SSE to pay £100,000 to Energy Action Scotland over constraint payments
- Ofgem’s action sends strong message that generators must not overcharge for helping balance electricity supply with demand
- SSE’s payment is first under Ofgem’s transmission constraint rules
- £100,000 payment ensures SSE didn’t gain financially
Ofgem has secured £100,000 from SSE after SSE’s pricing signal resulted in it receiving excessive constraint payments. The money will go to Energy Action Scotland.
Constraint payments are an important tool to help National Grid balance demand and supply on the energy network. At times of high or low demand, National Grid asks for generators to submit bids to increase or decrease their supply. New rules were introduced in 2012, via a transmission constraint licence condition. The rules prevent electricity generators from exploiting market conditions and charging excessive prices.
In January 2014, SSE submitted increased offers to National Grid to reduce generation at six of its Scottish hydro-electric power stations, due to a flood risk at the dams. SSE maintained this level for longer than was necessary. This led to National Grid paying more than it should have done to reduce generation from the stations, to help balance Britain’s electricity supply.
Rachel Fletcher, Ofgem’s senior partner for markets said: “Ofgem’s rules to stop generators from overcharging ensure that consumers pay no more than they need to for a reliable energy supply. We’ve had concerns about practices in this area and we are actively monitoring generators to ensure they are playing by the rules.
“Given SSE’s admission to its failure, its action to make amends and the small scale of the breach, Ofgem believes the £100,000 payment is the right level of penalty and will not take further action in this case.”
Notes to editors
1. Constraint payments
At times National Grid, which runs the GB high voltage electricity network, has to pay generators to reduce their output as there is not enough network capacity to transmit the electricity. This is known as a constraint payment. A payment system like this has existed since privatisation. The alternative would be for network companies to have built more capacity than was actually needed. This would have increased customer bills as at times this capacity would not have been fully used.
Since 2012 Ofgem has had powers to take action against licensed generators if it considers that they are gaining excessive benefit when constraints occur. These powers cover incidents where a generator acts in an uneconomic manner to create or exacerbate a constraint with the aim of benefitting from that constraint. They also cover incidents where generators charge an excessive price to reduce generation through the balancing mechanism.
Ofgem has approved major investment programmes for network companies to build and renew network capacity, which will help tackle constraints over the long term. Ofgem also sets National Grid strong financial incentives to manage these costs as efficiently as possible.
More information about how networks are run and managed
For further press information contact:
Lisa O’Brien: 020 7901 7426
Dafydd Wyn: 020 3263 9943
Out of hours media contact number: 07766 511470
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