Drew Ratter: Powerful argument to meet Shetland's electricity needs

In August, the UK government launched a review aimed at reducing the high cost of electricity paid by consumers and businesses.

One of the turbines at the Burradale wind farm in Shetland, the most productive in the world. Photo: Paul Riddell
One of the turbines at the Burradale wind farm in Shetland, the most productive in the world. Photo: Paul Riddell

Ironically, the electricity regulator Ofgem, which boasts of “making a positive difference for energy consumers”, was already busy consulting on a proposal that, if implemented, will cost consumers almost half a billion pounds more than it should.

Yes, half a billion pounds. You couldn’t make it up.

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Let me explain. Shetland is the only major island group in the UK that is not connected to the national electricity grid. It relies on a diesel power station which has reached the end of its lifespan to keep the lights on (topped up by a gas turbine power station at the Sullom Voe Oil Terminal and as much wind generation as a closed grid can withstand).

Instead of a replacement for Lerwick Power Station, Ofgem is recommending the installation of a 60MW import-only cable from Caithness to Shetland to supply electricity to the islands, with back-up from 64 standby generators housed in containers near Lerwick.

The proposal is from SSE Networks (SSEN), owner and operator of the electricity grid in the north of Scotland, and would be built by National Grid’s commercial arm NGSLL (cable) and Aggreko (stand-by generators), most likely by late 2020 or early 2021.

Ofgem’s own documentation states that the cost of this cable plus standby generation will be £582 million over 20 years, £450m of which will have to be met by UK electricity customers.

Ofgem appears determined to press ahead with the cable. It is very clear that to do so would amount to a dereliction of its role as custodian of electricity consumers’ money.

But the solution is at hand – if the regulator stops ignoring the elephant in its own room next door.

At the same time as it is preparing to sign off on a 60MW cable, Ofgem has developed a blind spot about a parallel process for a much larger 600MW transmission cable to allow the export of electricity from our consented Viking Energy Wind Farm project, a 50:50 joint venture between the Shetland community (principally through the Shetland Charitable Trust) and SSE Renewables.

At no extra cost, this cable would (i) perform the function of the smaller cable, (ii) provide much greater value for money to electricity consumers and (iii) allow Shetland to become a nationally significant producer of renewable energy while also helping to diversify a marginal economy, creating up to 800 jobs and generating income of up to £233m (including potentially £82 million in community benefit).

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The Conservative election manifesto committed the government to a policy of supporting “the development of wind projects in the remote islands of Scotland, where they will directly benefit local communities”. In discussions, civil servants and ministers have suggested a possible timetable that could allow projects such as ours to bid for an electricity contract under the Contracts for Difference (CfD) system in late 2018 or early 2019, which could lead to the large interconnector cable being commissioned in 2023.

The cost to electricity consumers of the 600MW cable is estimated to be £885m over 15 years, which means that together the two cables would cost £1.467 billion.

The cost of the large cable (£855m) and the back-up generators (£132m) amounts to only £1.017bn.

With such a huge potential saving available, and the prospect of being able to deliver nationally significant electricity production from Shetland’s world-class wind resource at times when the wind is not blowing elsewhere in the UK, the government should be breaking down barriers, not creating them.

Ministers should call in the small cable proposal as a matter of urgency to review the excessive burden on electricity consumers.

Drew Ratter is the chairman of the Investment Committee of Shetland Charitable Trust