The UK energy regulator Ofgem has announced proposals to allow £1.1 billion funding for a new subsea link serving renewable energy projects in the north of Scotland.
The new link, the Caithness – Moray Transmission Project, will connect 1.2 GW of new renewable electricity generation following its completion in 2018, connecting the electricity grid on either side of the Moray Firth. The link will reinforce the transmission network serving the north of Scotland enabling it to connect a number of proposed wind, wave and tidal generation sites to the national grid. The subsea cable will extend between Caithness and Moray and the project also includes a number of associated upgrades to the onshore transmission network. The additional capacity generated by the proposed projects and the new transmission link will increase the resilience of the UK’s energy infrastructure.
The proposal is £173.9 million less than the funding request from Scottish Hydro Electricity Transmission (SHE Transmission) which initially estimated project costs at £1,236.2 million. Based on its assessment of the project, Ofgem issued a proposed efficient cost of £1,062.3 million.
“While SHE Transmission is disappointed with the level of the allowances proposed today, the consultation does enable further engagement with Ofgem to take place on important issues, such as the best way for treating contingency and risk-related costs” said a spokesperson for SSE.
The regulators lower cost assessment is based on a range of analysis including unit cost benchmarking, a detailed review of some of the costs, comparisons to similar projects and a review of SHE Transmission’s procurement strategy and processes. Ofgem’s proposals ensure that the consumer will pay no more than necessary to support the project.
Ofgem introduced its SWW arrangements as part its wider RIIO-T1 price control strategy. These arrangements allow the regulator to adjust the expenditure a transmission owner is allowed to make when delivering new transmission projects. The regulator also appointed DNV GL to provide assistance when conducting the assessment. This involved making recommendations regarding efficient costs on the particular areas of the project the company examined.
“Our consultants carried out a line by line review of the resourcing role profiles” said Ofgem in its official consultation document. “This analysis suggested there is excessive monitoring of contractors, some duplication of roles, over allocation of staff, and high average day rates.”
The proposals are now under consultation for four weeks and the final funding decision will be made in December.