For over 50 years our electricity network in the north of Scotland has served the vast majority of Scotland's inhabited islands, providing a key lifeline service to the 59 island communities our network powers. As these cables reach the end of their operational life, we need to make arrangements to replace them to ensure a continued, reliable and safe electricity supply to Scotland's islands.
The introduction of Scotland's National Marine Plan (2015) created a framework of policies designed to manage the competing demands placed on Scotland's marine environment through the careful management of its marine resources. This includes policies on how submarine electricity cables are installed and means that we may need to change the way in which we install new or replacement cables within the marine environment.
Historically, in the vast majority of cases we have successfully surface laid our cables on the seabed. This approach has delivered continued, reliable and safe electricity to Scotland's island communities for many decades, whilst also minimising the cost of installation for our customers across the north of Scotland, who ultimately pay the cost of operating the network through their electricity bills. However, we now have to consider other installation methods to our traditional practice of surface laying cables.
As a regulated business, the amount of money that we need to invest in our network is agreed by our regulator, Ofgem, through what is known as a Price Control. In simple terms, this is our regulated contract with Ofgem and our customers, setting out how we operate and what our customers can expect of us. This includes how much we will invest to maintain our network, what our customers pay and what revenue we can earn in return.
As our customers can't shop around for a network provider, any changes to our engineering approach which could impact on our costs must be justified as they are likely to be a more expensive option.
To help inform the Marine Licencing process for our submarine cable replacement programme, we have therefore developed a Cost Benefit Analysis (CBA) model which considers a range of impacts and benefits, balanced against the different costs of installation methods.
The cost benefit analysis methodology, developed over the past three years in collaboration with stakeholders, considers health and safety, socio-economic, environmental, wider economic and engineering considerations and places a monetary value on each. From there we are able to compare the impact of different submarine electricity cable installation methods on society using a common measure, money.
We then go even further by consulting with stakeholders directly affected by each cable, whether it supplies their electricity, or represents an impact to their business or hobby, and sense check in the real world what the CBA model tells us. We are responsible for balancing the needs and views of multiple interested parties, including our regulators, our customers, wider society and the natural environment in an objective way and the CBA methodology enables this.
It is designed to ensure that where any additional costs occur from changes in engineering practices we can quantify the benefits, which range from extending the operational life of replacement cables; to wider societal, economic or environmental benefits arising from new installation methods. The CBA provides a vehicle for evidencing the associated benefits of different installation methods which would effectively outweigh any potential increase in costs to electricity bill payers.
We have worked closely with our regulators, Ofgem, Marine Scotland and the Scottish Government through the CBA design process. This has ensured the model combines the views of all those who have a role in the determination of Marine Planning Policy and Licence Applications; and also those who have a role in how the cost of operating our network is recovered from energy customers. The CBA also considers anyone affected by our submarine electricity cable from the customers who rely on the electricity to keep their lights on to the marine users who may be impacted.
As part of our planned cable replacement programme each application will now be supported by the output of the CBA model to justify our proposed installation method. Importantly, this will be done on a cable-by-cable basis, with extensive consultation with affected stakeholders informing the output of the CBA and thus the design of our engineering solution. This will ensure that all those who have an interest in the installation of replacement submarine cables have the opportunity to ensure their views are considered in our investment decisions.
Whilst we will always resist any changes in policy which could have a cost impact for our customers, we also recognise the need to consider wider societal and environmental benefits. The CBA will allow this to happen and we look forward to continuing to work positively and constructively with all interested parties and decision makers to ensure we deliver the best outcome, for our customers and Scotland as a whole.