Anger over green power subsidy cut

Published on Thursday 21 August 2008 22:35

THE Westminster government has been accused of putting the development of green energy at risk, by shelving plans to subsidise projects in the Scottish islands.

It means companies setting up renewable energy schemes in Shetland, Orkney and the Western Isles face paying up to 40 per cent of their annual turnover on crippling transmission charges.

The government had planned to bring in a "cap" on the charges to make sure the renewables industry was not put off from developing in these key locations.

But it has come under fire from environment campaigners and the Scottish Government, after announcing it was not intending to go ahead with the plans, which would have cost some 13 million a year in subsidies.

Campaigners said the decision put the development of the renewables industry at risk and the UK and Scottish targets for green energy under threat.

If the subsidy is scrapped, an average-sized 100 megawatt wind farm in Shetland will be hit with an estimated 8 million charge each year.

By contrast, companies building wind farms in the south of England are being paid money to transmit electricity, because the charging system favours schemes that are close to heavily populated areas.

Campaigners say the charging regime must be changed, as it is crucial to attract renewables companies to the Scottish islands which, with their high winds, powerful waves and strong tides, will play a key part in achieving the UK's target of 15 per cent of energy from renewable sources by 2020.

Jason Ormiston, the chief executive of industry body Scottish Renewables, said it believed Westminster had underestimated the impact of high charges on the islands. He went on: "We are disappointed that the Department for Business is not minded to use its powers to limit the damage that high charges could do.

"We need to be clear that high charges will undermine our efforts to establish a thriving and diverse renewables industry in Scotland.

"They would prevent the deployment of large wind farms in the islands and north of Scotland and threaten the successful deployment of Scotland's first – and therefore most important – fleet of wave and tidal projects."

Renewables currently represent only 2 per cent of "installed" capacity but contribute 16 per cent of total UK transmission charges.

Under the existing system, projects in Shetland face charges of 82 per kilowatt of electricity, compared with 39 per kw in Orkney and 61 per kw in the Western Isles. But companies in parts of the south of England are actually paid 8 per kw for transmitting electricity.

The government had been planning to cap the charges at about 25 per kw for the islands, before changing its mind.

Projects that could be hit include Viking Energy's plans for a 600 megawatt wind farm in Shetland and the Norwegian firm Fairwind and Statkraft's proposals for a 126 MW wind farm in Orkney.

The UK system is the only regime in Europe that varies charges on the basis of location, and there are claims it goes against a European Union directive that bans governments from using charges that discriminate against renewable energy produced in peripheral regions. The renewables sector is lobbying for a flat rate to be paid.

Alex Salmond, the First Minister, is due to meet with the industry regulator Ofgem next month to put forward an alternative charging system.

Jim Mather, the enterprise minister, said: "Scotland is united against the National Grid's electricity transmission charging regime, which works against the development of clean, renewable energy in Scotland.

"The Scottish Government, ScottishPower, Scottish and Southern Energy and the Scottish Renewables Forum have already presented an unanswerable case to Ofgem, who responded positively to the need for change.

"The National Grid have told us that they accepted the need for a review of charging."

He added: "We will continue pushing our case for Scotland until we have removed this unnecessary barrier to clean, renewable energy."

Gavin Mackay, senior development manager at Highlands and Islands Enterprise, agreed there must be an overhaul of the transmission charging system. "It discriminates against renewable energy generators," he said. "They are trying to produce power in areas away from demand centres and they are being charged unduly."

He said the issue, as well as the lack of grid capacity, could destroy the UK's chance of meeting its renewable energy targets. "I think we are definitely at risk of not meeting our targets unless we find solutions to these issues," he said.

A spokeswoman for the Department for Business said the government could use its power to cap charges only if renewable development in a particular area would be likely to be hindered. He said: "Our evidence base suggests the current level of transmission charges would not prevent otherwise economically viable renewable projects being built – even in the extremities of Scotland – as shown by the significant capacity awaiting connection."

A spokeswoman for Ofgem said: "We are clear that transmission charging levied on a user should continue to reflect the costs that user imposes on the network to get their flow of energy to the end user.

"This is because the further a source of gas or electricity is from its end user, the more it costs to transport that energy to them."

BACKGROUND

THE UK transmission charging regime is so complex some members of the renewables sector say a PhD in maths is needed to understand it.

It is designed on a cost-reflective basis, so the parties that use the system bear the costs that they impose on the network.

The methodology divides the country into zones where different generation and demand tariffs apply.

Due to most demand being in the south, generation tariffs are higher in the north.

The National Grid claims this provides market participants with incentives to guide investment in balancing the benefits of being closer to the demand areas against the associated costs of building plants closer to those areas.

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