It’s decision time for Ofgem.
We are now reaching the end of a very long process – known as Project TransmiT – which began in September 2010 to examine the way in which electricity transmission charges are levied.
This week the board of the GB energy regulator meets to discuss recommendations on changing how generators will pay for using Britain’s transmission network – the National Grid.
It’s an important meeting.
The outcome could have a fundamental impact – positive or negative – on the renewable energy industry, particularly those of us looking to generate green energy on Scottish islands.
The big challenge for all renewables is that the grid was designed for a different era. Large power stations were located as close as possible to centres of industry and large cities. With the onset of nuclear power, new stations were built beside locations with a plentiful supply of cooling water. All grid planning was done on the basis of taking massive concentrated power to massively concentrated loads or customers.
This kind of point to point grid design is also enshrined in the way that we pay for grid connections – the closer you are to London the less you pay. There was a time when that made sense. You can bring coal by ship or train to the location of the power station and you can bring nuclear fuel to the coast where the plant is located.
The challenge for renewable power is that the fuel cannot be transported. You must build a wind farm where the wind is, you must build a wave farm where the waves are.
So a wind farm in the Highlands, or a wave energy project in Orkney or the Western Isles, faces massive charges which in some cases make these projects uneconomic.
While grid planners now know how to deal with ever greater quantities of renewable energy the mechanism for charging for grid has not yet caught up with the realities of renewable energy. The desire to develop a low-carbon economy is thwarted by an outdated grid charging mechanism.
Ofgem now has an opportunity to right a wrong and end discrimination of energy source based on location.
Ofgem are to be guided by lowest cost to the consumer and on the basis of sustainability . Lowest cost to the consumer is often cited as the immediate lowest cost to the consumer. With newspaper headlines each day screaming that green policies will add hundreds of pounds to annual electricity bills the facts speak for themselves.
According to DECC’s own figures in the period from 2010 to 2012 energy bills grew by about 13 per cent. Wholesale energy costs contributed to 60 per cent of the increase, network costs and supplier margins contributed to 25 per cent of the increase. The remaining 15 per cent of the increase was due to “green policies”.
Furthermore studies in the US, Ireland and Germany have shown that renewable energy although more expensive on average is less expensive than peak power from conventional plants and therefore contributes to a lower overall energy bill for all customers. The UK Government understands this, and ED Davey has said exactly this in public. Also prices for renewable energy are known and essentially stable for all time.
This week Ofgem will examine a whole range of options – put forward by a specialist panel – on how generators might be charged in the future, with the opportunity to make a more level playing field for renewables.
There are a number of decisions Ofgem could take – from delaying a decision by seeking further comments at one end, to choosing clear recommendations and deciding an implementation date at the other, with a multitude of possibilities in between.
We want Ofgem to decide which of the recommendations it will accept, and announce they will be implemented early next year.
National Grid has said implementation next spring can be delivered, so there is no need for further delay.
The renewables industry is stalling – lack of clarity on transmission charges, added to lack of clear strike prices for electricity have meant the long warned-of hiatus in energy investment has arrived, according to energy analysts Bloomberg New Energy Finance.
The UK Government have just published the strike prices for review. Transmission charges should be next.
Future investment decisions for the whole of the electricity industry, and a number of policy initiatives are now reliant on what our future transmission charges will be.
For example, the UK Government have announced they would look at an additional strike price for projects situated on Scottish islands. A solution this year, or early next, is fundamental to making sure the Western Isles link is built by 2017 – but the additional strike price will be determined by whatever the island charges will be.
The UK Government, after a long period of considering Electricity Market Reform (EMR) and what to do about Scottish islands, is beginning to act, and this clarity is exactly what the energy industry needs.
Project TransmiT has been a long process which, we accept, will not offer a magic bullet for the Scottish islands – but it will go a long way to making a more even playing field for renewable energy in Scotland’s north.
Now we, together with many others across the UK, would like Ofgem to announce an implementation date of early 2014, so the uncertainty around transmission charges can be removed and – whatever the result – our industries can move forward into a period of investment and growth.
Martin McAdam is chief executive of Aquamarine Power