The transmission system is the electricity motorway that transports electricity from where it is generated to areas with high demand. Like a motorway toll, generators like gas and coal fired power stations and wind farms are charged to use the network.
The amount of the charge is worked out through a formula based on the distance between where electricity is being generated and where it is consumed. So if you generate electricity in the south, where demand is generally high, then you pay less – and can even be paid to use the network if demand for power outstrips supply. If you generate in areas of low demand, where there is often more supply than demand, then you pay a higher toll.
When this system was first introduced, it made some sense. The aim was to encourage power stations to be built closer to where demand was highest. However, the current system has failed even to do this. Times change and, as the UK’s energy mix has been transformed, this charging system has become completely outdated. Project Transmit seeks to address this by rebalancing the charges to make them fairer.
Of course the big change in the energy mix in recent times has been the drive to harness the power of nature through renewables, helping the UK reduce its reliance on overseas imports and meet its climate change targets. Scotland, blessed with enviable natural resources, has rightly taken a lead role in this.
However, under the current system renewables face the serious handicap of higher tolls. By its very nature, onshore or offshore windfarms need to be sited in remote places, often a long way away from highly populated areas of high demand. For those projects to be viable, they need to be positioned in locations where they can tap into the renewable resource.
Is it fair to make greener sources of energy pay more for using the transmission highway? This system was introduced in a time when we didn’t have a lot of renewables – when it came to building a coal or gas-fired power station, for instance, generators had a lot more choice in terms of locations, so it made sense to incentivise them to be built where needed. Renewables bring different challenges that need different solutions.
Furthermore the current charges are levied on potential system use and not actual use. This means you pay for the maximum amount of electricity you have the capacity to produce at all times. Not only does this handicap renewables, for which output will always vary depending on weather conditions, but it will also penalise gas-fired power stations, which will increasingly act as vital back-up for when output from renewables is low, again meaning their output can vary considerably.
In the next few weeks we hope to hear on whether the changes proposed will at last be implemented from April 2015. The timetable has already slipped back from April 2014 and any further delays would prolong the uncertainty generators face and mean renewables and back-up capacity continue to face unnecessary hurdles.
Up until now progress has been hampered by concerns over the practical implications of introducing changes, with some arguing that more time is needed to work through the implications. They have been allowed to stand in the way of progress long enough.
Ofgem has already indicated its preferred, much fairer solution, so let’s get on with it.
Paul Smith is managing director of generation at SSE.