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Energy regulator questions business case for planned Scottish interconnector

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Energy regulator questions business case for planned Scottish interconnector

SSE PLC could be forced to tighten its business case for a planned 220-MW electricity interconnector to facilitate renewables development on the Orkney archipelago in Scotland as the U.K. energy regulator seeks to drive down the cost of the project.

The high-voltage subsea link is estimated to cost about £260 million and would transfer power from new wind farms and tidal power projects on the islands to the mainland Scottish grid once it comes online in 2022. But Britain's Office of Gas and Electricity Markets, or Ofgem, said the proposal by the company's regulated subsidiary, Scottish and Southern Electricity Networks, or SSEN, runs the risk of charging consumers for a bigger link than needed.

The regulator opened a consultation on whether SSEN should have to demonstrate that 135 MW of new generation capacity on Orkney has either been awarded contracts in the government's next renewables auction or secured planning consent and funding for construction by the end of 2019. In its original business case, SSEN had asked Ofgem to approve the project on a condition of only 70 MW of new capacity committed to using the line.

Ofgem said in a statement Dec. 14 that it may also seek to reduce the project's cost by applying its "competition proxy" model, which would set the revenue SSEN can earn from building and operating the Orkney link based in part on the cost-cutting achieved by competitive tenders for connecting offshore wind farms to the grid. The regulator will make a decision on the business case and whether to use the competition proxy model in spring 2019, it said.

SSEN said the proposed conditions would be extremely challenging and would threaten the viability of the project. In a separate statement, the company also complained that Ofgem was proposing tougher rules for the interconnector than it has for other similar transmission investments in Britain.

"Having got this far, it is important we don't miss this opportunity to unlock Orkney's vast renewables potential," said David Gardner, the company's director of transmission.

Under the government's next Contract for Difference auction, scheduled to take place by May 2019, 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 government expects that the tender could procure up to 4 GW of offshore capacity, and some analysts have predicted that the auction could exclusively award wind projects, as in the last round in 2017.

Since August, SSEN has proposed two further transmission links, to the Outer Hebrides and Shetland Isles, both with a planned capacity of 600 MW. A spokesperson for the company said it expects Ofgem to make a decision on those projects in early 2019 but did not comment on whether the company was preparing for a similarly stringent review as for the Orkney link.

SSEN operates as Scottish Hydro Electric Transmission Ltd. under license.