A subsidiary of Scottish energy firm SSE and its power plant on the shore of Loch Ness are at the heart of a new supply price probe by Ofgem.
The industry regulator is looking at whether SSE Generation and also EP SHB, which owns South Humber Bank gas power plant overcharged the National Grid and may, ultimately, have pushed up household energy bills.
Possible licence breaches
Ofgem is trying to establish if the two firms broke the terms of their licences under arrangements aimed at making sure there is continuity of electricity supply for domestic customers throughout the UK.
A key part of ensuring the lights stay on across Britain is to balance the grid.
This means it is important that power plants do not generate more electricity than households and businesses use at any given point and vice versa.
Financial incentive
To do this the grid can ask electricity generators to stop producing, or reduce the amount of electricity they are putting into the network.
In return, the grid will often pay these producers to turn off or reduce their production.
Ofgem is looking into whether SSE Generation at times requested too much money to stop or slow production from its pumped storage power station at Foyers, on the southeast shore of Loch Ness.
Was SSE overcharging?
The site works by pumping water from Loch Ness to Loch Mhor when electricity is in good supply.
It then allows gravity to push the water back down to Loch Ness, sending it through a generator on the way to create electricity.
SSE Generation charged the grid up to £60 per megawatt hour for slower production, starting in May 2020.
This was “significantly more expensive” than bills it had submitted in the past, Ofgem said.
The regulator will probe whether this breaks the duty of generators not to charge “excessively expensive” prices.
Meanwhile, between October 2019 and May 2021, EP SHB regularly set bid prices at a level that was “particularly expensive for a gas-fired power station”, Ofgem said.
Reducing gas production also means producers save money they would otherwise spend on buying gas to burn.
Perth-based SSE said that as a “responsible operator of generating assets” it would comply fully with the investigation.
EP SHB said: “As this is an open investigation we have no comment to make at this stage.”
We will continue to take action where we see evidence of generators failing to comply.”
Ofgem.
Transmission constraint costs have gone up over time, and are expected to continue to rise as the types and location of generation connected to the transmission system change to decarbonise the energy system.
Ofgem said: “Given this, licensees’ compliance with the TCLC (transmission constraint licence condition) is crucial in order to ensure the transition to net-zero can take place at the lowest cost possible.
‘Robust approach’ needed
“We encourage all generators to take steps to ensure that their bid prices are not excessive where a transmission constraint may be present, through applying a robust approach to estimating all of the costs, avoided costs and operational risks of curtailment and regularly reviewing it.
“We will continue to take action where we see evidence of generators failing to comply with the TCLC.”
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