Ofgem said it is minded to approve the Scottish and Southern Energy Networks (SSEN) 600MW transmission link, which would allow new wind farms on Shetland to export renewable electricity to the rest of the UK and help ensure security of supply on the islands.
However it said it is minded to reject a similar project in the Western Isles.
The Shetland project would consist of a single 600MW subsea circuit from Kergord on Shetland to Noss Head in Caithness on the Scottish mainland, connecting into SSEN’s recently completed Caithness-Moray transmission link.
It is estimated the link would cost around £709 million and would be completed in 2024.
Ofgem is now consulting on approving the link subject to SSEN demonstrating, by the end of 2019, that the Viking Energy Wind Farm project planned for Shetland has been awarded subsidies through the UK Government’s Contracts for Difference (CfD) auction.
Colin Nicol, managing director of SSEN, said: “Ofgem’s decision to provisionally approve SSEN’s 600MW proposed transmission link is an important milestone in connecting Shetland to the mainland electricity network and helping to unlock its significant renewables potential.
“There are still a number of steps to be taken before we can proceed with the transmission connection, in particular the requirement for renewable developments to secure CfD support in this year’s auction, and we will continue to engage with key stakeholders during this consultation period.
“We also await clarity from Ofgem on their assessment of our proposed whole system solution.
“This decision will be important in reducing costs for consumers and securing the best economic case for delivery of renewable development in Shetland and Scotland’s other island groups.”
However, the energy regulator has suggested changes to SSEN plans for the western isles.
In a statement, Ofgem said: “Ofgem is minded to reject SSEN’s separate proposal to build a 600MW transmission link to connect the Western Isles to the mainland based on two Lewis Wind Power wind farm projects being awarded subsidies through the CfD auction because of the risk of consumers paying for a significantly underutilised link.
“Ofgem would instead support an alternative proposal that more appropriately protects consumers from the additional costs of funding a potentially significantly underutilised link.
“This could be either a 450MW or 600MW transmission link depending on any revised proposals SSEN put forward.”
An initial estimate for the 600MW link for the western isles put the cost around £663 million and a 450MW link at around £617 million.
SSEN is calling on Ofgem to reconsider its provisional decision and said that a 450MW link would be short sighted, limiting the potential for community schemes to benefit from renewables expansion.
Mr Nicol said: “Moving to a 450MW at this late stage also introduces risks and uncertainty which, in turn, could impact on the delivery of a transmission link to the Western Isles.”
Ofgem said it plans to reduce costs by seeking to replicate the outcomes of competition and is minded to use the ‘Competition Proxy’ model, setting the revenue that SSEN can earn from building and operating the links.
Western Isles Council said it believes a 600MW connection is in the local and national interest and said it would use the consultation period to make a “robust case” for such a link.
Council leader Roddie Mackay said: “The present consultation is a step in the right direction and one that opens potential for significant development opportunity in the islands.
“I am, however, extremely disappointed at the short-sightedness of Ofgem’s position of being minded to approve a 450MW connection rather than 600MW.
“I am confident that the present pipeline of renewables projects will quickly fill a 600MW cable and that Ofgem’s fears around 150MW of stranded assets are ill-founded.”
Hannah Smith, senior policy manager at Scottish Renewables, said: “We welcome Ofgem’s minded-to position on the Shetland interconnector - the lack of which has left promising projects effectively locked out of the energy market for want of a network connection.
“The decision to approve a smaller connection to the Western Isles - which is in an almost-identical situation - does, however, raise questions about whether consumers now and in the future will be denied access to the islands’ potential for low-cost renewable generation.”