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Power giant SSE hit by monster fine after Loch Ness power station 'increased profits' probe

By Neil MacPhail

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Foyers power station at Loch Ness.
Foyers power station at Loch Ness.

Energy watchdog Ofgem has fined power giant SSE a record £9.78 million for overcharging during efforts to reduce output to stop the electricity grid becoming overloaded.

The power station at Foyers on Loch Ness was the centre of an Ofgem investigation for breaching its generation licence.

The investigation was into excessive payments SSE secured from the National Grid during a period of “power constraint”.

This is when operators are paid to “power down” if there is not enough network capacity to take power out of an area where generation outstrips demand.

Industry regulator Ofgem said in May 2020, SSE took the decision to make the bid prices it charged the grid to reduce Foyers’ output significantly more expensive – including in periods of transmission constraint.

This change was made to bring Foyers in line with what SSE believed was the market practice of other pumped storage operators, and to increase profit.

Its revised prices were expensive relative to several relevant comparators, and were not compliant with SSE’s Transmission Constraint Licence Condition (TCLC).

The bids submitted resulted in higher balancing charges, ultimately increasing costs for consumers.

Ofgem has not seen any evidence which suggests that the breach was deliberate, that is that SSE changed its pricing strategy for Foyers knowing that the revised strategy would breach the TCLC. However, Ofgem considers that it should have been clear to SSE that its revised approach carried a significant risk of breaching the TCLC.

The penalty will be paid to the Energy Redress Fund that supports people most at risk from high energy bills.

Energy companies have been accused of exploiting the network’s “balancing mechanism” of payments that ensures the grid can match supply and demand.

National Grid’s Electricity System Operator pays energy companies to increase or decrease their output to match demand, with the costs being met by consumers.

The watchdog found that SSE breached the rules that were in place, but the breach had not been deliberate.

SSE has promised to instal a new pricing system designed to properly reflect the costs and benefits of reducing its generation at Foyers.

The level of the fine was cut from £11.58 million to £9.78 million by SSE settling the investigation early and by engaging constructively with the regulator.

Cathryn Scott, director of enforcement and emerging issues at Ofgem, said: “This enforcement action sends another strong signal to all generators that they must put in place controls to ensure that their bid prices are set in a way that ensures that they do not obtain excessive benefits during transmission constraint periods. If they fail to do so, they will face significant consequences.”

A spokeswoman for SSE said: “We aim to comply with regulations at all times and believed we were doing so in this case. We co-operated fully with the investigation. Following the investigation, we are updating our relevant procedures accordingly.”

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