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Charging system for energy technologies needs to be fit for the future

By Highlands & Islands Enterprise - Energy team

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By Elain MacRae, head of energy strategy, Highlands and Islands Enterprise

Elain MacRae, HIE.
Elain MacRae, HIE.

It’s no secret that we have a lot of work to do when it comes to meeting Scotland’s legally binding net zero targets. Nor will it be a surprise that there is a huge amount of work and effort required from all aspects of society to get us there.

Perhaps one of the less considered elements of our challenge is one that has exercised us at Highlands and Islands Enterprise (HIE) for a long time: delivery of appropriate grid network and associated regulatory framework.

At HIE, we have long since worked closely with colleagues in the local authorities around our region to try to influence change. We have engaged robustly with industry regulator Ofgem through consultation responses and answering many calls for evidence.

However, we are yet to see the changes we need to ensure that we have an electricity system fit for the future.

One of the most crucial issues that requires significant change is that of Transmission Network Use of System (TNUoS) charging. Essentially, this is the model that sets out how our electricity network throughout Great Britain is charged for.

The model was developed 30 years ago, when generation was provided by coal and gas fired power stations, located close to large centres of demand.

Times have changed. Now, in Scotland, over 90 per cent of our generation comes from renewable sources and is dispersed across the UK, remote from large centres of population.

What this means is that the old charging system is no longer fit for purpose in the 21st century. Developers with projects in the north of Scotland, where the renewable resource is greatest, are being hit with charges of tens of millions of pounds each year. Meanwhile, generators in the south of the UK (closer to demand) are actually paid for their generation to the grid. That is clearly not equitable.

Adding to the challenge is that the charges are variable and unpredictable and can mean generators see swings, typically over 50 per cent up or down each year.

As more projects are built and added to the transmission system, these charges will only increase. If the situation remains unchanged, it won’t be long before projects in our waters and across the country may no longer stack up financially.

In addition to the economic impact on Highlands and Islands developers, you can imagine what that would mean for our delivery of net zero targets.

To meet our targets, we need to deliver a fourfold increase in generation, according to the Climate Change Committee. Much of that can be delivered by offshore wind projects; ironically, the technology that will bear the brunt of these transmission charges if we do not see the methodology reformed.

Energy projects, be they renewable generation or the delivery of new and upgraded infrastructure to transport that generation, also have a key role to play in helping to rebuild the economy following the impacts of Covid-19.

Our industry can support job creation and can do so in some of the more remote and rural parts of our region where it is so needed. The socio-economic benefits brought by these projects are hard to ignore, too. There are fantastic examples of how communities hosting projects have been able to support those most in need with revenue being used to great effect.

So, we’ll continue to advocate for change alongside the growing voice of industry. Never has there been a better time to ensure that policy and regulation supports our targets and delivers an energy system fit for the net zero future.

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