United Kingdom

United Kingdom

Government caps transmission costs -- Scottish wind to go south

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Britain's wind industry has welcomed the government's decision to cap punitive transmission charges for renewable generators in the remotest corners of Scotland. Energy minister Mike O'Brien says the government will limit charges on renewable generators on the Scottish islands. It is also considering capping charges in the far north of the mainland.

xThe government's decision comes soon after energy regulator, Ofgem, approved new charges by National Grid Company (NGC). From April 1, NGC will charge generators on mainland Scotland up to £23 per kilowatt per year for grid access. The charges for the islands are likely to be higher still. Previously, charges were between £5 and £12.

xThe Department of Trade and Industry (DTI) has for some time disagreed with Ofgem chairman John Mogg over the regulator's insistence that the costs of transporting electricity over vast distances should be reflected in transmission use-of-system charges. While Scottish generators will incur the highest charges in Britain, generators in southern England closest to centres of demand where there is a lack of generation will be paid up to £8/kW to transmit power. The new charges are being brought in as part of a wholesale reform of Britain's electricity market known as BETTA, or British Electricity Trading and Transmission Arrangements.

xOfgem maintains that despite the high charges, wind farms in Scotland are still viable under the Renewables Obligation (RO). The highest charge under the new mainland charging regime will work out at around £9 per megawatt hour. Under current prices under the RO, renewable generators can expect about £70-80/MWh for their output, says Ofgem. This consists of some £40-50/MWh from selling RO certificates (ROCs) and about £30 for the electricity from the market, it says.

x"Those figures demonstrate that Ofgem have got a very rosy view of how the Renewables Obligation works," comments Maf Smith of Scottish Renewables. He points out that generators do not receive the whole price paid for ROCs. Renewable generators sell their output and ROCs under a power purchase agreement which is priced to take account of risks of future volatility in the ROC market. Ofgem should appreciate how the ROC market works since they administer the RO, adds Smith.

xO'Brien calls the charges "disproportionate." He argues that penalising generation in remote parts of Scotland, which has the best wind resource in Europe, would interfere with meeting the UK's 10% target for renewables by 2010. "The northernmost Scottish islands are among the most attractive locations in the UK for wind power, and R&D into wave energy is also already being progressed off Orkney," he says. "By 2010, 1300 MW of electricity could be feeding into the grid from the islands."

xIn last year's Energy Act, which paved the way for BETTA, the government included a power to adjust transmission charges for renewable generators in parts of Britain if the charges would otherwise deter renewables development. The DTI is to consult over the level of its proposed cap on charges for the Western Isles and Shetland and Orkney islands. It will also consult on whether to use its new power to cap charges in the north of the mainland.

x"By limiting the charges renewable generators have to pay to transmit their electricity to customers across Britain, we're ensuring at this early stage that remote location does not stand in the way of attracting the necessary investment," says O'Brien. The British Wind Energy Association (BWEA) called the DTI's move a shot in the arm for the renewables sector in Scotland. Sandy Cumming, chief executive of Highlands and Islands Enterprise, also welcomes the cap on charges, saying: "It provides an opportunity for a level playing field for generators based in the Highlands and Islands."

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