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06/09/2014 14:42

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RNS Number : 0210M
OFGEM
11 July 2014 
 
11 July 2014 
 
OFGEM GIVES GREEN LIGHT TO NEW £1.2 BILLION SCOTTISH SUBSEA LINK AND
TRANSMISSION CHARGING REFORM 
 
·      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." 
 
 Ends  
 
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. 
 
For further press information contact:
Lisa O'Brien:             020 7901 7426
Dafydd Wyn:            020 3263 9943
Mark Wiltsher:          020 7901 7006
Out of hours media contact number:  07766 511470 
 
This information is provided by RNS
The company news service from the London Stock Exchange