SSE fined almost £10mn for overcharging National Grid

One of Britain’s largest electricity generators SSE has been fined almost £10mn after overcharging National Grid to cut output when it was required to help balance the network. 

The FTSE 100 energy company has agreed to pay £9.78mn into an industry redress fund after Ofgem, the energy regulator, said it had breached its licence conditions. 

It comes as consumers are facing rising costs to manage the electricity network and amid concern over the prices charged by some power stations at times of acute need.

Balancing the electricity network is becoming more complicated given the growth of wind and solar generation which are intermittent and less predictable.

Cathryn Scott, director of enforcement at Ofgem, said generators would face “significant consequences” if they tried to obtain “excessive benefits”. 

SSE, which has a fleet of gas-fired power stations, wind turbines and hydropower stations, made profits of £2.2bn in the year to March.

Electricity supply and demand must be constantly matched, and National Grid smooths out any imbalances by paying generators to increase or cut output at short notice. Often this is needed because there is not enough capacity on the cables to move electricity from where it is produced to where it is needed. 

In Scotland, for example, there can be a glut of electricity produced by turbines when the wind is strong, but not enough capacity to move the electricity south to demand. 

Costs for balancing the network are passed back to consumers via bills, and have been rising, to more than £4bn in 2022 compared with £1.2bn in 2019, according to recent industry analysis.

Licence conditions are designed to prevent companies charging National Grid excessive prices to balance the market. 

In a statement on Tuesday, Ofgem said SSE had in May 2020 decided to “significantly” increase the amount it charged National Grid for cutting output from its Foyers hydropower station in Scotland. 

SSE did this based on what it believed other hydropower plants were charging, and to “increase profit”, Ofgem said. 

“Its revised prices were expensive relative to several relevant comparators, and were not compliant with the [licence condition], Ofgem added. 

“The bids submitted resulted in higher balancing charges, ultimately increasing costs for consumers.”

Ofgem stressed it had not seen “any evidence” to suggest SSE had deliberately breached its licence conditions, and SSE had co-operated through the investigation.

SSE said: “We aim to comply with regulations at all times and believed we were doing so in this case. We co-operated fully with the investigation.

“Following the investigation, we are updating our relevant procedures accordingly.”

Ofgem and National Grid looked into rising balancing costs in 2022, amid concern that generators were increasing prices in a tight market. 

Ofgem found “no conclusive evidence” of generators breaking the rules, but expressed concern about “behaviours of some generators that appear to be immoderate”. 

In March, Grant Shapps, the energy secretary, called on Ofgem to go “further and faster”, after a Bloomberg investigation claiming that some generators were withholding power supplies in order to sell into the balancing market at higher prices.