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Ofgem backs 600-MW Shetland Isles link, rejects Western Isles proposal

Britain's Office of Gas and Electricity Markets, or Ofgem, is considering approving Scottish and Southern Energy Networks' proposal to build a 600-MW subsea transmission line that would connect the Shetland Isles to the Scottish mainland.

The proposed £709 million link would allow new wind farms on Shetland to export electricity to the rest of Great Britain and help ensure security of supply on the islands. In order to obtain the final Ofgem approval, the SSE PLC subsidiary still needs to demonstrate by the end of 2019 that the proposed 412-MW to 457-MW Viking wind farm on the Shetland archipelago in Scotland secures a U.K. government subsidy contract, the energy regulator announced March 19.

Under the government's contract for difference auction, scheduled to take place by May, onshore wind farms on remote islands and tidal energy projects will compete with offshore wind parks and a range of other technologies for up to 6 GW of capacity commissioned between 2023 and 2025. Under the contract for difference scheme, less-established renewables bid in competitive auctions to receive long-term contracts with a guaranteed strike price.

The proposed Shetland Isles high-voltage, direct-current circuit would run from Kergord on Shetland to Noss Head in Caithness on the Scottish mainland, almost all of which will be underwater. It will run about 260 kilometers and connect into the Caithness-Moray transmission link, a 1,200-MW high-voltage, direct-current project, and would be completed in 2024.

Additionally, Ofgem said it was inclined toward rejecting a separate proposal by Scottish and Southern Energy Networks, or SSEN, for a 600-MW transmission link to connect the Western Isles to the mainland based on two Lewis wind farms, which are being awarded subsidies through the contract for difference auction.

However, the regulator indicated that it could approve a revised proposal for either a 450-MW or 600-MW transmission link provided such alternative plan "more appropriately protects consumers from the additional costs of funding a potentially significantly underutilised link."

As originally proposed, the 600-MW Western Isles link was estimated to cost about £663 million and targeted completion in 2023. SSEN's equivalent initial estimate for a 450-MW link put the cost at around £617 million.

Ofgem plans to use a "competition proxy" model to set the revenue SSEN can earn from building and operating those links based partly on the regulator's experience in reducing costs of connecting offshore wind projects to the grid by tendering the ownership of those lines.

The regulator expects to make a decision on the business case for the Western Isles and Shetland links in mid-2019.

SSEN operates as Scottish Hydro Electric Transmission PLC under license.