SNP give cautious welcome to Ofgem ‘Grid Charging’ report

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By G.A.Ponsonby
 
The SNP has issued a cautious welcome after energy watchdog Ofgem published their interim proposals for changing the model that determines electricity transmission charges.
 
The report “Electricity Transmission Charging: assessment of options for change” sets out new options that the watchdog claims will result in lower connection costs for renewable generation in the north of Scotland.

The report followed repeated calls by the Scottish Government and the renewables industry for changes to the discriminatory system that saw a generator in Aberdeenshire charged £21.49 per kw to connect to the grid, while a London-based generator was handed a subsidy of £6.85 per kw.

Ofgem claims that generators in the north of Scotland could now see their connection charges reduce by as much as 60%.

However industry experts and the Scottish Government have expressed concern that the proposals will do nothing for Scottish island’s and may actively harm island investment in renewables.

Responding to the report, the Scottish Government Energy Minister Fergus Ewing welcomed the acceptance by Ofgem that the current system was unfair.  However he insisted that it had to go further in order to address concerns over Scotland’s island communities which harbour some of Scotland’s best renewable opportunities.

He added: “The current system involves charges of £97 per kw per annum for the Western Isles, £67 for Orkney and over £100 for Shetland as opposed to £21.49 for the adjacent mainland zone.”

Mr Ewing invited representatives from Ofgem and UK government Minister Charles Hendry to a SCDI chaired event in Inverness on the 13th January to discuss the islands situation.

The Minister called for the proposals to be extended to the islands and warned against leaving the final decision to an industry panel or using statutory powers, pointing out any solutions brought forward using such a method would only last 10 years, too short a period to reassure investors.

Speaking on behalf of Ofgem, Hannah Nixon said: “The current formula was designed for a different era when Britain’s power all came from conventional sources like coal and gas.

“The mix of generators producing power is changing rapidly.  More renewable and low carbon generators are connecting to the grid.

“So the charging formula needs to be updated to reflect the new realities of the generation mix.”

Niall Stuart, chief executive of Scottish Renewables, said: “This is a step towards fairer charges for projects on the Scottish mainland, and the reforms will encourage rather than block investment in renewable electricity in Scotland.

“The changes will make the industry more competitive and allow it to invest more heavily in new technologies and the skills of the workforce.

“The current system discourages investors from taking forward projects in Scotland as costs are higher than elsewhere in the UK.”

However Mr Stuart warned that the charges for the islands was potentially damaging and added: “The charges quoted for the islands potentially make development uneconomic, meaning a number of highly, highly productive wind farms may not go ahead”

SNP Westminster Energy spokesperson Mike Weir MP said:

“At long last, though reluctantly, Ofgem have moved from their obsession with the current locational charging arrangement, which works against renewable development in Scotland in favour of power generation in the South of England.

“They are ruling out a postage stamp, or socialised, system in favour of an amendment to the current system, but it is not entirely clear that this would be the best way forward.”

Ofgem’s modelling suggests that a variation of the current locational charging system would benefit onshore wind farms.  However it also acknowledges a more socialised model would help offshore projects, which would help in meeting renewable targets.

Mr Weir added:

“Their objection to the postage stamp method is that it would lead to a greater increase in energy bills, which should not be underestimated in these difficult times.  The rises quoted, however, are very small compared to the huge increases imposed by energy companies in recent months.

“It is also clear from their own research, however, that under the postage stamp model there would be less nuclear development and greater use of renewables.

“Given the huge and uncertain costs of nuclear and the UK government’s moves to give it under the table subsidies through contracts for difference, it is far from clear that the overall costs to the consumer would be higher under the postage stamp model.

“It is vital that we have a transmission regime that will encourage the development of renewables to provide a green clean energy future and this must be looked at with the other costs for energy.”

The locational charging methodology levies higher charges on generators furthest from the main centres of demand for connection and use of the grid.  This favours generation in the southern part of the UK and presents an inbuilt bias in the UK transmission regulatory system against Scottish based generation.

Labour’s UK Shadow Energy Minister Tom Greatrex said: “The costs must be met by those who benefit commercially from the transmission network – the Big Six energy companies.

“The new regime must be transparent and fair, without deterring renewable generation.”

Ofgem will make a final decision next April after consulting with industry experts.  The new rules are expected to be in place by 2013.