UK regulator Ofgem confirms need for huge Eastern HVDC link

UK energy regulator Ofgem has confirmed its support for the proposed 4-GW Eastern High Voltage Direct Current subsea power cable project between Scotland and England, which at GBP3.4 billion ($4.07 billion) would be Great Britain's largest electricity transmission project in recent history.

The project, comprising two 2-GW subsea links down the east coast of Scotland to the northeast of England, is needed to ease north-south network bottlenecks and transit surplus renewables from Scotland to demand centers in England, Ofgem said.

Considering "the projected increase in renewable generation on the pathway to achieving the Scottish and UK Governments' legally binding Net Zero goals, we are satisfied that there remains a need for both links," Ofgem said in a June 8 decision document.

The links, one from Torness to Hawthorn Pit in County Durham, one from Peterhead to Drax in North Yorkshire, are being developed by National Grid Electricity Transmission, SP Transmission and Scottish Hydro Electric Transmission.

They will be considered under Ofgem's Large Onshore Transmission Investment (LOTI) mechanism for "late model" competition, rather than the more time-consuming Competitively Appointed Transmission Owner (CATO) model or Special Purpose Vehicle (SPV) model, the regulator said.

Financial penalties could apply in the event of delays, Ofgem said, noting its approval was subject to planning consent.

The shorter Torness to Hawthorn Pit link is expected to be operational from 2027.

The longer Peterhead-Drax link is expected to be in operation from 2029.

Locational pricing considered

Ofgem noted a warning from a consultation respondent that the Eastern HVDC may not be needed if the government decided to move to a locational pricing market model, giving generators "stronger signals to locate elsewhere (eg off the shores of England and Wales)."

The Department for Business, Energy and Industrial Strategy is carrying out a Review of Electricity Market Arrangements, while National Grid Electricity System Operator said in a recent Net Zero Reform program that nodal pricing "offers superior outcomes for value for money, consumer fairness, adaptability and full chain flexibility."

"We are in the process of assessing the costs and benefits of implementing locational pricing in the GB wholesale electricity market, which we expect to conclude in Autumn 2022," Ofgem said.

And while agreeing in principle that any reform to market arrangements could impact the needs case for network upgrades, there was no indication of when reforms might take place, or what impact they would have on the location of renewables, it said.

Furthermore, Ofgem was satisfied additional boundary transfer capability would be needed across the border between Scotland and England ahead of 2030 regardless of changes to future market arrangements.

As such there was a "greater and more immediate risk of consumer detriment in delaying Eastern HVDC" that could cost GBP400 million in constraint costs in the event of a one-year delay, and double this in the event of a two-year delay.

Platts, part of S&P Global Commodity Insights, assessed the price of Q4 2022 baseload power in the UK market at GBP423.30/MWh July 8, up 18% since the start of the month, S&P Global Commodity Insights data showed.

Constraint costs to wind and gas assets alone last year totaled over GBP1.1 billion, ESO data showed.