Electricity Grid (Review)

Lindsay Hoyle Excerpts

1st reading
Tuesday 26th October 2021 Commons Chamber

[Alan Brown (Kilmarnock and Loudoun) (SNP)]

I beg to move,

That leave be given to bring in a Bill to require the Government and Ofgem to conduct and act on a review of the electricity transmission grid and associated charges, to include consideration of abolishing charge differentials based on geographic location, incentivising renewable energy generation to maximise energy output, and minimising the passing on of charge fluctuation risk to consumers in the form of higher prices; and for connected purposes.

The driver behind this Bill is that Scotland currently has the highest grid charges in Europe. The Tory Government shrug their shoulders and say, “It’s nothing to do with us—it’s a matter for Ofgem.” However, they are the ones who set the rules for Ofgem to implement. What is the point of the Government bragging about a net zero target for 2050 and a plan to decarbonise the electricity grid by 2035 when they do not seem capable of seeing the bigger picture? While they probably do not care about Scotland having the highest grid charges—it fits their perception that Scotland is remote, so additional cost makes sense, and that anyway it is just us Scots whingeing again—the reality is that continuing as is jeopardises their own net zero plans as well as Scotland’s own targets. It makes a mockery of their levelling up agenda—which is, in reality, just about targeting the red wall seats of north England and the midlands. That agenda was confirmed last week by the disgraceful decision to class the Scottish carbon capture and storage cluster as a reserve.

The current grid charges system was introduced in 1992 following privatisation of the electricity market. Back then, it was based on the concept that electricity is generated from coal, gas, oil or large nuclear stations. With this embedded concept, the charging system is now still geared at incentivising power generation sites close to the centres of population—or, more accurately, the closer to London the better. It is utterly absurd that the UK Government have taken the welcome step to phase out coal-fired electricity generation but are retaining a grid charges system that is based on where to build coal-fired power stations. It is completely bonkers. The obvious strategy would be to consider what a future grid will look like, where are the best locations for the generation of clean renewable energy and what grid upgrades will be required to facilitate that, and then analyse the long-term costs of the grid upgrades and devise a fair system of charging to facilitate that. That is exactly what this Bill seeks to do.

Let us be clear: having the highest geographical charges in Europe creates an uneven playing field when looking for investment. The majority of the countries in Europe do not have locational charges. The ones that do charge way less than is imposed in Scotland. If a developer built a grid-connected turbine in each of these countries—Finland, Denmark, Sweden, Norway, Austria, France, Slovakia, Romania and Belgium—the combined locational charges for those nine turbines across nine countries would be less than the charge imposed on a single turbine in the north of Scotland. That illustrates the investor competition for Scotland, let alone the fact that so many other countries, such as the Netherlands and Germany, do not impose geographical charges. Worse, the UK Government are building interconnectors that allow electricity imports that are exempt from these grid charges. I am supportive of an interconnected energy market, but the system incentivises international investors to invest in other countries.

Scotland has 25% of Europe’s offshore wind potential, so future planning should be about how to maximise that, especially when the UK Government have a 40 GW target for offshore wind by 2030, which is reliant on 10 GW coming from Scotland. Scotland also has fantastic potential with floating offshore wind, especially with the Hywind project already operational. Forward thinking should be about maximising opportunities for these leading technologies.

It is not just us in the Scottish National party saying that change is required; the wider industry is saying it too. ScottishPower, SSE, Vattenfall, RWE, Red Rock Power, RenewableUK and Scottish Renewables have all called for changes to the grid charging regime. Indeed, a survey by SSE showed that 93% of industry stakeholders support reform of the current transmission charging regime. Some 84% of respondents stated that the network charging system acts as a barrier to the delivery of their renewable projects in Scotland. What does it take for the UK Government to sit up and listen?

What could be more iniquitous than suffering the highest grid charges in Europe? Well, if we look within the UK energy market, Scotland is further disadvantaged, especially in comparison to southern England. Connections to the south of England result in generators being paid to connect to the grid. It is a physical impossibility to have a negative cost of managing one area of the transmission system, so this therefore appears to be another method of levelling down, not up. The Beatrice array off the coast of Moray pays a unit electricity price of £4.50 to connect to the grid. A comparator in southern England is paid £1.50 per unit of energy. Why is the leader of the Scottish Tories not speaking up about that? Another example in numbers is that a 1 GW site off the north Scottish coast will pay £38 million a year to connect to the grid, yet the same sized offshore windfarm connecting to southern England will get paid £7 million a year. That is a £45 million a year differential between the Scottish and English sides. Over 20 years, that is nearly a £l billion difference.

Scottish offshore windfarms are now 20% more expensive than those in English waters. When the lowest price is winner takes all in the contracts for difference auctions, that becomes a major issue and puts investment in offshore renewable energy in Scotland at risk. It means less direct jobs and less supply chain work, and it potentially hampers a just transition for the oil and gas industry.

The effects of the charging burden on Scottish projects can already be seen. In the 2015 auction round, Scottish projects accounted for almost 40% of the offshore wind contract awards. By the 2019 round, it was down to less than 10%. Surely that is not an intended consequence. Worse, if nothing is done, in the next few years, Scottish grid charges will be charged at a rate equivalent to 50% of the strike rate producers achieved for selling their energy, making it impossible to compete with those bidding in English waters. It is madness to have production prices falling and some of the best sites in Europe, but a grid charging regime blocking the route to market. By default, it means Scottish projects need to have 20% greater efficiency or outputs compared with southern England sites to be able to compete. However, higher output equals higher charges, so the cycle continues.

Another point about the current charging system is price volatility. While the actual cost of maintaining and operating the grid remains stable, the charging prices vary by up to 700%, demonstrating that the system is not fit for purpose. As companies cannot predict these fluctuations, it is a risk factor they have to add to their project costs. By the end of this decade, that will be costing consumers an estimated £400 million a year in wasted costs.

In terms of the best use of billpayers’ money when considering the future energy mix, we should not be spending billions of pounds on new nuclear. At £23 billion, Hinkley Point C is the most expensive power station in the world. Despite complete market failure in the nuclear sector, the UK Government still want to spend £20 billion- plus on Sizewell. Worse, these nuclear sites will get paid under the current regime to connect to the grid—more hidden subsidies for nuclear. Instead, investment should be committed to pumped storage hydro such as SSE’s Coire Glas and the Cruachan dam extension being planned by Drax. That creates renewable energy ready to be dispatched when required and at a fraction of the cost of nuclear. An Imperial College report suggests the system could save £700 million a year.

Wave and tidal is also at the stage of being able to scale up. All that is needed for the next stage of scaling up is some ringfenced money in the forthcoming contracts for difference auction. Money has been ringfenced for floating wind, so why not wave and tidal? I urge the Minister to act urgently, before it is too late. We cannot have another Westminster decision that adversely impacts Scotland. The Orbital O2 tidal generator situated off the coast of Orkney is already connected to the grid and working. It has 80% UK content, and it was the first vessel launched from Dundee in 40 years. Surely the UK Government want to maximise this technology?

It is clear that change is required, with a rounded energy policy that maps out a route to net zero, a policy that incentivises renewable energy production where it is best suited, an end to Scotland having the highest locational grid charges in Europe and an end to the volatility of the system operational charges. This Bill seeks to do that. I hope that the UK Government see sense, but there is an alternative: Scotland having full control of its destiny.

[Mr Speaker]

There is nothing like using every second of the 10 minutes. Well done.

Question put and agreed to.

Ordered,

That Alan Brown, Alison Thewliss, Gavin Newlands, Patricia Gibson, Drew Hendry, Deirdre Brock, David Linden, Dr Philippa Whitford, Brendan O’Hara, Carol Monaghan and Stephen Flynn present the Bill.

Alan Brown accordingly presented the Bill.

Bill read the First time; to be read a Second time on Friday 3 December, and to be printed (Bill 175).

Northern Ireland (Ministers, Elections and Petitions of Concern) Bill (Programme) (No. 2)

Ordered,

That the Order of 22 June 2021 (Northern Ireland (Ministers, Elections and Petitions of Concern Bill) (Programme)) be varied as follows:

(1) Paragraphs (4) and (5) of the Order shall be omitted.

(2) Proceedings on Consideration shall (so far as not previously concluded) be brought to a conclusion one hour after the commencement of proceedings on the Motion for this Order.

(3) Proceedings on Third Reading shall (so far as not previously concluded) be brought to a conclusion two hours after the commencement of proceedings on the Motion for this Order.—(Alan Mak.)