Isles renewables may benefit from new transmission charging scheme

Viking Energy might save a massive £27 million a year in transmission charges for its proposed windfarm if a new system being formulated by the National Grid is put into practice and islands are not excluded.

Effectively halving the cost of sending power from Shetland and other remote areas would open up the possibility of either far fewer turbines being required by Viking to turn a decent profit or far larger profits being generated than the £37m a year that Viking expects Shetland to earn from the size of windfarm currently proposed.

The potential new model for charging windfarms emerged on Thursday following a meeting at the European Parliament organised by SNP Euro-MP Alyn Smith who is campaigning against the current UK system – widely regarded as unfair – where power suppliers are charged according to the distance the power has to be sent to users.

The so-called locational pricing regime is seen as one of the biggest hurdles to developing giant windfarms in Shetland and elsewhere in the Highlands and Islands and Mr Smith has been trying to get the EU to raise a case against the UK for breaching a directive which makes it illegal for electricity transmission costs in member states to discriminate against renewables.

While Mr Smith has not made progress in having locational pricing changed he said he was pleased to hear National Grid representatives say they were looking at changes to the regime which could see costs for wind generators halved. He said that would be “a major step forward” and he has now written seeking more details of the proposals which are expected to be the subject of a consultation next year.

In its project proposal, Viking Energy has budgeted for having to pay annual transmission charges of up to £54 million a year, based on the levy it has been quoted of £100 per kilowatt hour for a 540MW windfarm – a rate some five times higher than is charged in the North of Scotland area. If that was to be halved it would have an enormous effect on the windfarm’s profitability.

It is understood that the proposed concession from National Grid is based on the fact that the amount of power from windfarms varies greatly depending on the strength of wind. The new system would base the transmission charge on the volume of power coming through rather than the maximum rating of the windfarm. The penalty for long-distance transmission would remain.

At this stage it is not known how these tentative proposals will apply to islands producing wind energy as opposed to windfarms on the mainland. A consultation on charging for island connections has just been issued by National Grid and its implications have yet to be worked through by Viking. The fear is it could reduce or even cancel out the benefits of the new proposed volume charge.

Viking Energy project manager Aaron Priest gave evidence at Tuesday’s hearing in Brussels and heard the indications given by National Grid about a volume-based payment for wind power which he said had “the potential to dramatically reduce the annual payment that we have to make”. However, it could be well into next year before a clear picture emerges.

Mr Priest said on Thursday: “We welcome indications from National Grid that a volume-based payment might be introduced. It has the clear potential to reduce costs to wind projects in the Highlands and Islands. We need to ensure that it is not just wind but that future wave and tidal projects benefit as well, if and when this proposal develops. We look forward to seeing the detail.

“The £100-a-kilowatt figure is an estimate at the moment and one of the major issues we’ve had to date is that there was no established island charging methodology and all we had were estimates so we welcome the fact they are now consulting on island connections as a mechanism to get clarity on that figure.”

The UK government and National Grid have come under heavy pressure to change the charging system as a result of campaigns by the renewables industry in Scotland and the Scottish government. In some areas of Europe renewable power generators are charged nothing to transmit their electricity, according to Viking project officer David Thomson.

Figures from Highlands and Islands Enterprise in October showed that power generators in the south of England are subsidised by around £7 per kilowatt hour while similar projects in the Highlands have to pay around £22 per kilowatt hour to use the transmission system. Viking was quoted figures of around £96 per kilowatt hour by National Grid.

The hearing in Brussels was also attended by the leader of the Western Isles Council, Angus Campbell, who spoke about the disadvantages faced in developing renewables in the Highlands and Islands.  The European Commission told the hearing that it did not believe there was scope for a legal challenge against the UK government for failing to comply with the directive but it recognised a strong political need for the UK to take action on the matter.