£1bn cost of green power

The two companies want to invest a ten-figure sum in Scottish network upgrades that would allow independent wind energy suppliers to connect to the national grid. The existing infrastructure is close to full capacity. But the firms have made it clear they need to pass on the bill. They want the cash to come from connection charges to the network, and potentially the average household - a situation currently being examined by industry watchdog Ofgem.

The two firms have made approaches to the regulator suggesting a sum of 1bn should be raised in this way.

The transmission line they want to upgrade runs down the backbone of Scotland from Beauly, near Inverness, to Denny, close to Falkirk.

Ofgem is suspicious that the two firms have overestimated the amount needed for the upgrade, and has appointed independent accountants to work out what the real figure should be.

Sir John Mogg, chairman of the energy regulator, said: "We want the upgrades to be carried out as cheaply as possible to minimise the costs to customers. But we have to make sure the process is economically viable."

Ofgem is considering what would be a suitable connection charge for generators who want to take advantage of the upgrades. It is hoping the level of demand from independent generators will cover the bulk of the costs.

But Andrew Walker, the regulator’s head of transmission networks, said the charge could be capped by local government, to ensure suppliers are not deterred by the high price of connection.

That would mean the energy companies would have little choice but to pass on remaining costs to the consumer.

The UK government has demanded that Scottish Power and SSE treble the capacity of Scotland’s main electricity link - a measure to help boost the amount of power generated from renewable sources such as wind.

The extra energy will become available for sale and transmission south of the Border following the introduction of BETTA, a new UK-wide trading policy to be put through government in March 2005.

Scottish bills have already risen over the past year as wholesale electricity prices jumped 20 per cent. The UK will soon import more gas than it sells, putting another burden on households.

An industry source said: "It’s too early to say whether or how much bills will increase as a result of the upgrade. It will be a commercial decision."

The first phase of the proposal will be unveiled in July and is currently estimated at 500m. Two more phases will follow over the next year.

The upgrades could add 6GW to Scotland’s power generation capabilities, although the chief beneficiaries will be small wind generators eager to take advantage of taxpayer-funded renewable energy incentive schemes.

The Scottish Executive wants 18 per cent of the country’s energy to come from renewable resources by 2010, rising to 40 per cent by 2020.