SSE Generation Limited (SSE)n is facing a £9.78 million penalty imposed by regulator Ofgem after the generator secured excessive payments from the Electricity System Operator (ESO) during periods when the transmission network was constrained.
The ESO takes action to manage flows across the network at times of constraint, including using the balancing market to increase and decrease the amount of electricity produced by different generators. But the ESO has limited options and there is a risk that generators can exploit their position by charging the ESO excessive prices to reduce their output.
In October 2021, Ofgem opened an investigation into SSE actions at with regard to Foyers pumped storage power station, which is located in Northern Scotland and regularly operates in transmission constraint periods. Ofgem found that:
In May 2020 SSE significantly increased bid prices it charged the ESO, bringing them in line with what it believed was the market practice of other pumped storage operators. To increase profit it set prices with reference to the prices of selected other generators, rather than the costs and benefits of being bid down. Its revised prices were expensive relative to several relevant comparators, raising costs for customers, and were not compliant with its licence.
Ofgem said it “has not seen any evidence which suggests that the breach was deliberate”, and SSE changed its pricing strategy for Foyers knowing that the revised strategy would breach the licence conditions. However Ofgem considers that it should have been clear to SSE (including senior management) that its revised approach carried a significant risk of breaching the TCLC.
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. By settling this investigation early, the company has qualified for a discount compared to the £11.58 million it would otherwise have been required to pay.