Power station closure postponed after Ofgem makes U-turn on subsea cable

The ditching of plans to deliver electricity to the isles through a 260km subsea cable has been welcomed by isles politicians – and will also prolong the life of Lerwick Power Station.

Ofgem rejected the proposal, submitted by Scottish and Southern Energy Networks, for a multimillion pound 60MW cable and back-up diesel generators in light of two “major developments” which prompted a reversal of its initial backing of the idea.

Shetland Islands Council development committee chairman Alas-tair Cooper said: “I think it’s a very sensible decision they’ve made. Let’s get the best solution for Shetland we can and I would say the solution they were proposing was not the best one for us.”

Ofgem’s head of Scotland Kersti Berge said it had been a difficult decision not to proceed with the plans but it was “the right thing” for energy customers and for Shetland in the long-term.

The future of the power station was in disarray after the subsea cable plan was revealed. Ofgem’s first reason for changing its mind on the plans was that tougher emissions targets which were due to apply to Lerwick Power Station from 2020 will not apply until 2030.

Keeping the power station running until at least 2025 would be a much cheaper way of providing energy than through the proposed subsea cable, according to the regulator.

And the second reason cited was that the Scottish government has left scope to open the door for windfarms on remote islands such as Shetland to compete for power generation through the Contract for Difference (CfD) contracts from 2019.

Such a move could pave the way for the long-debated Viking Energy windfarm – which would see around 100 wind turbines erected in the Central Mainland – as well as an interconnector cable capable of both importing and exporting electricity instead of the proposed 60MW one-way connection.

The estimated total cost of the shelved project over its 20-year lifetime would have been £581.7 million, with capital costs thought to be around £303 million.

Isles MP Alistair Carmichael greeted Ofgem’s U-turn because, he said, it allows more time to identify the best energy system for Shetland.

“I think it’s refreshing to find a consultation where the body doing the consultation is willing to change its mind,” he said.

“I had some reservations about it and they have put it into the middle distance at least and I think that’s probably a sensible thing for them to have done. I think what you have got now is a decision that can be made in a less rushed manner and we can make that decision when the full landscape of energy policy is more clear than it is at the moment.”

Mr Carmichael added that staff at Lerwick power station will now be in a more comfortable position because their jobs are more likely to be secure for several years yet.

Meanwhile, Holyrood representa­tive Tavish Scott made similar noises.

“This looks like a change in position by Ofgem who were gung-ho in favour of the cable and diesel generator back-up plan, ” he said.

“So this is first and foremost a sensible outcome for the staff at Lerwick Power Station.”

Mr Scott added that he will now speak to Ofgem to find out what route they will go down to secure Shetland’s long-term power needs.

SIC development committee vice-chairman Stephen Leask sang from the same hymn sheet as his colleague Mr Cooper.

“I am glad they’ve seen sense,” he said. “I think it would have been the death knell to renewables and I feel that is really what we’re looking for. I think we really have to have an interconnector cable that is capable of being able to export the wind resources here.”

Mr Leask stopped short of throwing his weight behind the Viking windfarm. He said he was “not going to specify any particular project” but emphasised the importance of harnessing renewable energy.

Based on his conviction that green energy is the way forward, the Lerwick North councillor made comments on the continued operation of Lerwick Power Station which contrast with the views of Mr Carmichael and Mr Scott.

“I would certainly like to see the back of it [the power station],” he said, adding: “It’s done us a great service in the past but I think its time has come. We have to look at a more progressive and new form of energy – and bring it it on. The sooner we can get it, the better.”

In response to Ofgem’s decision, Viking Energy Shetland’s head of development Aaron Priest said: “It remains vital for Shetland’s economic future that we’re allowed the chance to diversify and develop a renewable energy industry.

“We have an endless resource of wind, wave and tide and the Shetland community should get to use it to generate new jobs and income.

“The UK government’s decision to allow island projects to participate in the next CfD round was pivotal and engagement with government on the detail is ongoing.”

Mr Cooper said: “The real challenge for Viking is, can they come in with a contract that can be competitive?”

“There’s no guarantee that Viking will deliver and I think we need to be aware of that,” he added.

James MacKenzie is vice-chairman of Sustainable Shetland, which has stood in strong opposition to the Viking Energy windfarm.

He said: “I don’t think it [the Ofgem refusal] is a sign it’s more likely that the Viking Energy project will go ahead. The Contracts for Difference is nothing to do with Ofgem at all – it’s really the government itself. I don’t think it’s made the Viking Energy project any more viable.”