Ofgem Consultation on the Costs of the Proposed New Energy Solution for Shetland. Ofgem Consultation on the Costs of the Propose
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Ofgem consultation on the costs of the proposed new energy solution for Shetland. Shetland New Energy Solution Who we are Ofgem is the Office of Gas and Electricity Markets. Following a competitive process led by SHEPD, National Ofgem’s principle objective when carrying out its Grid Shetland Link Ltd (NGSLL) has been nominated as the functions is to protect the interests of existing and future preferred service provider for the Shetland New Energy electricity and gas consumers. Solution (SNES) in response to the NGSLL proposal to develop a High Voltage Direct Current (HVDC) electricity They do this in a variety of ways including promoting value for money and link, which along with Shetland based back-up power promoting security of supply and sustainability. generation will ensure Shetland has reliable access to the Major investment decisions, such as a new energy solution for Shetland, power it requires to meet its needs. require approval by Ofgem to ensure they are made on an economic and efficient basis. National Grid Shetland Link Ltd would be entirely responsible for the development, construction and operation of the proposed HVDC link, with partner Aggreko holding similar responsibility for the proposed back-up power generation on Shetland. National Grid Shetland Link Ltd is a wholly owned subsidiary of National Grid plc formed specifically to develop, own and operate the HVDC assets for the Shetland New Energy Solution project. It will be the licensed entity for operation of the assets and is legally separate from other companies within National Grid. National Grid plc, owns and manages gas and electricity infrastructure in the UK and in the north-eastern states of the US. In the UK, the National Grid group runs the systems that deliver gas and electricity across the entire Scottish and Southern Electricity Networks (SSEN), country. The group holds a vital position at the centre of the energy system, joining everything up. The company has extensive experience developing operating as Scottish Hydro Electric Power Distribution similar projects and already co-owns and operates HVDC electricity links (SHEPD), owns and operates the distribution network with a number of European partners. of overhead lines and underground cables across the Shetland islands and the north of Scotland. On Shetland, SSEN is responsible for ensuring demand and generation is balanced. SHEPD is regulated by Ofgem. In April 2014, Ofgem directed Scottish and Southern Electricity Networks (SSEN) to run a competitive process to identify the most efficient solution for Shetland’s energy future. Having completed the tender evaluation stage of the competitive process, in May 2017 SSEN submitted a recommendation to Ofgem proposing a new Aggreko is the world’s leading provider of modular, energy solution for the Shetland Islands from 2020. mobile power and heating and cooling, operating in Subject to Ofgem’s consultation, SHEPD intends to enter into contracts over 100 countries worldwide. with National Grid Shetland Link Ltd and Aggreko UK Ltd for services to meet Shetland’s electricity demand. Aggreko helps transform the lives and livelihoods of individuals, organisations and communities across the globe, in both developed and developing countries and markets. The company has considerable experience in the utility industry; they know how to reduce outages, keep customer interruptions to a minimum and maintain a safe working environment. Ofgem consultation on the costs of the proposed new energy solution for Shetland. SSEN - Shetland Event A1 - Board 1 - ARTWORK.indd 1 10/08/2017 11:21 Ofgem consultation on the costs of the proposed new energy solution for Shetland. Shetland New Energy Solution Keeping the lights on History Existing Arrangements Shetland is not connected to the main electricity network in Great Most of Shetland’s electricity is currently supplied by Britain. This means that the islands rely entirely on local sources of two fossil-fuel power stations, with the remainder generation and the supply and demand must be balanced locally. being supplied by wind generators. In 2016 the main electricity generation sources were: The electricity network on Shetland is made up of approximately 1,650km of overhead lines and underground cables operating at distribution voltages (33kV and below). Thirteen subsea cables join the smaller islands to the main island. There are no overhead lines or Lerwick Power Station (LPS) underground cables operating at transmission voltages (132kV and above). A 67MW diesel-fired station that provides around 50% of Shetland’s electricity on an annual basis. LPS is approaching SSEN owns and operates the network on Shetland. During the introduction of the British the end of its operational life. Electricity Trading and Transmission Arrangements (BETTA) more than 10 years ago, it was formally agreed that SSEN would also administer electricity generation and network The station was built in 1953 and is owned by SSE Generation operation on Shetland, although SSEN had been fulfilling this role for some time before and operated by SSEN. The majority of the generators are this. This means that SSEN is also the System Operator (SO) on Shetland, and is responsible operating significantly beyond their design life. for balancing the islands’ supply and demand. Generation Sullom Voe Terminal (SVT) Power Station An independently owned gas-fired power station, which meets New Wind around 40% of Shetland’s demand. The station’s primary purpose is to supply electricity to the Sullom Voe gas terminal, but it also provides up to 15MW to the Shetland system through a third party contract arrangement North Hoo put in place by SSEN. The future use of SVT is uncertain New Large Tidal (0.5MW) Existing Generation beyond 2020. Garth Luggies Knowe (4.25MW) (3MW) Northern Isles New Energy Solutions (NINES) An innovative trial project developed by SSEN in partnership Cullivoe Shetland Tidal with third parties and approved by Ofgem in 2011. It aimed Tidal Array Lerwick SVT Burradale Ollaberry to increase renewable generation output, reduce reliance (1 x Nova 30) (5 x Nova 100s) Power Station Power Station Wind Farm on fossil fuels and cut the cost of electricity by lowering the maximum demand on the island network. The project LIC LIC comprised renewable generation, storage and demand- side managed assets including a number of small-scale, community-based wind generators taking advantage of the above average wind conditions that Shetland experiences. Active Network Management System (ANM) The NINES trial has now ended, but core elements of the project will continue on the Shetland system on an enduring basis, as the Shetland Active Network Management LIC LIC (ANM) system. WC SH Burradale Wind Farm A small (3.68MW) independent wind farm, which contributes Domestic DSM 3MWh Battery around 7% of the islands’ electricity supply. Controllable Demand NINES connected renewable generation This is made up of a mix of wind generation and tidal Abbreviation Key generation with a total generation capacity of 8.5MW DSM = Demand Side Management WC = Water Cylinder SH = Storage Heater LIC = Local Interface Controller Ofgem consultation on the costs of the proposed new energy solution for Shetland. www.ssepd.co.uk/ShetlandEnergy SSEN - Shetland Event A1 - Board 2 - ARTWORK.indd 1 10/08/2017 11:21 Ofgem consultation on the costs of the proposed new energy solution for Shetland. Shetland New Energy Solution Finding the optimum solution Stages and participants Q3 2013 SHEPD submission of the competitive process to Ofgem of Integrated Plan (IP), including NINES Stage 1 Initial consultation (302 responses received): In line with Ofgem’s 2014 determination, SSEN carried out a public consultation before starting the competitive process. The purpose of the consultation was to raise awareness and promote discussion in Shetland and elsewhere about the Q2 2014 islands’ energy needs and how they could best be met in the future. To inform this process, consultation events were held in Shetland, Glasgow and London. Ofgem decision on IP; new Stage 2 Pre-Qualification Questionnaire requirements to run competitive tender (19 proposals received): for new solution SSEN commenced the Project Qualification process in 2015. The PQQ was divided into the following “Lots”, which SSEN had outlined in the initial consultation were aimed at encouraging a range of proposals from different interested parties: Q3 2014 Lot 1 – Reliable Provision of Availability and Output SHEPD publishes SHEPD and Ofgem Lot 2 – Intermittent Provision of Energy Lot 3 – Demand Reduction public consultation select and appoint Lot 4 – Provision of Additional Services Independent Auditor Stage 3 Invitation to Tender (8 tenders received): Only bidders who had prequalified for a specified Lot(s) were allowed to submit an ITT bid for that Lot(s). The ITT documentation was issued to those bidders in May Q1 2015 2016 and the tenders were submitted in December 2016. Public During the bid period, which included extensive tenderer engagement aimed at consultation understanding the potential bids, for various reasons it became clear that a number closes of potential tenderers may not be able to find a way to compile a viable tender relative to their technology solution and a number of tenderers withdrew from the process, culminating in 8 tenders being submitted. Stage 4 Tender Evaluation (8 tenders): Q2 2015 The tender evaluation process was undertaken between December 2016 and May 2017 by the competitive process delivery team (as outlined below) and overseen by Competitive tender SSEN, the Independent Auditor and Ofgem, in accordance with the methodology process begin described in the ITT documentation. The 4 key steps in the evaluation process, all of which were overseen by the IA, were as follows: Step 1 – Tender compliance Step 2 – Technical compliance evaluation Q4 2016 Step 3 – Security of supply and system modelling Step 4 – Commercial evaluation Competitive tender process ends Stage 5 Award Recommendation (NGSLL-Aggreko solution): The evaluation stage culminated in SSEN’s Award Recommendation to Ofgem being submitted in May 2017.