Ofgem gives green light to new £1.2 billion Scottish subsea link and transmission charging reform

Press release
Publication date
Industry sector
Transmission Network
  • Ofgem approves need for new link between Caithness and Moray
  • New link will bring 1.2GW of renewable energy to Britain’s electricity network
  • Ofgem approves new transmission charging methodology, effective from April 2016
  • Actions will contribute to an energy system that is fit for purpose for future consumers

Ofgem has today given the green light for a new subsea link in the north of Scotland. Scottish Hydro Electricity Transmission (SHE Transmission)’s significant upgrade of the electricity network is a £1.2 billion project. It is expected to connect 1.2GW of new renewable electricity generation following completion in 2018. This will help meet Britain’s renewable target at a lower cost to consumers.

The new subsea link will connect the electricity grid on either side of the Moray Firth. SHE Transmission has already submitted more details on the project, and Ofgem is currently analysing them to check that the spending, technical and delivery plans for the upgrade are appropriate and offer value for money for consumers. If Ofgem finds that the project could be delivered for less, then it will lower the amount of funding allowed to complete it. We will consult on the detail of the funding proposals this autumn.

Today, Ofgem has also announced changes to the methodology for calculating what generators pay to use the electricity transmission network. This change is being made to better reflect the costs that different generators have on the system. It will come into effect on 1 April 2016. Ofgem analysis indicates the changes will lead to a more efficient system which will benefit consumers.

The methodology will retain the locational signal to encourage generators to build as close as possible to where energy demand is. This reduces the need to build costly infrastructure such as electricity pylons. The main update will recognise that renewable generation uses the system less than traditional forms of generation and so imposes lower costs. The change will therefore more accurately reflect the costs that different generators put on the electricity network.

Martin Crouch, Senior Partner, Transmission said: “This is a major step forward for an essential upgrade to the high voltage grid so that more renewable energy can connect to the networks. Today’s decision means that the company can move forward with work on the upgrade. We have already started on the next phase of checking SHE’s spending plans and we will ensure it completes the work as efficiently as possible so that consumers pay a fair price for this.”

Commenting on the plans to change transmission charges, Mr. Crouch added: “The changes to transmission charging are the result of an extensive consultation process and detailed analysis. The new arrangements more accurately reflect the costs of Britain’s diverse energy generation and will lead to lower costs overall for consumers.”

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Notes to editors
 

1. Decision documents

Ofgem’s full reasoning for the two decisions will be published within the next four weeks.

2. Transmission charging methodology

Ofgem’s decision confirms its minded to position to approve the “WACM2” proposal as recommended by the industry code panel, for implementation in April 2016.

Transmission charges

Transmission charges are paid by generators and suppliers for using the high voltage electricity network across Great Britain. Generators pay charges to flow power across the network while suppliers pay charges to take power from the network and transport it to their customers (ie businesses and homes). They account for four per cent of a household power bill. Generators face higher charges to transmit power the further they are located away from areas of high electricity demand as it costs more to transport their energy to consumers. Generators in the south of England pay lower charges, and in some cases receive payments. This is because they help National Grid avoid investment in reinforcing the high voltage grid. Under the updated methodology, this gap between north and south charges will reduce.

How transmission charges are set

Transmission charges for generators and suppliers are set by National Grid using a formula approved by Ofgem. The charges pay for building and running the high voltage networks. Charges are paid to National Grid in its role as the System Operator for Great Britain and National Grid recovers these costs from all users of the grid, both generators and electricity suppliers. This means generators pay charges to transmit power while businesses and homes pay for electricity to be transported to them as part of their bills. Location-based charges have been in place in England & Wales since the early 1990s and were introduced GB wide in 2005 to better reflect the costs that the transmission companies, National Grid, SHE Transmission and Scottish Power, face for running the high voltage grid.

3. About Ofgem

Ofgem is the Office of the Gas and Electricity Markets, which supports the Gas and Electricity Markets Authority, the regulator of the gas and electricity industries in Great Britain. The Authority's functions are set out mainly in the Gas Act 1986, the Electricity Act 1989, the Competition Act 1998 and the Utilities Act 2000. In this note, the functions of the Authority under all the relevant Acts are, for simplicity, described as the functions of Ofgem.

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