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2. Scottish green power to be cut off?

Ofgem, the energy regulator, wants to impose higher geographically-based cost reflective charges on remote power generators, like those in the Scottish Isles. It is proposing changes to the cost of connecting to the national grid on a zonal basis. The Scottish Renewables group have warned that this would discriminate against developers in northern regions. It says All large projects and many small ones, including community renewables projects, will face income reductions with increased charges planned by Ofgem, and when combined with increased business rates for renewables, up to a quarter of total annual turnover will go on paying these charges. Meanwhile, generators will be incentivised to locate in the south of England with a range of subsidies, even though the renewable electricity resource may not be so strong and opportunities for deployment are limited.

Ofgem wants to reduce the value of every kilowatt hour generated in Scotland by imposing charges for using the National Grid based on a generator s location and, Scottish Renewables say, seems to disregard the fact that land owners, communities and developers have little choice where to locate their projects. The zonal transmission loss proposal closely follows the introduction of punitive transmission use of system charges and combined they strike at the heart of the competitiveness of generators in the Highlands.

Jason Ormiston, Chief Executive of Scottish Renewables, said: The cumulative effect of a range of regulatory charges faced by industry means that the economics of a number of onshore wind projects in northern Scotland will now become more marginal and it is possible that a number of these will not make it to deployment. Moreover, if these proposals put a Highland project s feasibility into doubt, the bigger question is what will be the likely impact on new district scale biomass projects, or the nascent wave and tidal energy projects? World-class innovative technologies such as the Pelamis wave machines may struggle to survive in the current market if these increasing cost burdens are allowed to accumulate. In a world where capital is a very mobile resource, will Scotland be able to attract the investment needed to kick start the potential of wave, tidal, biomass and offshore wind; or will the Ofgem signpost of don t build here be clear enough to send that investment elsewhere?

He concluded by calling for a change in the principles that governs Ofgem decision making: It seems odd to Scottish Renewables that there is no mechanism for recognizing the social, environmental and economic benefits that renewable electricity can bring to the Highlands of Scotland when regulating the industry. A change in the Ofgem remit would be a good start to addressing issues like these but may prove to be too late for some.

Ofgems Chief Executive, Alistair Buchanan, said: Ofgem consistently supports the development of renewable energy and we want to see projects on the Islands given every opportunity to connect so they can contribute to the UK s renewables targets. We must however strike the right balance between making sure developers requirements are met and seeing that the links are built as economically as possible so customers do not pay any more than necessary for them.

Ofgem has suggested that opening the building of power transmision links to competition might reduce overall costs. It says that any reduction in costs will translate into lower transmission charges for generators which could increase the number of projects able to connect and reduce the risk of the connections not being fully used .

Competition for new transmission links is new for the UK, although similar approaches have been used in some other countries to build comparable links. The Government has already decided on a competitive approach to developing new transmission connections for connecting planned offshore renewable projects in the Thames Estuary, along the East of England coast, in the Wash and off the NW coast.

The Scottish Renewables study Making Connections: connecting Scotland s renewable potential is at: www.scottishrenewables.com/MultimediaGallery/4b125889-8412-4945-9c7f-f691de33cce6.pdf

Ofgems consultation is at:

www.ofgem.gov.uk/Licensing/ElecCodes/BSCode/Ias/Documents1/zontranlossminded.pdf  

• Ofgem s role and activities have been under scrutiny recently, e.g. by the Sustainable Development Commission. See: www.sd-commission.org.uk/pages/ofgemreview.html They say we d like to see Ofgem s primary duty changed so that its central focus is on creating a sustainable system which costs as little as possible. As a government agency, Ofgem's prime mission has been defined as to help market competition reduce prices, but in practice this often conflicts with other duties it s been given, such as the protection of the environment and supporting sustainable energy. In her new book The Political Economy of Sustainable Energy , Catherine Mitchell argues that we need a new powerful independent agency which moves beyond short term economic concerns. Not maybe in the mind of the new DBERR- despite Regulatory Reform being in its name. But the Tory Security policy group last year said there was need for a new energy department to tackle the urgent need to strengthen the ability to withstand threats to its energy supplies from shortages or terrorist incidents. (Interestingly, and seemingly in conflict with David Cameron s views that nuclear was the last resort , it also warned that security of energy supply requires nuclear energy and renewables to form part of the picture ).

Scotlands Marine Supply Obligation

Although in order to push things on, Scotland has introduced its own Obligation for wave and tidal projects, it has still been taking it carefully, and linking it into the existing RO system. Following consultation in 2006, the Marine Supply Obligation (MSO) was introduced as part of the Renewables Obligation (Scotland) Order 2007 (the ROS). The MSO is a mechanism which requires suppliers to meet a proportion of that obligation by producing as evidence ROCs awarded to eligible wave or tidal generation in Scottish waters, or by paying a higher buy-out price. The Scottish Executive sees the MSO as providing a clear, long term market and incentive to invest in first generation commercial wave and tidal arrays around Scotland . During the consultation process last year, the Executive made clear that it would not set a level above zero unless there was going to be eligible capacity commissioned and connected in the coming year that would trigger the setting of a target that suppliers could then meet, using ROCs awarded to the capacity in question. This was based on the fact that the MSO can potentially increase the cost of the Obligation to consumers, as suppliers pass through the higher compliance costs.

In the event, the 2007/8 level was set at zero, and though the new ROS Order 2007 contains MSO levels from 2008/9 on, the Executive say that these are illustrative and based on linear progress towards the proposed 75 MW ceiling. It remains our intention that the precise MSO level for each subsequent period is to be decided and set on an annual basis.

Proposed MSO process

The amended ROS containing the MSO provisions came into effect from April 2007 and following the consultation, the Executive have now produced final proposals for the future of the system. It proposes that, in order for a wave or tidal station to have its capacity form part of the MSO level setting process, applications for consent to develop eligible wave or tidal capacity to the Scottish Executive, developers will need to submit a project plan confirmation that all necessary consents, site leases and licenses have been secured and that all major manufacturing and component supply chain contracts have been signed; and that a grid connection offer has been agreed and signed. Once the total eligible capacity has been established, it will be used as the basis for the calculation to set the MSO level for the forthcoming Obligation period. The MSO level based upon the first tranche of eligible capacity will be calculated using the following assumptions:

• 6 months of operation;

• a capacity factor of 30%; and

• an availability factor of 70%.

The calculation for subsequent periods will take into account not just new capacity but also the performance of existing capacity in the previous period. For this purpose, the Executive will appoint a small panel to consider, agree and advise on suitable levels. The aim is to have the new system in place by April- subject to Parliamentary agreement.

Wales emits more

CO2 emissions per person in Wales are the highest in the UK, and 12th highest in the world. Wales has a larger industrial base than much of

the rest of the UK, so average emissions are likely to be higher, but household emissions are higher than the UK average.