Ofgem launches investigations into SSE Generation Limited and EP SHB Limited

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Ofgem has launched two investigations into whether SSE Generation Limited and EP SHB Limited have each failed to comply with the Transmission Constraint Licence Condition.

The investigations will examine whether either of the companies failed to comply with the requirements of condition 20A of the Electricity Generation Standard Licence Conditions (referred to as the Transmission Constraint Licence Condition, or “TCLC ”).

The opening of this investigation does not imply that Ofgem has made any findings about non-compliance.

Transmission constraints refer to limitations in the transmission system’s ability to reliably transmit power from where it is due to be generated to where the demand for that power is situated.

One way that the Electricity System Operator (“ESO”) manages transmission constraints is by instructing generators to reduce their output by accepting bids in the Balancing Mechanism.

The TCLC requires that when submitting the prices at which they are willing to be ‘bid down’ during periods in which there are transmission constraints, licensed electricity generators should ensure that their prices are not excessively expensive.

This restriction is required because the ESO will typically have limited options available to resolve a constraint, other than reaching an agreement with the generator to curtail their output.

Ofgem’s investigations will centre on whether bid prices the two companies submitted were excessively expensive, including when taking into account both the opportunity costs and avoided costs associated with reductions in generation.

Ofgem has not to date made any finding that SSE Generation Limited or EP SHB Limited breached the TCLC.

More information about the investigations is available on the Ofgem website.