Ofgem's proposals, published in its "minded-to" decision on zonal transmission losses, mean higher charges for transporting electricity from plant sited furthest from areas of consumption. This means that wind plant operators in Scotland and northern England, where the good resource makes for higher profits, will pay more for transmission while generators in the less windy south will pay less. Ofgem argues that current charges do not reflect actual transmission losses incurred by transporting power over long distances. "Zonal losses charges" based on a generator's location will promote efficiency by reducing losses overall, it says, and result in lower costs to consumers.
Scottish Renewables, the trade association representing Scottish renewable energy generators, says the charges will undermine Scotland's fight against climate change. The association's Jason Ormiston accuses the regulator of penalising renewable generators for generating where the resource is greatest. "The cumulative effect of a range of regulatory charges faced by industry means that the economics of a number of onshore wind projects in northern Scotland will now become more marginal and it is possible that a number of these will not make it to deployment," he says.
Ofgem denies that more efficient "locational" signals will significantly hamper renewables in Scotland. The availability of the resource, the likely load factors and support provided under the Renewables Obligation (RO) are also factors which affect generators' siting decisions, it points out. "The ongoing demand for connections, particularly in the north of Scotland, suggests that the effect of other factors such as the Renewables Obligation continue to outweigh any negatives in terms of charges," it states.
The regulator also points to a cost benefit analysis by economics research consultants Oxera which concludes that, reflecting the impact of the RO, the introduction of zonal loss charging will have little, if any, impact on renewable new build across the period to 2015/16.
Ofgem also stresses that the north of Scotland is not the only area for potential renewable development and points to the significant offshore wind generation in the south. Furthermore, "By encouraging renewable generation to locate in different areas it may encourage the development of more diverse forms of renewable generation, which is likely to contribute to the achievement of sustainable development," it says.
Springing to the defence of his constituents, the Scottish Liberal Democrats' energy spokesman, Liam McArthur, is urging the Scottish Executive to put pressure on the UK government to ensure that renewables projects in Scotland are not disadvantaged. "My Orkney constituency has some of Europe's finest renewable resources, yet Ofgem's proposals will be encouraging potential investors to stay away," he says. "I want to see ministers petitioning the UK government to reject Ofgem's proposals and protect the competitiveness of Scottish renewable energy."
Meantime, lawyer Peter Willis of Dundas & Wilson warns that Ofgem's proposals may contravene EU law. The 2001 renewables directive states that governments must ensure that transmission charges do not discriminate against electricity from renewables, particularly islands and regions of low population density, he told the BBC. "There is clear scope for those affected to challenge Ofgem's proposals as being contrary to EU law."