Renewable energy developers propose to build some 1.36 GW of new capacity -- nearly all of it wind -- on the Western Isles, Orkney and Shetland. But none are connected to the mainland transmission grid. Consultants commissioned by the Department of Trade and Industry (DTI) have modelled the likely transmission charges that projects on the islands would have to pay if undersea grid links were built; they conclude that the tariffs would be so prohibitive that no new capacity needing a mainland connection is likely to be developed.
The Department of Trade and Industry (DTI) is consulting involved parties on how charges for the islands should be calculated. It still wants to see a strong cost reflective signal retained so that generators will be encouraged to locate their facilities where it is most cost efficient to do so. For this reason, the DTI proposes capping annual charges at a 50% discount -- either above a fixed level or above the highest of the mainland charges which is £23.10 per kilowatt per year for the island of Skye charging zone. According to the consultants' estimates, the adjustment could cost electricity consumers around £11-£13 million per year -- less than £0.40 on the average annual domestic electricity bill.
The government rules out plans to extend the cap on charges to projects in the Scottish highlands on the mainland. This would bring on only little additional capacity, it argues, and for the most part would merely increase profits of renewable projects that would have been built anyway.
The big drawback in the proposals, according to the wind industry, is that the cap on annual charges will only apply for a very limited period. After 2014, the charges could escalate. The reason is understood to be due to a mistake made last year in drafting the necessary legislation. Under the 2004 Energy Act, the government gave itself the power to adjust transmission charges for renewable generators for a ten year period. Due to the drafting error, the government can wield this power for ten years from October 2004, when the act became law, rather than from the date when the transmission connections are completed.
"The clock is already ticking," says Maf Smith from Scottish Renewables. The power of government to adjust transmission charges will run out in nine years, he points out. "Given planning and implementation timescales for the transmission upgrades needed, the amount of time a project will be eligible for the lower charges is quite limited -- just a couple of years worth. After 2014 developers face a big cliff face." He doubts that many generators will be tempted to build projects on this basis.
"It's a real missed opportunity," Smith continues. "The government recognised that transmission charges were going to be a problem for the islands, but what they have proposed does not go nearly far enough. We need them to look at a long term solution." The DTI says it will keep any adjustment of transmission charges under review and if necessary will consider extending it beyond 2014, though this would need primary legislation.
Meantime, Smith hopes that the high costs borne by generators in the Scottish Highlands for sending electricity south will be remedied as a result of a review of transmission charges by energy regulator Ofgem and British system operator National Grid Company (NGC). "We want a situation on the mainland where we do not need a cap, but transmission charges are currently too high for northern Scotland," he says. "If the work by NGC and Ofgem is followed through in an objective and open manner it should mean that charges will come down to a more proportionate level."