Electricity suppliers from across Great Britain will subsidise the costs of providing power in the Shetland Isles rather than just those that serve north of Scotland, the UK government has announced.
The isolated nature of Shetland’s electricity system means it costs £18m more a year to supply its 23,000 residents’ homes and businesses, than it does to provide power on the mainland.
This cost is currently picked up by consumers in the north of Scotland through their electricity bills.
These costs are expected to rise to £27m from next year in order to deliver an upgrade to Shetland’s power supply, prompting government concerns about the burden this would place on consumers in the sparsely populated north of Scotland.
Ofgem will extend the operation of Lerwick power station in the Shetland’s capital through targeted investment until at least 2024/25.
Last week, the BEIS (business, energy and industrial strategy) department published a consultation announcing plans to spread the costs of powering Shetland across Great Britain from April 2020.
The move would mean consumers across the northern part of Scotland – from Thurso to Aberdeen, will save around £17 a year on their electricity bills. The cross subsidy would be collected by National Grid from all licensed suppliers across Great Britain.
Taken together with the Hydro Benefit Replacement Scheme, which provides an annual cross-subsidy of £61m for the high costs of electricity distribution in the region, assistance to north of Scotland consumers will total almost £90 million a year.
Assistance from the scheme ensures that electricity distribution network charges in the North of Scotland are not ‘markedly higher’ than those for the next highest charging regions, according to the consultation paper.
Announcing the consultation, interim minister of state for energy and clean growth, Chris Skidmore, said: “Consumers in the north of Scotland should not have to fund the costs of maintaining Shetland’s energy security alone. The ability to share costs more widely is one of the benefits of being part of the United Kingdom and these plans will mean consumers in the north of Scotland will soon receive a welcome saving on their bills.
“Shetland is different to other Scottish islands as it’s the only part of Britain’s licensed distribution network that is isolated. It’s unable to benefit from the economies of scale enjoyed by other islands, which are part of the integrated network, which is why costs have always been higher.”
The effectiveness of the Shetland arrangement will be assessed in 2022 as part of a three-yearly review of the Hydro Benefit Replacement Scheme.