Renew On Line (UK) 58

Extracts from NATTA's journal
Renew, issue 158 Nov-Dec 2005

5. BETTA hurts Scotland  

The debate on Electricity Transmission Charges continues On June 15th during a Parliamentary debate, Scottish MP Mike Weir (Angus) (SNP) complained about the new  locational charging arrangements within BETTA, the new British Electricity Trading and Transmissions Arrangements which, he claimed, ‘could strangle the prospect of renewable energy development in Scotland’.  He added ‘The more cynical among us might think that that is not unconnected with recent attempts to talk up the prospects of nuclear power’.

He noted that the Government had, under pressure, inserted a clause to ‘give exemption from those charges to an area especially favourable for renewable energy’ and it ‘had been widely assumed that that area was the north of Scotland and the island areas’.  However, he said ‘there are serious deficiencies in the proposals. For one thing, the derogation is for only five years, with the power to extend for a further single period of five years.’ Moreover it was ‘for an area and not for specific projects, so only projects up and running at the time the exemption is introduced will get the full benefit of 10 years’ reduction; any project coming later will get a tapering relief, if any at all. It should also be borne in mind that the payback period for many such projects will be far longer than 10 years, and that anyone investing in them will face the prospect of massive increases in transmission charges mid-way through their project.’

He  continued ‘Ofgem seemed to be totally dominated by a fixation that charges should be used to send economic signals and that generating capacity should be sited near centres of population, which, in its view, seemed to be mainly in the southern part of England’.

However he claimed that ‘The whole idea of locational charging is based on a misconception. The desire to locate energy generation near population centres can have a superficial attraction, but cannot be done under the present centralised generation and transmission system.’

He noted that ‘Under the current system, the charging regime completely fails to take into account the fact that remote areas are the most efficient places for energy generation, and in particular for renewable energy generation. Instead of letting comparative advantage dictate where energy is produced in a manner that would be beneficial to all, locational pricing attempts, in effect, to second-guess the marketplace by using effective subsidies or taxation to force energy production into less resource-efficient areas. I understand that losses through transmission are only between 2 and 4%, depending on distance, but locating power stations in places with greater resources delivers between 25 and 33% more power. That implies that a 1 GW wind farm with 50% capacity will lose 10 MW, but as a result of increased efficiency will generate between 100 and 150 MW extra energy. Therefore, it does not make sense to insist on locational pricing.’

OFGEM had evident argued that since there were many applications for generation in northern Scotland, there was no need for encouragement there, but there was a need for encouragement in other areas, whereas he argued that  ‘there were so many applications in northern Scotland because that was the obvious place to site renewable energy developments’.   He concluded ‘Perhaps it is the case that the regulator would prefer there to be new nuclear power plants in Surrey than renewables generation in Scotland, although it is doubtful whether the people of Surrey would agree’. 

He rounded off by saying  ‘I am sure that the Minister will tell me that, under BETTA, the interconnector charge is going and that will balance the cost to Scottish generators’.

However he noted that, while Scottish and Southern Energy had said that, for a big generator, that might be the case and that matters will balance themselves to some extent, it would not allow new generation and new renewables to come on line- also seebelow.   And yet  he claimed ‘Scotland has 25% of Europe’s wind resources, 10% of Europe’s wave capacity and 25% of the total tidal capacity. Indeed, the Pentland firth has been described as the Saudi Arabia of tidal power.’  But although Scotland was leading on wave power ‘recently there has been talk about much of that being moved to Portugal, which would be seriously detrimental to Scotland. One of the major players in the wave generation market has recently been bought by a German company, so we are already seeing some of the innovation in Scotland going to other nations, partly because of the lack of take-up of some of the technology.’

The Minister for Energy, Malcolm Wicks, as predicted, said that BETTA, ‘brings great benefits to Scottish consumers, who, for too long, had less choice and paid higher prices than their counterparts in England and Wales’. He added ‘A cost-reflective system promotes the efficient use of the electricity transmission network, and hence the lowest-cost solutions for consumers, who ultimately have to pay. I emphasise that if charges did not reflect costs, the network would not develop efficiently and consumers would face higher electricity prices, which would harm industrial competitiveness and the fuel-poor.’

He insisted that ‘BETTA is more than a new transmission charging structure. To consider transmission charges only would be to ignore the bigger picture’, adding that, in any case, ‘before BETTA, any Scottish generator that exported electricity to England and Wales had to pay separate charges to use the interconnector. Those charges disappeared under the BETTA arrangements and the merger of the Scottish electricity market with that of England and Wales. Indeed, connection charges are lower in Scotland as a result of BETTA, and Ofgem estimates that its overall effect on Scottish generation has been broadly neutral. Let us not forget that a postage-stamp system of transmission charging, with which the rate does not vary geographically, would mean that Scottish electricity consumers would have to pay around £46m more in 2005-06 then they do now. Is that really what the hon. Gentleman wants? Surely it might lead to more fuel poverty in Scotland.  In short, the apparent increase in cost to Scottish generators has been misinterpreted or misunderstood due to a failure to look at the whole picture and, perhaps, a failure to consider the interests of the consumer, who is surely the person about whom we should be most concerned.’ 

He went on: ‘We need to recognise that Scottish generators are getting a different product in return for the transmission charge that they now pay. They have equal access to the entire British electricity market, which was not the case before. That is particularly good news for renewable generators, given that Scotland is already a net exporter of electricity. Instead of generators having to navigate different sets of rules and pay additional charges to access the market in England and Wales, there is a single British market with a single set of rules. Generators have easy access to a wider range of customers and can negotiate the best prices for their output.’

He concluded ‘We do not believe that transmission charges will impede the growth of renewables nationally. BETTA is essential to the growth of renewables in Scotland’, although he did concede that ‘the Government recently announced our intention to exercise the section 185 power in the Energy Act 2004 to adjust transmission charges for renewable generators on the Scottish islands’ in order to compensate for local discriminatory Tariff problems, and he said ‘We shall consult on that in the summer’.  Let’s hope it’s sorted.

Hydrogen  for Scotland

BP, Shell and Scottish & Southern Energy are to build a pioneering £330m power plant in Peterhead, Scotland, that will convert natural gas into hydrogen & carbon dioxide. The hydrogen could, they say, be used to generate enough electricity for 250,000 homes, while the CO2 will be buried in depleted gas fields under the North Sea- in the Miller field, which is due to cease production soon. “The project will offer a new, large-scale source of de-carbonised electricity to consumers as well as extending the commercial life and contribution of the North Sea to the UK and Scottish economies”, said Lord Browne, BP’s chief executive (Financial Times 1/7/5).

However there was a sting in the tail. Lord Browne told the FT (12/7/05) ‘If carbon capture and storage is to succeed, we are going to need subsidies to encourage companies to take up the technology’ since BP estimated that it would make “only a very moderate return” from its investments in undersea sequestration. Generating electricity this way cost more than conventional generation he said, similar to that from renewables. For this reason, “it needs a government subsidy in order to be able to compete- just as wind and other renewable energy sources receive a subsidy”. But  this view is likely to prove contentious given that soaring oil prices have given large profits to the oil industry, while other sectors suffer from rising costs.    See our Technology Section.

More Scottish Wind

 Scottish and Southern Energy has signed an agreement to build Europe’s largest community-backed wind farm at Muckle Moor on Shetland- involving 200-turbines capable of generating 600 megawatts of electricity at full power. The final go-ahead for the £500m development, however, hinges on Scottish Executives approval and the construction of a £400m undersea cable, linking the islands’ electricity network to the Scottish mainland. The wind farm project involves collaboration with Viking Energy, the company formed to represent Shetland Islands Council’s interests in wind energy development on the islands.  SSE Generation and Viking Energy have already lodged separate proposals for 300 megawatt wind farms on mainland Shetland but the two developments would be combined under the deal.

* Following a lengthy consultation process, the Scottish Executive has given planning permission for a windfarm extension project- with an extra 52 new turbines with a generating capacity of 164MW at Crystal Rig windfarm near Dunbar, East Lothian, bringing it to a total of 226.5 MW.