SSE to pay £9.7m penalty following Ofgem investigation

The energy regulator has said electricity generator faces a significant penalty after breaching its generation licence during transmission constraint periods

UK energy regulator Ofgem has announced its proposal to impose a penalty of £9.78 million on SSE Generation Limited (SSE) following an investigation.

Ofgem has said the penalty is a result of SSE‘s breach of its generation licence, specifically concerning excessive payments received from the National Grid Electricity System Operator (NGESO) during transmission constraint periods.

Transmission constraints occur when power must be transferred from the point of generation to the point of consumption.

In cases where constraints exist, NGESO takes necessary actions to manage the flow of electricity across the network, utilising the balancing market to adjust the output of various generators.

Such constraints may arise when local generation exceeds demand, and there is insufficient network capacity to transport power out of a specific area.

During the investigation, Ofgem discovered that SSE had obtained excessive payments from NGESO by charging inflated prices during transmission constraint periods at the Foyers pumped storage power station in Northern Scotland.

SSE’s revised bid prices for Foyers were based on the prices of selected generators frequently bid down due to constraints, rather than the actual costs and benefits associated with reducing output.

As a result, the submitted bids led to higher balancing charges, ultimately burdening consumers with increased costs.

While Ofgem found no evidence suggesting a deliberate breach by SSE, it concluded that SSE should have been aware, including senior management, of the significant risk associated with the revised pricing strategy violating the Transmission Constraint Licence Condition (TCLC).

Cathryn Scott, Director of Enforcement and Emerging Issues at Ofgem, emphasised the regulator’s commitment to consumer protection and the integrity of the wholesale energy markets.

As part of resolving the investigation, SSE has agreed to implement a new pricing methodology for Foyers that accurately reflects the costs and benefits of reducing generation.

SSE cooperated with the investigation and expressed willingness to settle the case, qualifying for a discount on the penalty.

The settled amount is £9.78 million, lower than the £11.58 million SSE would have been required to pay otherwise.

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