Compromise on transmission charges

The long standing North-South row over energy transmission charges may be coming to a conclusion with Ofgem planning to introduce a new charging methodology from April 2014.

The current system means that generators furthest away from the main centres of population pay higher transmission charges. It has long been argued that this system discriminates against generators in Scotland and the north of England and has been brought into focus with the large scale development of renewable generation in remote parts of Scotland. The current system compares unfavourably with postal charges where you pay the same wherever you live in the UK. UNISON Scotland has been one of many organisations who have campaigned for the system to be reformed.

Ofgem, has edged at its usual snails pace towards reform. Project Transmit was established to consider all the options and while they intend to retain locational pricing, the compromise is to narrow the difference in charges.  Under the new plan generators in Scotland will pay an average of £13/kW less (around 50%) than under the current framework and those in the southwest £5/kW more. The immediate impact will be to raise consumer bills on average £1.60 a year up to 2020, although Ofgem expects it to reduce bills by up to £8.30 a year in the following decade.

Reaction to the announcement unsurprisingly depends on geography. RWE Npower said the proposed changes represented a "hidden subsidy to Scottish renewables". It commissioned research from consultancy Nera that said it would cost the average household £12 a year to 2030. SSE called the old regime "outdated". A spokesman argued: "Renewables need to be located in remote locations; nuclear has only a few siting options, therefore the extreme costs for remote and northern plant are simply a cost burden for the necessary location of electricity generation plant". Their respective positions are played out in blog posts at Utility Week.

Scottish Renewables are not happy with the compromise. Chief executive Niall Stuart said the plan would not see a single island renewables project being taken forward. “We still therefore need the UK government to see through its commitment to introduce a financial support mechanism specifically for the Scottish islands to help them manage the burden of continuing high transmission costs. There is also a risk that transmission charges will creep back up over the next few years, with Ofgem proposing that Scottish generators be left to pick up the full costs of two new subsea connections despite the fact that these are vital to the UK meeting its renewable energy targets.”

Political reaction has generally been supportive, with even SNP MSP Mike MacKenzie welcoming the announcement as, "a step in the right direction". Even if somewhat grudgingly with the additional comment, "That said, it is a disappointment that Ofgem remain fundamentally wedded to a system that subsidises generators in the south of England while landing those in Scotland with the highest charges in the UK". On this basis you have to wonder why the SNP want to stay in the UK market post-independence?

Overall, this is probably the best compromise that northern generators could have expected. It has been wrung out of Ofgem who remain wedded to their traditional ideological market position. Not quite a level playing field, but a little less bumpy.