Emissions reductions targets for both Scotland and the UK will not be met unless the Department for Business, Energy & Industrial Strategy (BEIS) intervenes to reform Ofgem’s network charging regime, a renewable energy developer has warned.
In a submission to the House of Commons’ Scottish Affairs Committee, which is continuing its ongoing inquiry into renewable energy, RES writes that grid costs have been a key factor in recent decisions not to proceed with two developments in Scotland.
The developer has told the committee that Ofgem’s transmission network charging methodology is “outdated and will prevent Scotland from reaching emissions reductions targets”.
The system, which means it costs more for a project to connect to the network in areas further away from where the electricity it produces will be used, is designed to account for the costs of building networks to reach the end consumer.
Grid costs were one of the “defining reasons” that made the two projects cancelled by RES “uneconomically viable”.
The submission says: “On these sites, transmission charges represented up to one third of total project spend. On top of other uncertainties facing projects, these significantly high costs, and the volatility of charges played a significant role in the decision to stop development of those sites.”
RES has told the committee that renewable energy projects in Scotland will be at a direct disadvantage when competing in the upcoming contracts for difference (CfD) auctions, which are due to take place this autumn, compared to those located in the south of England.
This is because they will have to factor these higher and more “volatile” transmission costs into their bid prices.
The developer’s submission says BEIS is the best body to coordinate the review of network charging, which it says must be reformed.
“While network charging is within Ofgem’s purview, it is RES’ view that emissions reductions targets cannot be met without BEIS intervention.
“Ofgem won’t be able to deliver what is needed without BEIS intervention.”
Ofgem’s consideration of impacts on billpayers is “too short term” and should also factor in the benefit to consumers of reaching net zero, the submission continues.
In a follow-up letter to his appearance at the committee last month, Ofgem deputy director of electricity distribution Steven McMahon defends the regulator’s stance on transmission network charging.
The charging regime will enable the transition to a net zero grid to be delivered cost effectively, he writes: “Without these signals, the overall cost of meeting net zero, which will ultimately be paid for by consumers through higher bills, is likely to increase.”
Ofgem wants to see a secure, affordable, net zero system at the lowest possible cost to consumers, McMahon adds.
Current network charging policies and mechanisms “enable rather than hinder” Scotland’s transition to net zero, he writes: “Whilst it is true that, generally speaking, the further electricity has to travel the more expensive it will be, we are not seeing signals in the market that suggest these charges are prohibitive to more green generation.”