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SSE Under Fire from Ofgem for Scottish Network Costs

SSEThe Shetland Isles may not seem a hot bed of controversy for the energy industry but it plays a critical role in adding cost to the electricity bills of the nation.

Now though Shetland, and by extension, the energy industry faces a big and rather expensive decision.

The existing sources of electricity generation for the islands aer Lerwick Power Station and Sullom Voe Terminal Power Station.

Lerwick Power Station is nearing the end of its operational life and the future of the Sullom Voe Terminal Power Station is uncertain from 2017 onwards.

In order to tackle this problem Scottish Hydro Electric Power Distribution, part of SSE, submitted a proposal to Ofgem for a new power station to be built in Lerwick.

In April 2014 Ofgem ruled that the proposal was not acceptable on the grounds of cost and requested “a market based solution” to be achieved via a competitive tender process.

The intention had been for the new power station, scheduled for delivery in 2017 to be able to work in tandem with the Northern Isles New Energy Solutions (NINES) project bringing renewable energy and security of supply to the islands of Scotland.

Now however, another SSE project, the laying of a 90-mile cable under the Moray Firth, has also come under fire from Ofgem.

The regulator claims that SSE has overstated the costs involved and that the project is potentially £174m over budget on the £1.24 billion scheme suggesting that the company has a habitual inclination to over estimate risk costs in major infrastructure projects.

Some would argue this is an entirely prudent approach, however following on from the Lerwick power station feedback, Ofgem said:

“This additional capacity will increase the resilience of Britain’s energy infrastructure [but it needs to] to ensure consumers pay no more than necessary”

Adding that SSE had:

“A tendency to overestimate the probability of risks [with] little justification or evidence for the estimated impact of certain risks”.

SSE responded saying:

“While SHE Transmission is disappointed with the level of the allowances proposed today, the consultation does enable further engagement with Ofgem to take place on important issues, such as the best way for treating contingency and risk-related costs.”

A final decision on the funding of the scheme will be made in December.

Whatever the outcome, the future energy supply to Shetland and Scotland’s renewable vision will shortly be appearing on an energy bill near you.