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New plans for a fairer, simpler and more transparent transmission charging regime for Scotland's power companies were announced by the Scottish Government today.

Energy Minister Jim Mather presented the "unanswerable case" for reform to Ofgem and the National Grid to stop the current system of charging generators in Scotland millions of pounds more than generators in the south of England to transmit electricity.

Jim Mather outlined the Scottish Government's plans for reform when he addressed delegates at the Ofgem Sustainability and Energy Networks event in Edinburgh today.

The current regime works against the sustainable development of the vast renewable and clean energy potential in Scotland.

The new model proposes a uniform charge for each unit of energy that enters the system, regardless of location or capacity of the generating facility. The amount paid is directly related to the amount produced.

Energy Minister Jim Mather said:

"Scotland's vast array of potentially cheap, renewable and low-carbon energy sources is there to be harnessed - onshore and offshore wind, wave, tidal and biomass. We are a country rich in natural resources and we must take full advantage of our ability to become a leader in clean, green energy.

"And that is exactly what we are doing. Adding the consented renewable projects to those already operating we will exceed our target for 31 per cent of electricity to come from renewables by 2011. That backs up the wave of recent activity which has seen around £1 billion being invested in renewables in Scotland, including consent for the massive Clyde windfarm. But we can do so much more. It is only common sense to have a fair, simple charging regime to promote renewable energy, ending the current discrimination and giving developers certainty for investment decisions.

"This currently is not the case. The present transmission charging regime actively works against the development of these resources with a power station in central Scotland forced to pay £25 million more for transmission than a similar facility in Yorkshire, and even more than in London. The charging system encourages generation near large centres of population and takes no account of where energy resources are located. No other country in Europe uses this system - it has to end.

"When we met Ofgem in April we were pleased by their positive response to many of the points raised. We have now written to both Ofgem and the National Grid to propose this new model, which has the backing of Scottish Power, Scottish and Southern Energy and the Scottish Renewables Forum. This is an unanswerable case for reform. We need a level playing field - and we will not rest until we have a fair system that helps Scotland take its rightful place as the green energy capital of Europe."

The new model proposes that the method of charging generators should be changed from paying for the maximum entry capacity (MW) to paying for the use of the system (MW hour). Currently, the charge would be around £1 per MWhour.

Jason Ormiston, Chief Executive of green energy trade body Scottish Renewables Forum, said: "High and volatile transmission charges in the north of Scotland and in the Islands amount to massive hurdles for renewables developers and it is a hurdle that too many struggle to get over. If you are serious about renewables you should not put barriers in the way of deployment and we therefore ask that the regulator, Ofgem, and the System Operator, National Grid, look at the proposals for a new charging model very seriously because the need for zero carbon and home-grown electricity generation has never been greater."

Colin Hood, SSE's Chief Operating Officer added: "We are supportive of the Scottish Government's initiative to address the shortcomings of the current transmission charging methodology and would urge Ofgem and National Grid to give it urgent consideration."

John Campbell, Director of Energy Wholesale at ScottishPower, said: "The current system of high and volatile transmission costs unfairly penalises Northern Generators and hinders the development of renewable energy resources. In addition, the cost also makes it very difficult to justify badly needed investment in thermal generation, particularly in areas remote from the UK's population centres.

"We look forward to working constructively with all interested parties in this debate and are confident that a solution that offers a level playing field to all power generators can be realised".

This proposal has a number of benefits:

• Simplicity: this change would provide a simple, clear and transparent basis for charging that is easily understood
• Predictability: a uniform charge would be stable and predictable, giving greater certainty for generation and network planning and investment decisions
• Non-discriminatory: all generators would pay the same rate for accessing the transmission system regardless of technology, size or location. This would facilitate a level playing field in the energy market. The proposed model would also ensure that renewable energy is not the subject of discrimination in terms of charging especially from more remote areas, as stated in the January 2008 EU draft directive on renewable energy
• Cost neutral: there would be no change to the total revenue recovered from the charges paid by generators to National Grid. Consumers would not be affected by this change in any way
• Cost reflective: a charge would recognise the characteristics of different generation technologies, in particular the load factor
• Supporting Government objectives: this model would remove a key barrier to renewable generation in areas where resources are greatest, while sending a strong signal to consider replacement investment in thermal baseload
• Developing a European energy market: this change would be a step towards integration with the wider European energy market and compliance with European charging guidelines

Related Information

http://www.scotland.gov.uk/Topics/Business-Industry/Energy