In May, Shetland’s system operator Scottish and Southern Energy Networks (SSEN) had recommended the proposal after a competitive process to replace its 66MW diesel-fueled Lerwick Power Station with a new subsea electricity cable.

Ofgem launched a consultation in July on the costs of the 260km long undersea electricity connection link project.

The energy regulator says that although it agreed that the concerned companies did make an efficient business case to develop the project, two major developments since then, have influenced its decision to be changed.

One of them includes a change to a European Union (EU) emissions directive in July. Under this, tougher emissions targets that were to originally apply to Lerwick Power Station from 2020 have been pushed further to 2030.

Ofgem says that the view is endorsed by the Scottish Environment Protection Agency (SEPA).

Another development came in October when the UK government announced that from the next auction, wind farms on remote islands like Shetland could compete for a Contract for Difference (CfD) for less established technologies, subject to receiving State Aid approval. The next auction has been planned by the government for 2019.

Ofgem, in a statement, said: “In light of the changes under the IED, Ofgem sought assurance from SSEN that security of supply on Shetland could be maintained until at least 2025.

“SSEN confirmed that with targeted investment, security of supply could be provided until 2025 through a combination of Lerwick Power Station and additional supporting measures.”

Ofgem concluded that the cost to ensure the security of power supply till then is considerably lower than the undersea connection project proposed by National Grid Shetland Link and Aggreko solution.

Further, Ofgem said that it would also enable potential of more savings being realised if a better integrated solution comes across, notably if a transmission link is required after the next CfD round.

As a result of Ofgem’s decision, the Lerwick Power Station, which is due to close in 2020, will now operate for five more years.

Image: Lerwick Power Station in Gremista, Lerwick, Shetland. Photo: courtesy of Scottish and Southern Energy Power Distribution Limited.