Energy regulator Ofgem announced that SSE Generation Limited is to pay £9.78 million for “breaching its licence after securing excessive payments from the National Grid Electricity System Operator in exchange for reducing output at Foyers pumped storage power station in North Ayrshire.”
This follows months of investigative work by the regulator.
“The penalty relates to our finding that SSE secured excessive payments from National Grid Electricity System Operator (NGESO) during periods of what is known as ‘transmission constraint’, said Ofgem.
“In order to meet our electricity needs, power must get from where it is produced to where it is consumed.
“Where constraints on the transmission system exist, then NGESO will take action to manage flows across the network, including using the balancing market to increase and decrease the amount of electricity produced by different generators.
“Situations which could cause transmission constraints might, for example, include where there is insufficient network capacity to transport power out of a particular area in which local generation exceeds demand.
“Typically, when managing a transmission constraint, NGESO will only have a limited number of alternatives available to it. This creates a risk that generators could exploit their position by charging the NGESO excessive prices to reduce their output.
“The Transmission Constraint Licence Condition (or TCLC) prohibits them from doing so.”
An SSE spokesperson said: “We aim to comply with regulations at all times and believed we were doing so in this case …
“Following the investigation, we are updating our relevant procedures accordingly.”
Cathryn Scott, Director of Enforcement and Emerging Issues at Ofgem, said: “Protecting consumers is a priority for Ofgem, and we will continue to monitor the wholesale energy markets in Great Britain and ensure their integrity on behalf of energy users.
“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.”
Ofgem said that as part of the resolution of the investigation, SSE has committed to put in place a new pricing methodology designed to properly reflect the costs and benefits to SSE of reducing its generation at Foyers.
“SSE co-operated and engaged constructively during the investigation and expressed a willingness to settle the case,” added Ofgem.
“By settling this investigation early, the company has qualified for a discount compared to the £11.58m it would otherwise have been required to pay.
“This investigation is part of the ongoing compliance work undertaken by Ofgem to ensure that the market is fair for everyone.
“Ofgem expects licensees to be fully aware of their legal obligations (including compliance with the TCLC) and have adequate procedures in place to prevent breaches from occurring.”