Compensation to power firms hits record

THE amount of taxpayers’ money paid to electricity generators for switching off their power stations to free up space on the national grid is set to rocket to a record high of £283 million this year, Scotland on Sunday has learned.

The payments are made to compensate companies such as ScottishPower and Scottish and Southern Energy when the supply of power is too large for the electricity grid to cope, but have been criticised at a time when fuel poverty in UK households is increasing.

For the previous year the amount paid out across the UK was £170m. However, for 2011 to 2012 projections by the National Grid show the payments are expected to surge by more than £100m to £283m.

The figure, provided by the National Grid in response to a Freedom of Information request, will be the highest sum ever paid out. In contrast, in 2007 to 2008 payments were just £70m.

The rising costs to the taxpayer of the “constraint payments” is caused by a lack of capacity on the ageing electricity grid at a time when growing numbers of generators, including renewables schemes, are connecting up.

Many of these are located in Scotland, but much of the electricity must be transmitted south of the Border to population centres where there is higher demand.

However, there are pinchpoints on the grid, particularly over the border between England and Scotland, and when it becomes clogged up, generators are asked to shut down and are paid compensation for their lost revenue. For the year 2010 to 2011, of the £170m paid out across the UK, the vast majority – £132m – resulted from constraints on what is known as the Cheviot Boundary.

Norman Kerr, director of fuel poverty charity Energy Action Scotland, said action needed to be taken to limit the payments, at a time when increasing energy bills are already hitting consumers hard.

“As constraint payments will be with us for some time to come, it is essential that National Grid, Ofgem and the UK Government work together to ensure that the cost to customers is kept within reasonable levels,” he said.

The problem is being made worse by the lack of progress in expanding the grid. The industry regulator, Ofgem, is funding work to increase space, including the controversial £250m upgrade of the Beauly to Denny transmission line, but the project is still in its early stages.

Ofgem is also expected to approve £1 billion of funding for a 261-mile undersea cable between Ayrshire and the Wirral peninsula in England to provide 2 gigawatts of extra capacity.

“Planned upgrades to the most congested parts of the transmission system are underway to ease constraints, and the associated cost of managing them,” a spokesman for the National Grid said.