OFGEM New approach to secure Shetland electricity supply (2664X)

TIDMBD56 TIDMSSE

RNS Number : 2664X

OFGEM

23 November 2017

23 November 2017

New developments result in a fresh approach to securing Shetland electricity supply

Ofgem has decided to reject a proposal by National Grid Shetland Link Ltd and Aggreko to build a subsea electricity distribution link from Shetland to mainland Great Britain.

Scottish and Southern Energy Networks (SSEN), the system operator for Shetland, recommended the proposal in May following a competitive process and in July Ofgem launched a consultation on the costs of it. Ofgem agrees that the companies made an efficient business case to develop the link.

However, since then two major developments have changed the case for the proposed link.

-- A change made in July 2017 at EU level to a document that sits under the Industrial Emissions Directive (IED) means that tougher emissions targets which were due to apply to Lerwick Power Station from 2020 will now only apply from 2030. This view is supported by the Scottish Environment Protection Agency (SEPA).

-- In October 2017 the Government announced that, subject to receiving State Aid approval, wind farms on remote islands such as Shetland will be eligible to compete for a Contract for Difference (CfD) in the next auction for less established technologies, planned for 2019.

In light of the changes under the IED, Ofgem sought assurance from SSEN that security of supply on Shetland could be maintained until at least 2025. SSEN confirmed that with targeted investment, security of supply could be provided until 2025 through a combination of Lerwick Power Station and additional supporting measures. This can be done at a cost that is significantly below that of the National Grid Shetland Link Ltd and Aggreko solution. This also allows for the possibility of further savings being realised if a more integrated solution comes forward, notably if a transmission link is needed following the next CfD round.

-ends-

1. Ofgem will publish a document setting out its decision in more detail next week.

2. Lerwick Power Station on Shetland was built in 1953. It was expected that it would need to have closed by 2020 as it would not be compliant with the IED.

As a result, Ofgem decided in 2014 to require SSEN to run a tender for ensuring security of supply on Shetland. SSEN completed this in May 2017 and recommended the proposal by National Grid Shetland Link Ltd and Aggreko for an electricity distribution link between Shetland and the mainland with a backup diesel generator on Shetland.

Changes introduced on 31(st) July to a document that sits under the IED mean that tougher emissions targets will only apply to 'small isolated systems' such as Shetland from 2030. In Scotland, SEPA is responsible for ensuring compliance with the IED. SEPA has confirmed that the change means the previous deadline of 1 January 2020 for Lerwick Power Station to comply with those targets has now been put back to January 2030. However, SEPA noted that it will also undertake a review of its emissions performance and decide whether additional conditions are required.

3. For more information on the Government's CfD allocation rounds, see this. Government has confirmed that remote island wind projects, including in Shetland, will be eligible to compete in the next round for less established technologies, subject to receiving State Aid approval."

Further information

For media, contact:

Chris Lock: 0207 901 7225

Media out of hours mobile: [phone] (media calls only)

For investors, contact:

Martin Young: 0207 901 7114

About Ofgem

Ofgem is the independent energy regulator for Great Britain. Its priority is to make a positive difference for consumers by promoting competition in the energy markets and regulating networks.

For facts, figures and information about Ofgem's work, see Energy facts and figures or visit the Ofgem Data Portal.

Follow us on Twitter @ofgem and LinkedIn

This information is provided by RNS

The company news service from the London Stock Exchange

END

IRSZLLFLDFFZFBD

(END) Dow Jones Newswires

November 23, 2017 02:00 ET (07:00 GMT)