea electricity transmission link with Shetland by 2024, costing "around" GBP709 million.
The link would allow new wind farms in the Shetlands to export their renewable power to the rest of Great Britain.
SSEN has to demonstrate by the end of 2019 that the Viking wind farm project planned for Shetland has got subsidies from the UK government, protecting consumers from paying for a link bigger than needed.
However, UK energy regulator Ofgem is more likely to reject SSEN's plan for a 600 megawatt link between the Western Isles and the mainland.
This is due to two wind power projects on the isle of Lewis getting subsidies because of a risk consumers will pay for a "significantly" underused link.
Ofgem recommends a different proposal to protect consumers, seeing either a 450 megawatt link or a 600 megawatt link depending on what SSEN proposes.
The Western Isles link would cost around GBP663 million at 600 megawatts, completed in 2023, and the 450 megawatt link would cost GBP617 million.
"Ofgem estimates 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," said Ofgem.
"The regulator is minded to use the 'competition proxy' model, setting the revenue 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."
Decisions on the business cases for the links will be made in mid-2019, as will a decision on whether to use the 'competition proxy' model.
Shares in SSE were marginally lower on Tuesday at a price of 1,224.50 pence each.
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