SSE fined nearly £10m for breaching its generation licence

Ofgem has fined energy giant SSE £9.8m for after it breached its energy generation licence.

The firm was found to have secured “excessive payments” from National Grid ESO in exchange for reducing output at Foyers pumped storage power station during periods of what is known as ‘transmission constraint’. 

When constraints on the electricity transmission system exist, the ESO 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 include times where there is insufficient network capacity to transport power out of a particular area in which local generation exceeds demand. 

During these times generators can, in theory, exploit their position by charging the ESO excessive prices to reduce their output, but the Transmission Constraint Licence Condition (TCLC) prohibits them from doing so.

In October 2021, Ofgem opened an investigation into SSE’s compliance with the TCLC in relation to Foyers pumped storage power station, which is located in northern Scotland and regularly operates in transmission constraint periods.

It found that SSE took the decision to make the bid prices it charged ESO to reduce Foyers’ output significantly more expensive in May 2020 – including in periods of transmission constraint.

This change was made to bring Foyers in line with what it believed was the market practice of other pumped storage operators, and to increase profit, Ofgem said. The bids submitted resulted in higher balancing charges, ultimately increasing costs for consumers.

While Ofgem said it had not seen any evidence to suggest that the breach was deliberate, it believes that it should have been clear to the firm that its revised approach carried a significant risk of breaching the TCLC.

Cathryn Scott, Ofgem’s director of enforcement 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.” 

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. 

By settling the investigation early, Ofgem said it had qualified for a discount compared to the £11.58m it would otherwise have been required to pay.

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