Dear Lord Bridges

I am writing following my appearance in front of the Economic Affairs Committee on 26 April for your inquiry on UK energy supply and investment. Many thanks for inviting SSE to give oral evidence; I was very pleased to be able to attend the session as a witness.

I am responding to your request to provide follow-up written evidence on how to accelerate the build-out of wind power in the near term, as well as taking the opportunity to reiterate my views on the British Energy Security Strategy (BESS), and the key next steps for Government in order to deliver on what it has set out, and following the announcement of an Energy Security Bill in the Queen’s Speech.

Key measures to accelerate offshore wind deployment in the near term 

The Government’s new 50GW 2030 ambition is welcome, but will require a radical step change in how offshore wind projects are consented, connected to the grid, and integrated into the energy system and market. Below are a set of key measures that could be carried out by UK and Devolved governments; their delivery bodies; and regulators in the near term to accelerate offshore wind deployment.   

Reducing consent time   

There are a number of specific steps the Government could take to reduce the amount of time it takes to build large-scale renewable infrastructure in line with its ambitions set out in the BESS. Including:

• Fast-track implementation of a mechanism to deliver strategic compensation - it is increasingly clear that a project-by-project approach to delivering compensation for potential adverse impacts is becoming unsustainable. Therefore, a government-led approach to offsetting environmental effects and reducing delays is required. The closure of sandeel fisheries in the North Sea is one such example of a strategic compensation measure which would help enable the consent of several projects in Scotland, including SSE’s 4.1GW Berwick Bank project located in the Outer Firth of Forth.  
• Embed and give priority to the net zero targets and the climate emergency across all aspects of planning and environmental permitting process, such as through the National Policy Statements. This approach needs to be adopted and aligned across all Devolved Administrations.   
• Adequate resourcing of Statutory Nature Conservation Bodies to ensure they have the means to process and examine consent applications in a timely manner. This should enable the statutory timelines for making a consent decision to be shortened.     
• A more strategic and upfront environmental assessment process of potential offshore wind sites led by government which helps minimise environmental risk, reduce the consenting timeframe and de-risk investment.  

Accelerated grid connections 

The biggest barrier to achieving the 50GW target will be ensuring there is sufficient investment in network infrastructure to build out the capacity of the grid, in order to connect the scale of offshore wind looking to plug in to the system. Again, there are positive signs in the BESS that Government acknowledges the critical role of networks, but a change in approach from Ofgem is needed to support strategic investment in networks rather than the protracted ‘needs case’ investment decisions which will fail to see network investment keep pace with offshore build out. We welcome the Government’s commitment to mandating Ofgem to support anticipatory investment as part of a Strategic Policy Statement later this year. 

Coordination of network investment and development will also be vital, and delivery will be boosted by the blueprint for a whole network system in the Holistic Network Design (HND) in June 2022 and Centralised Strategic Network Plan (CSNP) by end of 2022, with certain infrastructure exempt from the introduction of onshore network competition. To deliver on this commitment cost-effectively, all ScotWind projects will need to be included in the HND, as currently only 10.7GW of 25GW is able to connect by 2030, undermining renewable energy investment in Scotland and threatening delivery of the 50GW target. 

Maximising the amount of capacity procured in the next Contract for Difference (CfD) auction

Government should not be artificially limiting the amount of wind that receives a CfD in the current allocation round (AR4): if developers can meet a competitive strike price level, then BEIS should procure as much offshore wind as possible at that price level. 

In line with the move to annual CfD auctions, more regular seabed leasing rounds are required to keep the pipeline growing. In addition, capped lease prices with a greater focus on project quality and developer capability would limit project costs and deliver wider supply chain benefits – this would ultimately enable projects to bid at more competitive prices in future auctions.  

The recent ScotWind auction which had a fee cap with bids being evaluated across a range of core competencies is a good example for future leasing rounds organised by Crown Estate Scotland and The Crown Estate (England, Wales, Northern Ireland).   

Flexibility to back up a renewable-led system

To support a renewables-led energy system, with 50GW of offshore wind by 2030, we will need to ensure we are investing in the flexible generation technologies that can support renewables when the wind is not blowing. Whilst nuclear generation can play a role in providing baseload energy, it cannot provide the rapid dispatch of power needed from technologies like long duration storage, hydrogen and power-CCS.  

The BESS included positive reference to the role of long duration electricity storage (LDES) and the need for policy to support investment. SSE believes that a de-risking mechanism similar to the support provided to interconnectors through a ‘cap and floor’ agreement is the best way to unlock investment in this technology. With a positive decision from Government in the upcoming response to the Call for Evidence on LDES, SSE will be in a position to move forward with plans to invest £1.5bn in our Coire Glas hydro pumped storage project in Scotland.

The BESS is rightly very strong on the role that hydrogen will play in our energy system and SSE welcomes the doubling of the 2030 hydrogen production target to 10GW, with at least 5GW specifically from electrolytic hydrogen. This target will help technology cost reductions and secure a domestic supply chain. Whilst a commitment on delivering hydrogen storage business models by 2025 is welcome, this would be too late to develop hydrogen storage projects by 2030 given lead times of 7-8 years. 

SSE believes that CCS for power generation also has an important role to play, particularly if we are increasing domestic gas production. At least five power CCS projects by 2030 would be a no regrets option, delivering real carbon emissions reductions, and would support deployment of CCUS/hydrogen infrastructure in industrial clusters, reducing costs to other users and HM Treasury. 

Evolving the market to continue to support investment

The Review of Electricity Market Arrangements (REMA) process announced in the BESS is critical, and the market will need to evolve as we move to a renewables-led system. The volume of low-carbon generation committed to within the BESS only amplifies the need for REMA. 

Given the level of in-flight investment to deliver on 2030 ambitions, the REMA should be an evolution of GB market frameworks, not a ‘back to the drawing board’ approach. It should carefully consider how to de-risk investment in capital-intensive infrastructure to ensure net zero is delivered at lowest cost. 

There has been support from a minority of stakeholders for the introduction of locational marginal pricing. We believe this would significantly increase uncertainty for investors in large-scale infrastructure, and that any system cost benefits are outweighed by the detrimental impact to financing costs for the capital investment needed to decarbonise the electricity system and reduce dependence on gas. Other options could deliver similar outcomes with less disruption. 

I hope this information is useful to the Committee as you come to write your final report for the inquiry.

Thank you once again for inviting me to give evidence.

13 May 2022