Renewable energy projects in the islands such as the Viking Energy windfarm will have to pay higher transmission charges than those based on the mainland, the energy regulator Ofgem has decided.
However, despite wild speculation elsewhere about the scale of those extra costs, no actual figures have been decided upon – an “improved” system is to be developed – and the move presents no threat to the viability of the 103-turbine Viking project, which was given consent by the Scottish government last month.
“This is not a blow to Viking at all,” said project manager Aaron Priest. “It is an expected outcome of an industry process that will now move on to the next stage. There will be further engagement between the regulator and the industry and National Grid.
“Obviously, we would rather Ofgem had moved to a fairer pricing system as we had argued for, but we are pleased that a decision has been taken and we can now move forward.”
Viking and other island developers had argued that so-called locational charging (Investment Cost Related Pricing or ICRP in the jargon), where the distance from the generator to consumers determines the charge, should be replaced by a system which does not penalise island groups. At the very least, they suggested, a cap should be placed on charges.
However, in the results of its Project TransmiT review, Ofgem said transmission charges accounted for four per cent of an average household energy bill and it was important to ensure that any changes to transmission costs had a minimal impact on those bills. Charging generators the same regardless of location, it said, would add £7 billion to the cost for consumers. Instead, an “improved” system of locational charging will now be developed.
In a statement Ofgem said: “While Ofgem has directed industry to further develop how an improved form of ICRP applies to the Scottish islands, the approach will retain the locational element of transmission charging. In the case of Orkney, Shetland and the Western Isles, which by their nature are located very far from demand, there are currently no high-voltage connections from them to the mainland.
“Therefore the infrastructure costs required by them to transmit power to the mainland are very high and this would be reflected in the transmission charges for these generators.
“However, a key aim of Ofgem’s review of transmission charging has been to facilitate a move to a low carbon economy. An improved form of ICRP would more accurately reflect the costs [of] intermittent generators, such as windfarms which only generate when the wind is blowing.
“Although the effect of this will vary across the country, for the Scottish islands, following the installation of the high-voltage connections to the mainland, they could stand to benefit by close to a 50 per cent reduction in charges for use of the main network compared to the current situation.”
Scottish energy minister Fergus Ewing voiced his disappointement at the Ofgem announcement.
He said: “We have Europe’s best renewable energy resources, yet the unfair system of locational charging continues to result in Scotland facing the highest charges in the UK, while subsidies are paid to generators elsewhere.
“We welcome Ofgem’s recognition that the current system needs reformed and the moves to reduce some of the charges faced by renewables generators. This must happen, and quickly. But we share the industry’s huge disappointment that Ofgem has delivered no solution to Scotland’s islands, where there is huge potential to generate clean, green energy that can contribute to Scottish, UK and European targets.
“It is disappointing that the regulator has left little scope for the islands to get fair treatment through the industry stage of Project Transmit and we will continue to work to get the best deal possible for them. The Scottish government, together with utilities and developers across the industry, have led the argument for change from the outset and will now press UK ministers urgently to find solutions to unlock the vast natural resources of our islands.”
Meanwhile, a report is understood to be in preparation for the new trustees of Shetland Charitable Trust which will underline Scottish and Southern Electricity’s determination to proceed with the windfarm if they vote to reject the £6.3 million being sought for the next stage of development.