Wind energy operators in Scotland’s Highlands and Islands have been paying three-times as much as their Southern-county counterparts for grid access. To what extent is this hobbling renewable energy development in the region - and could it prevent Scotland from achieving its 2020 targets?

By Toby Procter

The UK’s National Grid recently came under fire from members of the Scottish parliament for a distorted tariff regime that allegedly compromises renewable energy developers in the North of Scotland.

Since April 2009 operators in North Scotland have been charged £21 (€33.4; US$23.6) per kW for high voltage network access - three times the £7 (€7.7; US$11.2) per kW levied on wind farms in southern England.

In response in late 2009, Alyn Smith, a Scottish National Party member and MEP, organised a hearing on the UK’s high voltage electricity grid charging regime. Smith claimed the tariff regime to be in contravention of the EU Renewables Directive and that it disadvantaged renewable energy generators in the north of Scotland.

While the European Commission is continuing its investigation into the rating scheme, its preliminary findings suggest the existing transmission charges are non-discriminatory.

Similarly, the National Grid, which controls high voltage grid pricing across Britain and owns the network in England and Wales, denies any unfair play. On the contrary, it says consumers in England and Wales already pay one-third of Scottish transmission costs.

National Grid’s UK media relations manager Stewart Larque explains: “Any generation project proposed in Scotland will create significant costs in terms of investment, as the majority of electricity demand is in the south of the UK.”

According to Larque, there are four possible sources for recovering these costs:  generators in Scotland; generators in England and Wales; demand users in Scotland; or demand users in England and Wales. 

He explains that it would be inappropriate to recover these costs from demand users in Scotland because they reduce these costs by reducing the need to move power south of the border.

But on the other hand, he says it would be inappropriate to recover them from generators in England and Wales because they can get their energy to the market without such investment. 

“As demand users in England and Wales already pay for around a third of the transmission costs in Scotland, it seems unfair that they should shoulder this additional burden,” says Larque. “It is therefore clear to National Grid that targeting the costs against those who have caused them is always going to be more cost-reflective.”

Scottish wind energy compromised?

Fair or not, the question remains: Could grid access charges of this order prevent the Scottish Government reaching its 50 percent renewable power generation target by 2020?

Ofgem doesn’t think so.  An Ofgem spokesperson pointed out that a 2008 study for the UK government concludes: “At current subsidy levels, transmission charges do not compromise the economics of wind in remote parts of Scotland.”

The Renewable Energy Association (REA) agrees. Tim Russell, the REA’s networks adviser, says changes in network charges are likely to determine the viability of a minority of marginally viable projects.

He explains: “Some will go ahead regardless of a high rate, while others, say in the South of England, will benefit from the relatively low grid access charges there made possible by higher cost-reflective charges elsewhere."

"Some projects that have reached the drawing board would never be viable anyway without more subsidy than is currently available in the renewables market," adds Russell.

Grid investment planned

In any case, unfair grid access charges may be counter-balanced by future investment and more favourable policies targeting Scotland.

In November 2009, RBS, Lloyds and Paribas offered up to £1.4bn (€1.5bn; US$2.2bn) in new loans for onshore wind farms, half the cash coming from the European Investment Bank.

The same month, Ofgem launched a plan for up to £1 billion (€1.1bn; US$1.6bn) of national grid investment by 2012 to support renewables generation. Over 70 percent of this planned investment is targeted in Scotland. Ofgem said about five times as much again could be required over ten years.

Additionally, a review of grid standards applicable to intermittent generation, now under way by National Grid and the two Scottish transmission companies, could impact favourably on northern Scotland wind generators.

The ‘Standard of Quality and Security of Supply’, that determines which transmission facilities are mandated to support a given volume of generation and demand, could be revised towards the end of 2010 to mandate lower network investment for a given volume of intermittent supply than would be required for conventional generators.

“There would then be a cost-reflective argument for wind generators paying lower charges than conventional generators,” says Russell.

North Sea grid plans for a wider renewables market

Further ahead, there’s the possibility of the grid that connects Scotland to England and Wales, connecting to offshore wind farms in both the Irish and North Seas and to other national grids on Europe’s north-eastern seaboard.

The European Commission has already allocated €150 million (US$216mn; £135mn) for preliminary work on a possible North Sea grid, and €100 million (US$144mn; £90mn) for a link between Ireland and Wales.

The Commission estimates the entire North Sea’s offshore wind potential at 150 GW. Scotland’s alone could be an estimated 6 GW.

In this context, whatever new grid access pricing regime comes after 2012 will be only a small part of the problem of financing offshore wind investment – or of the solution. 

To comment on this article, write to:

Toby Procter: toby.procter@googlemail.com

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Rikki Stancich: rstancich@gmail.com