ENERGY giant SSE is to pay a £9.8 million penalty after breaching its generation licence, the industry regulator has announced.

Ofgem said a detailed investigation found that the FTSE 100 company’s generation arm overcharged the National Grid Electricity System Operator (NGESO) during a time of so-called transmission constraint.

Transmission constraints happen in situations such as when there is not enough electricity network capacity to transport power out of an area in which local generation outstrips demand.

The electricity system operator takes action to manage flows across the network to increase and decrease the amount of electricity produced by different generators.

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But, given that it only has limited alternatives available to it in these situations, there are risks that generators can exploit their position by increasing prices to reduce output and Ofgem puts rules in place to prevent this.

Ofgem’s probe, which was launched in October 2021, found that SSE made the bid prices it charged the electricity system operator to lower output from the Foyers pumped storage power station at Loch Ness “significantly more expensive”, including in periods of transmission constraint.

Ofgem said that, while there was no evidence to suggest the actions were deliberate, it found that SSE breached the rules in place.

It warned that the pricing actions would ultimately increase costs for consumers.

Cathryn Scott, director of enforcement and emerging issues at Ofgem, said: “Protecting consumers is a priority for Ofgem, and we will continue to monitor the wholesale energy markets in Great Britain and ensure their integrity on behalf of energy users.

“This enforcement action sends another strong signal to all generators that they must put in place controls to ensure that their bid prices are set in a way that ensures that they do not obtain excessive benefits during transmission constraint periods.

“If they fail to do so, they will face significant consequences.”

SSE – which has its headquarters in Perth, Scotland – has since pledged to put in place a new pricing system designed to properly reflect the costs and benefits of reducing its generation at Foyers.

Ofgem added that SSE’s fine was reduced from £11.58 million as the company settled the investigation early.