SSE fined £9.8m for overcharging on generator switch-off compensation

Because electricity cannot be stored and needs to be generated at the time of demand, compensation is given to energy firms when they have to reduce their output. With wind farms, for instance, it involves turning off turbines when the network is unable to cope with the power they produce.

The payments are made by NGESO but charged to consumers and added to energy bills.

Payments come in when what Scotland generates cannot be exported to England due to insufficient grid infrastructure or because there isn't the demand.

Ofgem says that when managing a 'transmission constraint' it only has limited alternatives available to it and there are risks that generators can exploit their position by increasing prices to reduce output and Ofgem puts rules in place to prevent this.

Ofgem’s probe, which was launched in October 2021, found that SSE made the bid prices it charged the electricity system operator to lower output from the Foyers pumped storage power station at Loch Ness “significantly more expensive”, including in periods of transmission constraint.

Ofgem said that, while there was no evidence to suggest the actions were deliberate, it found that SSE breached the rules in place.

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It warned that the pricing actions would ultimately increase costs for consumers.

Ofgem said that SSE’s fine was reduced from £11.58 million as the company settled the investigation early.

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 SSE has since said it would put in place a new pricing system designed to properly reflect the costs and benefits of reducing its generation at Foyers.

Ofgem said that any representations or objections to Ofgem’s proposal must be received no later than June 27 and will be considered prior to the regulator reaching its final decision on whether to impose the penalty.

Three years ago, SSE was fined £2.06m by the regulator for failing to publish inside information about the wholesale energy market.

SSE failed to publish timely information about future availability of its generation capacity, Ofgem said.

This was likely to have had a significant effect on forward wholesale electricity prices, it added.

SSE said it had acted in "good faith", but admitted its actions had failed to meet Ofgem's requirements.

The fine relates to delays in disclosing a deal that SSE struck with National Grid in March 2016.

SSE had said that its three generating units at its Fiddler's Ferry power station were likely to close the following month.

However it later signed a non-binding agreement with National Grid to provide power from the site.

That reversed the likelihood that the units would close, said Ofgem. With a combined generating capacity of 3% of Britain's peak electricity demand, this had a significant impact on demand and supply, affecting wholesale prices.

Foyers celebrated 120 years of providing power to the grid in 2016.

The first scheme developed for hydro generation at Foyers was built in 1896 and Loch Mhor Dam was created at that time to provide a storage reservoir. The scheme was known as the Fall of Foyers and became the first hydro-electric powered aluminium smelter in the UK.

The current Foyers Power Station operates quite differently to conventional hydro electric power stations. Foyers hydro scheme consists of one pumped hydro power station and one hydro power station and one major dam.

What makes the new Foyers Power Station special, is that it uses a technique called ‘pumped storage’. It takes water held in Loch Mhor to drive two 150 megawatt reversible pump-turbines to generate electricity at times of high demand, and uses cheaper ‘off peak’ electricity to pump water from Loch Ness back up to Loch Mhor ready to be reused when demand is high.

An SSE spokesman 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.”