UK energy regulator Ofgem cuts GBP47 million off Shetland Link costs

UK energy regulator Ofgem has proposed slicing GBP46.8 million ($65 million) off SSEN Transmission's submitted cost for the 600-MW Shetland HVDC Link project connecting Shetland to the Scottish mainland, Ofgem said Sept. 3.

SSEN Transmission is contracted to connect SSE's 443-MW Viking Energy Wind Farm on Shetland by Q4 2024.

The wind farm is forecast to produce 1.80 TWh/year, equivalent to the annual consumption of 475,000 households. Shetland has a population of 23,000, hence the need for a 250-km subsea power cable, integrating future wind energy into the wider Scottish network.

"SSEN Transmission submitted its initial costs for delivering the Shetland Link to Ofgem in November 2020, amounting to GBP657.8 million," Ofgem said.

Further updates from the network operator in May and August lifted this assessment to GBP675.4 million, including GBP68.6 million relating to general project risk.

Now Ofgem has proposed a cost allowance of GBP628.6 million, a 6.9% reduction on SSEN's submitted figure, removing some GBP30.3 million in project risk.

The proposed reduction was the result of benchmarking against similar projects "and our detailed assessment of SSEN Transmission's contracting and risk management strategy", Ofgem said.

"We are minded not to allow GBP30.3 million in the ex-ante allowance relating to general project risk, COVID risk and Brexit risk," it said.

Instead it would allow SSEN a window of opportunity to submit "additional justified funding requests" relating to COVID-19 and other risks, should costs exceed a threshold.

A final decision on the costs, to form part of SSEN's regulated asset base and therefore determine the asset's level of remuneration, was due by November.