Project Transmit
The next item of business is a debate on motion S4M-02623, in the name of Fergus Ewing, on project transmit. Members who wish to take part in the debate should press their request-to-speak buttons now.
14:04
This is a very important debate. Charging for access to the electricity transmission network is an area of energy policy that is rarely spoken about, but which is absolutely central to the future of electricity generation in Scotland. What is at stake is no less than the future development of renewable energy in the Western Isles and northern isles.
Our shared hope is for renewable energy to be an engine of economic growth with the potential to deliver high-quality jobs, significant inward investment and, not least, direct and lasting benefits to our communities—especially the most fragile communities on our islands, where clean energy resources are at their most abundant. However, the current charging regime discourages deployment of renewable energy projects in those areas of finest resource.
Its having previously recognised our concerns, it is highly disappointing to find that the new proposals for charging that the Office of the Gas and Electricity Markets has made in project transmit would continue to discriminate against the islands to a marked and grotesque degree. They would see charges of £1 per kilowatt for a connection to the grid in the south-west of England, £60 for Orkney, £67 for Shetland, and £77 for the Western Isles. Ofgem said that it has “less confidence” in its proposals as they would affect the islands. Why then make those proposals? Surely that is an extraordinary way to proceed and one that begs questions about Ofgem’s commitment to the process of change.
Ofgem will give its views on project transmit to its board in the near future, but it must do so on the basis that a fairer deal for the islands is an absolute necessity. As a Parliament, we must send Ofgem a strong message that leaving the islands in the “too difficult” box is not an option. [Interruption.]
Mr Scott, you do not have your card in your console.
I will give you more time in compensation, minister.
Does the minister recognise that one of the deep concerns is that large renewables businesses in other parts of the United Kingdom are arguing against any reform to the process that could assist renewables developments in the northern isles and Western Isles? What is the minister’s best measure for dealing with the companies that are arguing with Ofgem about the change that we need?
Different companies will be affected in different ways. Today, with the support of Tavish Scott and all the other parties, I hope to argue that when the Ofgem board meets to consider the proposals, it must consider the anomalous consequences of accepting the draft proposals that would discriminate against the islands, as I have set out.
I recognise that there are pressures on Ofgem, but to make a proposal under which the islands would be subject to a 77 times greater cost than other parts of the UK is astonishing, so I hope that all parties can unite behind me. I want to depart from my script—as the Presiding Officer knows I do occasionally—to say that I welcome the support and engagement of all parties on the issue.
Does the minister acknowledge that the proposals that will be announced on 4 May are just proposals? They will go out for further consultation and the consumer code panel will look at their implications. It is unlikely that a final proposal will be made by the end of this year. Also, discrimination is not allowed under the two European Union directives on renewable energy and internal electricity markets, so the proposal will have to be reviewed before it is finally accepted.
This is not the end of the process; that is Mary Scanlon’s point. Incidentally, I have deliberately not mentioned, nor have I addressed my remarks to, the United Kingdom Government. The process involves Ofgem, and I entirely accept that Ofgem is not at the end of the process.
However, we are at an important point in the process. The purpose of today’s debate is that Parliament can speak with one voice and deliver a clear message. That is why I sought and called for the debate; that is why I worked with all parties to broker a solution, as Tavish Scott knows from the meeting that I think Mr McArthur attended on 13 January in Inverness; that is why Robert Armour extended his services pro bono; that is why a compromise solution has been worked out; and that is why a huge raft of work has been carried out by people across the party divide in order to get a fair solution for the Western Isles and northern isles.
Sustained pressure from Parliament calling for a review of transmission charging in January 2010 in part has brought about the review. We therefore have the chance to press to see the matter through. Just before the debate, I spoke to Alistair Buchanan, who is the chief executive of Ofgem, and I once again reminded him of the need to find an equitable and enduring solution to the pressing issue of transmission charges. After a long and commendably transparent process—during which Ofgem commissioned a report from the University of Exeter that concluded that transmission charging is an effective and suitable means of encouraging renewables—Ofgem published final recommendations in December 2011.
Although the Scottish Government’s preferred option of a postage stamp charge was ruled out—I am not alone in disagreeing with Ofgem’s analysis that shows that the option would be too expensive for consumers—I welcomed in part the proposals for an improved and more cost-effective regime. The new proposals are not all bad; the costs for mainland renewable generators would fall from a staggering £28.53 per kilowatt to a much more realistic figure of less than £10, which is within the range that the First Minister called for in conversation and correspondence with Alistair Buchanan early on in the process.
I notice that the minister favours the flat-rate charge. I am shocked by that, because Ofgem’s briefing points out that such a measure would cost consumers in the north of Scotland an additional £30 a year while it would cost consumers in the south-east of England nothing.
I am not sure that I entirely understand that point. I apologise for that. The point that I was trying to make was that the Government has compromised. We think that generators should be treated in the same way across the UK—that is the postage stamp solution—but we have compromised to try to get a practicable and deliverable result in recognition of the countervailing pressures that exist.
Yesterday’s announcement of charges by National Grid again reminds us of the perverse outcomes that so-called cost-effective methods can still produce. Such outcomes demonstrate clearly that the basis of charging regimes in the Great Britain electricity market is inadequate; 20th century principles that reward those who are closest to centres of demand while penalising those who are further away from them should surely no longer hold. Successful Scottish generators, including the generators of the renewable energy that will contribute 40 per cent of the UK’s renewables output by 2020, will be made to pay even higher charges than they pay at present to use the transmission network next year and in subsequent years, in order to cover the cost of the generation gap from which England is suffering.
After our coal helped to power the industrial revolution in the 19th century and our North Sea oil and gas boom saw Aberdeen become a global centre of energy excellence and innovation, we find ourselves poised to exploit some of the most outstanding wind, wave and tidal energy resources in the world, but we cannot do that with a system that deters investment. Our island communities are among our most fragile. The renewables potential of the three main island groups is such that its full exploitation would provide jobs, investment and economic security that could underpin the sustainable long-term success of communities there. Those are absolutely priority matters for the Government.
I record my recognition of all the support from island MSPs in the long work that we have done on the issue. Ofgem acknowledged the problem in December, but has still not given a firm direction on how the problem should be addressed or resolved. It has proposed that the issue might be solved with additional renewables obligation certificates or by a cap on charges from the UK energy minister. At best, those would be stop-gap measures that in only a short time would create further uncertainty in an industry in which too much uncertainty already exists, thanks to the lack of clarity on electricity market reform. At worst, the proposals would take too long to implement and would be unworkable. As the First Minister has said, transmission problems should have transmission solutions. It is for Ofgem to deliver the solution through project transmit.
I see that I have come to the end of my time, Presiding Officer. I conclude by repeating that this is a very important debate. Ofgem is represented in the gallery and is listening to the debate. I hope that this will be an opportunity for every party in the chamber to add its support for the shared objective of finding a just, fair and workable solution that will unleash the massive potential that all our islands have to benefit themselves and the planet.
I move,
That the Parliament opposes the current locational charging approach, which levies the highest charges on electricity generators across Scotland, including the areas of the best renewable energy resource, and acts as a barrier to renewable projects that can benefit local communities and contribute to Scottish, UK and EU renewable energy and carbon-reduction targets; continues to support the Scottish Government’s call for significant change to the existing charging regime, recognising that there remain strong arguments for change to a flat rate of charging for all generators; recognises and supports Project TransmiT, the independent review of transmission charging by Ofgem called for by the Parliament in April 2010; supports a transparent, thorough and effective assessment for improvements in the charging regime; welcomes the emerging outcomes for both renewable and conventional generators on the mainland, which will move away from the current status-quo approach by reducing the scale of the variance in charges currently faced by generators in mainland Scotland; urges Ofgem to deliver effective change quickly; supports calls for Ofgem to deliver a pricing structure that does not penalise the development of renewable energy in the Western Isles, Orkney and Shetland, and further urges Ofgem to recognise that the significant renewable energy resources of these island groups have potential benefits for both Scottish and UK consumers that will be best met by their integration with the wider GB market.
14:15
I thank the Scottish Government for securing today’s debate on project transmit and the minister for his opening remarks. It is fair to say that my colleagues and I have some fundamental concerns about the Scottish National Party’s approach to energy, but today we want to put the focus on agreement rather than on disagreement. In particular, we, too, want the Scottish Parliament to unite in sending a strong message to the electricity regulator, Ofgem, on transmission charges: to treat Scotland and its islands fairly and to support the expansion of the renewables industry in this country.
Later this month or early next month, Ofgem will reach a decision on the various options that are open to it on electricity transmission charging. Project transmit is the independent review that has been commissioned by the energy regulator to lay out the choices that are before us. It has been asked to balance the move to renewables against security of supply and against cost. Ofgem states:
“The aim of Project TransmiT is to ensure that arrangements are in place that facilitate the timely move to a low carbon energy sector whilst continuing to provide safe, secure, high quality network services at value for money to existing and future consumers.”
No one believes that the status quo is a viable option. The current transmission pricing regime was designed for an entirely different mix of electricity generation that was dominated by traditional energy sources including coal, gas and nuclear power. The further generators were from where electricity was needed, the more was paid to transmit the electricity. Given that greater distance pushes up the cost of transmitting electricity, not to mention the inefficiency and resultant energy loss of doing so, there is a certain logic in the current system of charging. Where that logic breaks down is in how that pricing system discriminates against certain areas of the UK, such as Scotland, and in the barrier that it creates to the development of renewables.
Coal, gas and nuclear power are, to some extent, transportable sources of energy that can be taken to centres of population and industry; renewables sources—wind, wave and tidal, in particular—cannot. Furthermore, renewables generators tend to vary in their use of the transmission network; for example, in demanding greater access when the wind blows. If we genuinely want to move to greater use of renewables and to a lower-carbon economy, the current charging formula needs to change also to reflect that variable output from renewables generators.
The good news is that project transmit has clearly identified those factors and has come up with a fairer charging system that will benefit renewables and, therefore, Scotland. It is not an entirely flat pricing system—it is not the postage stamp approach that some people would like to see—but for mainland Scotland, at least, it is a huge step in the right direction. Niall Stuart, of Scottish Renewables, described the proposals as
“a step towards fairer charges for projects on the Scottish mainland”
and said that
“the reforms will encourage rather than block investment in renewable electricity in Scotland”.
Unfortunately, project transmit does not appear to have concluded that the same argument that it accepts for mainland Scotland and even for the Isle of Skye should apply to Scotland’s islands—in particular, Orkney, Shetland and the Western Isles. The methodology that is used to calculate shared transmission charges across most of Scotland has not been extended to the islands, which are treated as exceptions. Niall Stuart has estimated that, under the reform proposals, a wind farm on the Western Isles would pay £77,000 for every megawatt of capacity, compared to the charge of £2,000 per megawatt that a wind farm in the south-west of England would pay. Those figures are similar to the ones that the minister quoted. That could scupper many proposed developments and will have a direct impact on small-scale community-owned renewables, which will not be able to access the grid.
The islands—Orkney perhaps more than anywhere else—have led the way in micro and community electricity generation. The issue for those small-scale projects is not so much the transmission charges as the basic problem of connecting to the network. There are few cables and wires across those more remote areas, and I hope that we all would want a new charging system that would improve access to the grid rather than one that rendered it entirely uneconomic. Our more remote communities are economically disadvantaged and often fragile, but we have the opportunity to secure jobs and generate wealth.
Project transmit did not take community benefit into account, but I hope that Ofgem will reconsider its transmission proposals with a clear eye on the bigger picture. If we are to fulfil our legal obligations for carbon reduction, it is even more important that we make the most of our abundant natural resources and, therefore, that we connect Scotland’s islands to the national grid. If we do not do that, not only would proposed wind farms on the islands be adversely affected, but the charges could also put additional costs and, therefore, obstacles in the way of developing wave and tidal generation. Scotland’s potential in that field is vast, but the technology is also expensive and some way from establishing itself as being proven.
We need to invest in the renewables industry, not to create barriers to its development. The vast majority of projects that involve wind or tidal power are located in the waters around Scotland’s shores and are often adjacent to Scotland’s islands. They will not be able to proceed on any scale without transmission links to the main centres of population elsewhere in the UK.
The difficulty that Ofgem faces is in balancing the country’s—and, indeed, the world’s—need to move away from carbon fuels and towards renewable energy, with managing the costs.
There are unlikely to be many people in Britain at the moment who are not painfully aware of the cost of heating their houses and keeping the lights on. The costs of implementing the findings of project transmit should, and will, be borne by the six big energy companies, but they will in turn pass those costs on to the consumer. Project transmit has ruled out a socialised or postage stamp approach to transmission charging mainly because of cost, but there is surely room for greater equity in its application of a reformed system.
I hope that Ofgem will make more allowance for the Scottish islands, but if costs still act as a deterrent to development, that need not be the last word. The Scottish Government should do what it can using ROC payments. It is already reviewing the renewables obligation system and could do more to support projects and developments on the islands using the powers and charging mechanism that are at its disposal.
I hope that Parliament will unite in an appeal to Ofgem to improve its transmission charging proposals further. Project transmit is a major step forward in encouraging the development of renewable energy and in treating Scottish generators more fairly, but the islands of Scotland need to benefit from a similar pricing regime. There is where much of our renewables potential lies, so we need to approve structures that will allow us to develop that natural resource.
I move amendment S4M-02623.2, to leave out from “continues” to end and insert:
“welcomes Project TransmiT and recognises that the changes proposed to the charging regime are fairer than the current position; notes, however, that these charges will still disadvantage the Western Isles, Orkney Islands and Shetland Islands where there is greater potential for community-owned renewables; urges Ofgem to come forward with a pricing regime that does not penalise these communities, and calls on the Scottish Government to use the current review of Renewables Obligation Certificates to take account of any remaining disparity in grid access costs and to encourage community renewables.”
14:23
I declare an interest in the debate, as my son works in the renewable energy business.
The Conservatives welcome the debate on project transmit as part of the on-going consultation on reforming the way in which the costs of providing the transmission grid are shared between users and potential changes to the current methodology.
Transmission charging has been on the political agenda for some years, but it took only a few months for the coalition Government to help to initiate the review. We agreed on the review in a debate two years ago and do so again today.
As Ken Macintosh said, the current locational charging model was established some years ago, when renewable energy and climate change targets were not at the heart of public policy. However, given the marine energy potential in the Pentland Firth and the level of renewable energy onshore and offshore in Scotland, there is no doubt that the time is right for change.
Ofgem’s principal duty is to protect existing and future consumers by keeping costs as low as possible while promoting security of supply and facilitating the move to a low-carbon future. Therefore, I was surprised that the Scottish National Party motion does not mention consumer bills but favours flat-rate charging, which is also known as socialised charging. I cannot understand why it does that, given that Ofgem rules it out on the basis that
“Average bills would rise most in the North of Scotland where fuel poverty is highest and least in London where fuel poverty is lowest.”
We have Scottish nationalists proposing higher bills for Scotland and lower bills for London. The approach would cost at least an extra £30 per household in the north of Scotland—the SNP’s new Highlands and Islands tax.
To address the point that Mary Scanlon makes, I say to her that we do not accept that the costings that Ofgem gave to justify the refusal to accept the postage stamp model are valid. Although the motion refers to the postage stamp option, the member is free to vote for the motion without being committed to the option—we simply point out that there are strong arguments for it. We hope that the Conservatives will unite and support the islands of Scotland this afternoon.
As a Highlands and Islands MSP, I certainly will not be uniting to support putting an extra £30 on the bills of people in the north of Scotland but nothing extra on the bills of people in London.
The SNP motion also welcomes the emerging outcomes on investment cost related pricing, but it then asks for change to be delivered quickly. That could be done only without full consultation with industry partners on the connection and use of system code panel, which could take some months. If the SNP favours full and proper consultation—I presume that it does—it should surely favour the industry panel scrutinising the proposals, rather than rushing them through and worrying about the problems later.
Will the member take an intervention?
No. I have taken a long intervention already.
Project transmit ended its consultation in February. The responses have been considered, modelling analysis has been done and a decision may or may not be made at the Ofgem meeting this week. Any decision will not be made known until 4 May due to the political purdah for the elections. If improved ICRP is the chosen option, as appears possible, the matter would go to the industry connection and use of system code panel and the option would be evaluated by looking at the implications and the technical aspects. The process could take months, and I am told that the panel could choose to go out for further consultation. That could take us to the end of the year. Given the complexity of the matter and the need to come up with the right solution for our islands, the process should not be rushed.
The current locational element of investment cost related pricing is a disincentive for electricity generation in the north of Scotland and the islands. I trust that the improved ICRP will address that issue as well as ensuring that there is consistency of charging methodology for the three island groups and that it is in accordance with the two European Union directives on renewable energy and the internal market in electricity, both of which enshrine the principle of non-discrimination between mainland and islands.
In speaking to the amendment in my name and thanking the SNP for bringing the power of its majority to vote on the issue, I suggest that ministers might wish to talk to their Westminster counterparts to drum up some enthusiasm for project transmit. Mike Weir, SNP member of Parliament for Angus tabled an early day motion on 1 February, but he managed to persuade only one of his SNP colleagues to support him, and it was not even Angus Brendan MacNeil of the Western Isles.
We will not support the Government motion as we oppose the flat rate, which has been ruled out by Ofgem, and we do not agree that Ofgem should be urged to deliver change quickly, without going through the full process of consultation with the industry.
I move amendment S4M-02623.3, to leave out from “opposes” to end and insert:
“notes the current approach taken by Ofgem following its extensive consultation under Project TransmiT; recognises Ofgem’s concerns that the introduction of a flat rate of charging for all generators would lead to an increase in fuel poverty for the most vulnerable; further recognises concerns that the development of wind energy in the Western Isles, Orkney and Shetland will depend on having affordable transmission charges, and urges Ofgem to continue to engage with stakeholders to find a satisfactory solution to the issue of transmission charging.”
We move to the open debate, with speeches of four minutes.
14:28
The problem that we have is that Scotland is caught in the trap of an organisation called Ofgem, which was created in circumstances that do not reflect the needs of our country today. We are painfully seeing it trying to find ways in which to adapt to the real geography of Scotland, and it is doing so with some difficulty. To us, the islands of Scotland are an integral part of our country, but it is clear that, to Ofgem, that is too much to bear in terms of being able to make a plan that fits the needs of all our areas.
I do not want to repeat the arguments that have been made in detail. Instead, I want to comment on a couple of points to show why it is necessary to get decisions much more quickly.
Of course there must be consultation with the energy utilities and so on. The processes must be gone through, but they must be simplified. There has not been a discussion by the Government in London about simplifying the process of creating an opportunity for us to move forward quickly on new sustainable renewables. In addition, there is a contradiction in the way in which the Government in London is operating to promote the renewables, which has a bearing on this debate.
My colleague Lord Thurso, the MP for Caithness, Sutherland and Easter Ross, has suggested in answers that he gave at Westminster that the Government is going to promote the first marine energy park in Scotland in the Pentland Firth this summer. That would add to an existing marine energy park that has been announced for south-west England.
It is interesting to see from the figures that the minister gave that developers in the south-west of England would be paid to develop offshore there under the current charging regime. That makes the marine energy park there quite attractive. However, marine energy park developers on both sides of the Pentland Firth would have to pay £21.958097 per kilowatt for access to the grid. That contradiction will not help us have such development in Orkney or on the mainland of Scotland. If Ofgem is producing something, it will have to do so quickly or the UK Government may not announce a marine energy park for Scotland, because the contrast in outlook for the marine energy park in south-west England compared with that in north-west Scotland is embarrassing.
That leads me to suggest that, looking at the debate as it has developed, there are small schemes that require access to the grid and not just in the islands; plenty parts of the mainland have a very poor grid and people want access to it. Ofgem has been reviewing the problem of getting access to the grid and, from the discussions that it concluded in March, it looks as though, under the changes, the amount of liability and security required from generators to access the grid will be significantly reduced. That is all very well, but I have constituents in the Applecross Community Company who are attempting to create a small hydro scheme. SSE, which manages the grid in our part of the world, wants to charge them in the region of £667,000 for access to the grid and to create a grid strengthening that would allow them to export electricity.
There are many people in the country who cannot get into the renewables revolution—in this case, it is a hydro scheme in Applecross—because of the huge costs involved. In fact, we will help to reduce fuel poverty by getting more people to generate their own electricity locally and that will help many people to prosper in the future.
14:33
I do not think that this debate will generate many headlines in tomorrow’s papers, although it should, because it is a high-voltage debate. Over £2 billion is spent every year on energy transmission through our grids. We need huge investment to ensure the future security of our supply. Project transmit’s predecessor—project discovery—concluded that £200 billion needed to be spent on energy infrastructure over the next 10 years. A big chunk of that will be for Scottish infrastructure.
Project transmit is about ensuring that the industry delivers the pipes and wires that we need in a way that supports our economic, environmental and social objectives. The project also needs to take a broad view that encompasses the development of European and other international energy grid networks. The nature of the charging regime is also a fundamental factor in how our energy policy develops because it can make or break the development of energy supplies from new sources and locations, and it can help or hinder our attempts to eliminate fuel poverty, fight climate change and promote economic growth that is based on low carbon technology and power sources.
In determining charges for transmission, we clearly need to take into account the physical costs of infrastructure. However, we also need to ensure that the way in which we determine charges allows for the development timescale and nature of new energy sources. Tackling climate change is a long-term challenge. We should ensure that entry to the market is not restricted by short-term considerations.
Project transmit is addressing those issues. It seeks to harmonise the grid charging regime with generation policy and it should deliver lower transmission costs. However, as Ken Macintosh noted, issues remain with island costs. That is particularly important for Scotland, not only because we have many islands and people who live on them, but because our islands have enormous potential for developing renewable energy production.
Transmission charges are crucial to the future of our island economies. The existing charging regime—ICRP—has influenced the market and has in general worked against the development of renewables through measures such as higher transmission charges for Scottish suppliers. There are of course pros and cons for all the alternatives, which include uniform charging—also called postage stamp or socialised charging—and various cost-reflective methods, such as the improved ICRP that has been considered under project transmit.
The alternatives would have different impacts on our policy objectives. Uniform charging might benefit renewables at the expense of carbon capture and, as the Conservative amendment notes, it could also be detrimental to the most vulnerable. Improved ICRP would be a big improvement on the existing system and, with political will, many of the issues that it raises could be addressed.
Our amendment suggests that the review of renewables obligation certificates should prioritise community renewables and take account of the remaining disparity in grid access costs under the improved ICRP. On island charges, I note that Fergus Ewing blogged earlier this year that
“It is good that Ofgem is listening to Scotland. Working together with Ofgem, with Scottish industry and with island communities, we must find a solution.”
The minister must do that—please do.
14:37
Almost two years ago to the day, the Parliament backed a motion that highlighted the threat that locational transmission charging poses to developing greater low-carbon power supplies and called for a review of the charging regime to take place. Two years on, we have the recommendations that Ofgem is edging towards.
The alterations to the transmission charging regime will mean that generators are charged by output rather than capacity, which could reduce costs for some renewables generators by up to 60 per cent and could lead to lower bills for consumers, but there will be no fundamental overhaul of the locational principles that underpin the system. Any move to reduce costs for renewable energy companies in Scotland is positive, but the opportunity for positive reform is in danger of being missed.
In the debate two years ago, I pointed out that it cannot be right that Scottish generators produce about 12 per cent of the UK’s electricity but pay about 40 per cent of transmission costs. The system of charging—or subsidising—producers on the basis of their location to encourage them to locate as close to the south of England as possible is an anachronism. It was designed for an era in which a small number of big power stations provided the UK’s electricity, rather than an era of renewable energy, which by its nature is inevitably more geographically dispersed.
If the only factor that was in play in designing a system of transmission charges was the cost of grid infrastructure, locational pricing might make some kind of sense. However, that is not the reality of where we are today. Scotland and the wider UK have ambitious carbon emission reduction targets to meet that require significant growth in renewable energy. Economic opportunities from developing and installing renewables technologies can also provide a significant boost to local and national economies.
Taking those factors into account and designing arrangements that facilitate a move to a low-carbon energy sector is what project transmit is supposed to be about. Transmission charges should reflect those wider priorities and avoid becoming a barrier to renewable energy development, as is currently the case. A postage stamp approach, where all generators face flat rates to use the national grid regardless of their location, is portrayed by some as being radical and undesirable. Yet it is a fact that that is the norm across Europe, with the vast majority of countries charging by how much power companies generate, rather than by where they are located. I cannot believe that it is beyond the wit of man to come up with a fairer and more equitable regime that benefits all the country.
Although limited progress towards a fairer charging regime is better than no progress at all, Ofgem’s move towards ruling out a flat rate of charge is disappointing. The case for a flat charge has not diminished. I hope that the Scottish Government will continue to make the case for such an approach and that it will have the backing of the whole Parliament in doing so.
14:41
I am pleased to have an opportunity to speak in this brief but welcome debate and I am delighted that a delegation from Orkney Islands Council and the renewables sector in Orkney is in the gallery.
Time constraints allow me to touch only briefly on key issues. I welcome the minister’s commitment to meet delegations from each of the island groups later this afternoon, which I hope will facilitate a more detailed discussion on the next steps in pressing for change that is urgently needed, as the minister said.
As we move to a low-carbon economy and address the need to decarbonise our energy system, fundamental reform of our energy markets is needed. As part of that reform, we must devise a more appropriate method of charging for transmission. I support the Government’s motion, but it risks portraying the current arrangements as anti-Scottish. That might be politically expedient, but it is untrue and not a little dangerous. As Ken Macintosh rightly pointed out, the current arrangements reflect historic realities and requirements. However, it is certainly true that if Orkney and the other island groups are to play their full role in helping Scotland and the UK to achieve their renewables ambitions, a revised transmission charging regime is needed, among other reforms.
The minister’s motion perhaps also slightly overplays the influence of this Parliament’s vote in April 2010, while underplaying the significance of the arrival at Westminster of a coalition Government that is committed to the fundamental review that is being undertaken through project transmit. In particular, the efforts of my Liberal Democrat colleague, Chris Huhne, are worthy of recognition—to be fair, the minister and his predecessor have been happy to acknowledge that on the record.
The minister reasonably acknowledged the strengths of the project transmit process and the progress that is being made through the emerging proposals, which should make developments in the north and west Highlands, for example, more viable. However, Scottish Renewables is right to highlight the risk of a potential discrepancy between indicative and actual transmission network use-of-system tariffs. The issue seems to arise because there is a lack of high-load-factor plants in Scottish charging zones with which low-load-factor plants can be balanced. Scottish Renewables has sought assurances from Ofgem on the issue, on which we must all remain vigilant.
Ofgem also points to proposed changes to user commitment charges, which have been cited as a barrier to entry by some smaller developers. Again, there seems to be a move in the right direction in that regard, although I agree with Rob Gibson that there are heavy liabilities for developers who are looking to connect in remoter locations.
Whatever progress has been made to date, there is still much to do. The issue is critical for the economic future of the islands that I represent, as well as Shetland, which is represented by my colleague Tavish Scott, and the Western Isles.
It is ironic that as the situation has improved for mainland developers in the Highlands, the competitive position of counterparts in the islands has—arguably—deteriorated. Orkney is only 6 miles from the Scottish mainland, but our transmission charges would be six times higher than those of mainland developers. The recent example of Fairwind Statkraft Orkney demonstrates that the disparity in cost is having an effect on companies’ preparedness to take forward potential developments in the islands.
The risk is that the issue diminishes our ability to play to our strengths. Andrew Scott of Pelamis Wave Power observed:
“The projects we now see under development off Orkney’s coast using Pelamis technology represent a route to commercialisation and the grounding of our supply chain here in the UK. Ensuring we can export electricity from these projects at sensible costs via stronger grid connections to the UK network is a fundamental pre-requisite to achieving this success.”
It has been suggested to me that the current lack of grid, securities and the charging issues that we are discussing all have the potential to dent our international reputation as the world’s leading location for marine renewables. Therefore, I applaud the work that is being led by Scottish Renewables and Highlands and Islands Enterprise, which is supported by developers, local councils, the Scottish Government and others, in identifying possible solutions to the current impasse. Their proposals are reasonable, practical and avoid setting unhelpful precedents for the future. They recognise the need to resolve the outstanding issues that the isles face through the transmission charging regime rather than through ROCs.
I cannot support the Labour amendment or the Tory amendment, but I welcome the debate and hope that Ofgem heeds the clear message that is emerging from it. I look forward to further detailed discussion with the minister and the island delegations later this afternoon about how we can unlock the potential of all our islands to be the powerhouse behind our renewables revolution.
14:45
I hope that, at its meeting tomorrow, the Gas and Electricity Markets Authority—GEMA—which is the board of Ofgem, will make decisions or at least provide more clarity and direction on transmission charges. There is an overdue and fundamental need for that. Let us hope that its prognostications will release us from the economics of the madhouse that the current system of charging inhabits. That regime places a higher charge for the use of the national grid on generators that are furthest from demand. Instead of recognising that ultimate throughput costs will diminish as we invest more in raw material sources with higher load factors, in our cost analysis we levy costs on distribution and transmission only. We should remember Ravenscraig and Invergordon. If we shut down or overburden our major raw material generation sources, the rest of industry and, ultimately, the customer will pay the price.
I have no truck with a London Government that lives in a bubble of encouraging a cost basis that allows generation
“closest to where it is needed the most”.
If that were a valid criterion, there would be wind farms in the Mall and Threadneedle Street.
The current system is rotten, unfair and economically insecure in the longer term. It does not provide quality services or best value to existing customers and it will not do so to future customers. It undermines and invalidates a very strong case for investments in renewables closer to the raw materials of strong wind, wave and tidal resources. Of course, nowhere are those better than in the outer isles, Shetland and Orkney.
Will the member take an intervention?
No. I do not have enough time.
I have the greatest respect and admiration for the Ofgem team in Scotland—oh that it were independent—but the notion that existing and future consumers will be protected by project transmit, which should have been a worthwhile project, as it meanders from Redpoint to son of Redpoint fills me with doom and gloom.
It is clear that the current transmission and connection pricing regime is unsustainable. The low-carbon energy generation targets are threatened, and Ofgem needs to show teeth and deliver change quickly. The offhand dismissal of a socialised or even quasi-socialised charging approach is regrettable, but never mind: 2014 is not that far away. A proposal for an improvement or adjustment to the ICRP cannot wait for the merry-go-round of GEMA making a decision on principles, then possibly providing direction to the National Grid, then the National Grid taking proposals to a working group to provide technical details, and then GEMA taking a decision to allow the National Grid to implement the changes to transmission charges. That is a farce. The economic madhouse has become the fortress of delay and indecision, and that does not help our people in islands such as Shetland and Orkney.
We need a location system that does not preclude capital investment in electricity generation near its strongest raw material resource. We do not need a generator in the west of Scotland being charged £12.50 per kilowatt with an equivalent in Cornwall being subsidised to the tune of £6.50 per kilowatt. I doubt that that meets the criterion under European directives 2009/28/EC and 2009/72/EC in respect of the remote communities obligation. We need investment, jobs and lower cost power. That should be the early thrust of GEMA and the National Grid, otherwise they will fail our communities. Let them not fail tomorrow.
14:50
I welcome the debate. I think that my fellow members will agree that the existing charging regimes are neither compatible with the needs and desires of ordinary people nor in the interests of delivering an affordable and sustainable energy future.
In modern society, few issues are more pressing than global warming. Some might even go so far as to say that, for the future of the planet, it is even more important than the debate on Scottish independence. Members will be aware of the truly alarming figure that 900,000 households in Scotland are in fuel poverty. The importance of the debate and the independent review are therefore self-evident.
There is general support among politicians and charities, such as Friends of the Earth Scotland and RSPB Scotland, for the main aims of project transmit. As Ofgem has stated, reducing carbon emissions and ensuring the delivery of secure energy supplies are integral to its duty to protect the interests of current and future energy consumers.
It is this Parliament’s responsibility to build on those areas of consensus and to work towards a fairer future. Project transmit provides an opportunity to make major progress and it presents us with a chance to ensure that we find the right charging regime—one that supports renewables developments but does not do so at the expense of those who cannot afford a hike in energy bills.
For many of my constituents in Glasgow, fuel poverty is a critical issue. However, it is not an issue only in Glasgow, which is why we must look to protect households in fuel poverty across the country. No one should have to choose between heating their house and feeding themselves and their family.
Although project transmit affords the Scottish Government the opportunity to create and support sustainable energy developments, we must remember that altering the existing charging regime is not in itself enough. It is crucial that we give further support to the various green initiatives that exist throughout the country and set our minds to conceiving new and innovative ways to turn Scotland into an energy-efficient, low-carbon economy.
In Glasgow, Labour is stepping up to that challenge. We will lead the implementation of the green deal to improve the energy efficiency of residents’ homes. We have committed to develop a centre for green building skills, which will help local workers and the construction industry to make the transition to a low-carbon economy. We have pledged to create the Glasgow energy trust to develop new energy systems and to ensure that the city gets its fair share of all future revenues.
Project transmit offers an opportunity to change one part of the energy system and address a long-standing concern, but it is only one element of the change that needs to occur if we as a country are to achieve our aims and meet our obligations to the global community.
At the heart of the change must be people not profits, and community benefits not corporate gains. The communities that are at the forefront of the renewables revolution should be able to reap the rewards. I am glad that Labour’s amendment takes that into account by calling on Ofgem to recognise community involvement and to introduce a pricing regime that prioritises the needs of local people and does not penalise them. I hope that all members agree, and I call on them to support Ken Macintosh’s Scottish Labour amendment.
14:54
We have heard how important energy transmission is and will continue to be for Scotland’s economy. It is clear that energy generation is an integral part of Scotland’s economy and will become more so in the years ahead. Furthermore, the carbon emissions targets set by the Scottish Government, the UK Government and the EU mean that clear and distinct challenges lie ahead. I believe that we will be successful in achieving the targets, but we need to give ourselves every opportunity to do so.
The current charging regime is clearly not fit for purpose—a phrase that I am not prone to using very often, as Economy, Energy and Tourism Committee members know. The current charging regime has been used for some time and electricity generation has advanced and changed from the traditional generating methods. More renewable energy is generated and consumed and more is in the pipeline. The current infrastructure is in need of investment to ensure that it can deal with increased supply.
In order for Scotland to fully capitalise on that required investment while creating more employment opportunities and reducing its carbon emissions, it needs to use every opportunity at its disposal.
We currently operate in a GB market and cross-border working is something that will continue when Scotland achieves its independence.
Given the targets that have been set, and bearing in mind that Westminster needs Scotland to deliver more than our per-head-of-population share for the UK Government to reach its overall target, it should be inconceivable that a new mechanism may well be introduced that continues to make that challenge even greater.
That is not to say that Ofgem has not moved ground; it clearly has, and I welcome that progress. I fully appreciate that those who work in Ofgem have a difficult task and may well feel at times as if they are getting battered from all sides, but the role that they have to play is crucial.
Ofgem appears to have ruled out the postage stamp approach across GB by saying that it would add an extra £25 to £30 to consumer bills in Scotland. With fuel poverty on the rise due to various factors, including energy prices, the last thing that anyone wants to do is force more people into fuel poverty. However, the debate about location versus usage is changing as a result of the proposals that have been made so far. Ofgem’s preferred proposal of an improved ICRP has certainly not been rejected by Scottish Power or Scottish Renewables, although they preferred the postage stamp model of operation. They could work with Ofgem’s proposal, although improvements would still need to be made.
On the specific point regarding the different solution that is proposed for islands in the north of Scotland, I note from the Scottish Renewables briefing that members were sent in advance of the debate that the organisation queries the Ofgem proposal’s consistency with the renewable energy directive. I have sympathy with the argument from an equality perspective. I urge Scottish Renewables and any other interested organisation to examine the equality legislation, if they have not already done so, as I believe that the proposals for the islands will certainly not generate a level playing field for generators or for those who are seeking opportunities in the industry.
Scottish Renewables reported that, under the ICRP model, proposed renewable electricity developments on Scottish islands would become uneconomic. It suggests that 1.2GW of projects—a frightening figure—would not proceed.
I firmly believe that any other country that had the massive potential that Scotland has would be bending over backwards to develop it. The economic boon—not to mention the positive environmental impact—would be a tremendous boost in these times. Ofgem is moving in the right direction as progress appears to have been made, but there is still some way to go.
I urge every member to work to ensure that Scotland obtains the full economic boost—not to mention the clean energy and the reduction in carbon emissions—that renewables can bring.
14:58
As other members have said, the Ofgem consultation—project transmit—has been widely welcomed, as in its current form the transmission network’s use of system charging arrangements places a higher cost on Scottish renewable energy generators when they connect to the electricity network than on generators in other parts of Great Britain.
Project transmit is designed to provide a fairer and more equitable system so that we can bring people out of fuel poverty and encourage investment in renewable energy sources. The main problem with the current system is that it was designed for an era in which the vast majority of our electricity was generated by power stations rather than renewable sources. Many of those old sources of electricity generation developed next to population bases, so electricity could be transported cheaply to the areas that used the largest percentage of power.
The problem arises when we consider the fact that many renewable energy developments are not built next to centres of high population, because areas that are ideal for wind, wave or tidal projects, such as the Scottish islands, are often remote. That could affect investment in those resources, as the cost of transmitting the electricity to populated areas that need it could well be far too high. Therefore, any changes that would lower transmission charges would help to encourage investment in Scotland’s renewables sector.
We need to ensure that the new pricing regime is right for Scotland and that nowhere is placed at a disadvantage. Project transmit is our chance to get the pricing structure right for future generations and to ensure that investment in the renewables sector is not stunted by a pricing regime that hampers the islands. The current pricing structure treats Orkney, Shetland and the Western Isles differently from the mainland, which means that onshore generators on the islands are charged more than onshore generators on the mainland. If that practice continues, it could lead to wind farm developments being built offshore at a higher cost, which would ultimately be passed on to the consumer through higher bills. It could also serve to discourage investment in onshore renewables and community-based projects, which would be a devastating blow to the development of Scottish renewables, as some disadvantaged areas are in the best locations for renewable energy.
We hope that Ofgem will listen to our suggestions and develop a solution to that problem. Our amendment urges the Scottish Government to take action, should Ofgem fail to alter the pricing regime, leaving the islands at a disadvantage compared with other areas. As others have mentioned, that could be done through the current review of ROCs—the islands could be allocated additional ROCs, the money from which could be invested in renewables and used to encourage community developments.
Ideally, we need to ensure that we get the pricing structure right now. This is our chance to encourage more investment in renewables and to promote community-based projects. If that is done right, it could promote employment and reduce fuel poverty by helping to keep consumers’ bills down. If Ofgem does not take steps to amend its proposals, the Scottish Government should do its duty and use its powers to take action.
15:02
I recently visited the European Marine Energy Centre in Orkney, which enabled me to gain a first-hand insight into the remarkable progress that it is making in testing wave and tidal energy generating devices. The centre is at the exciting cutting edge of world-leading technology, and I was delighted to see the impressive rate of development there. I was also pleased to speak to a number of young Orcadians who were enthusiastic about being able to return home after higher or further education to pursue careers in that exciting technology.
The opportunities that such technologies offer are highly significant not just for our islands, but for Scotland and the rest of the UK, as they will allow climate change targets to be met and energy security and price stability to be provided. Now that plans for grid connections are being firmed up, the focus is on the remaining significant barrier to the deployment of devices that are approaching commercial viability—the present onerous transmission charges, which will greatly inhibit the necessary investment.
Although I welcome Ofgem’s initial proposals, which are aimed at levelling the playing field to some degree for remoter parts of the mainland, I cannot accept proposals that are prejudicial to the interests of our islands and which do not correctly interpret the wider public interest. It is said that the reason for the current transmission charging regime is that our islands are too far away from London, but the reality is that London is too far away from our islands and their significant energy-generation capabilities. That wider public interest is surely best met by meeting our climate change targets and achieving energy security and price stability sooner rather than later.
Does the member acknowledge that the project transmit consultation ended at the end of February; that a decision will be made on 4 May; that that decision has to be referred to the industry code; and that there might thereafter be further consultation on the decision? Many SNP members seem to be talking as if decisions have been made, even though the fact is that we are only halfway through a consultation.
Sure, and I remain optimistic. I point out, however, that it is truly lamentable that it has taken this length of time to get anywhere near approaching the right solution.
It will also be greatly in the interest of the public if we realise sooner rather than later the huge economic opportunity that the technology brings to Scotland. I am disappointed at the suggestion in Mary Scanlon’s amendment that reducing transmission charges for our islands would somehow increase fuel poverty. The logic and arithmetic of that quite escape me. It is a fact that Scotland suffers much greater fuel poverty than England—it affects 30 per cent of households in Scotland compared with about 24 per cent for the UK—and that Scotland’s islands experience fuel poverty at a rate of around 50 per cent. That is, no doubt, part of what we call the union dividend.
Perhaps Mary Scanlon can explain to me how discouraging local energy generation could possibly lead to an outcome that decreases rather than increases fuel poverty.
Will the member give way?
No, I am sorry, but I am running out of time.
Ken Macintosh’s suggestion that the Scottish Government should dig into its budget to pay the onerous transmission charges is similarly misguided. Scotland already pays more than its share of UK taxes.
Despite Liam McArthur’s suggestion, it is difficult to see how the transmission charges, in their current form, can be seen as anything other than anti-Scottish. Ofgem’s proposals, though a step in the right direction, are still not acceptable for anyone who cares about Scotland’s islands.
15:07
This has been a useful debate. With a few exceptions, there has been a great deal of consensus. Several contributors recognise that there is a balanced argument around this matter. It is not all black and white, as some speakers might indicate.
There is a general principle in relation to electricity generation that any engineer can confirm—Mr Brodie, who did not seem to understand this point, should listen to it. The principle is that energy generation is most efficient when it is located close to the point of consumption, because the further away the point of generation is from the point of consumption, the greater the loss of efficiency and the more power is lost in transmission. That is an undeniable fact of engineering. In addition to that, there are costs of transmission—both capital and running costs—that have to be factored in.
Will the member give way?
No, I want to make some progress.
Ken Macintosh made a fair point when he gave us a history of the current regime that we have for transmission, which is based on an old model that involved centralised points of power generation dispersing around the country. We are now moving to a different model, which is why we are adopting a new approach. I understand the arguments that were put forward by the minister and by many members who have spoken, including those on the SNP benches and Liam McArthur, about why the proposals from Ofgem do not go as far as they would like in terms of incentivising the development of new technologies off the coast of Scotland and our islands. I do not intend, in the time available, to reopen the debate around onshore wind developments—we would be here for a while if I did—but I think that we would all agree that there is great potential for wave and tidal projects off Scotland’s coasts and the coasts of our islands, and we should be looking at how we can change the regulatory regime to ensure that they can be connected to the grid in an affordable manner.
Can Mr Fraser confirm that the Conservative position is that, when the process concludes—I accept that we are in a process—it is necessary and only fair that, if a significantly better solution emerges for the islands, it will demonstrate that the current charges for the islands are far too high?
I am delighted to agree with the minister. We, too, want a better solution. My issue with the motion and with the contributions by some members is with the idea that a socialised regime is a positive move.
Will the member give way?
No. I have already taken an intervention and as I have only two and a half minutes left, I need to make some progress.
The postage stamp model, to which many members have referred and for which the motion says that there are strong arguments, is not ideal. I shall give an example. Let us imagine that someone were to propose a tidal project somewhere to the west of the Hebrides, such as Rockall, and they considered recovering from the electricity bill payer the transmission costs of connecting the project to the grid. In those circumstances, Ofgem would be entirely right to say that that was not justifiable and affordable. Therefore, this is an issue not of principle but of balance. Ofgem has to balance the potential for developing renewable energy offshore with the cost of paying for it. In the socialised model that some have proposed, the cost would be an additional £7 billion, which would mean £25 to £30 a year on consumers’ bills.
As my colleague Mary Scanlon pointed out, according to Ofgem’s figures, even in 2012 the increased cost to a consumer in the north of Scotland of such an approach would be £11 a year, whereas those in the south of England would see a reduction in their bills of £2 a year. We cannot support an approach that will penalise consumers in the north of Scotland and subsidise those in the south-east of England. I am surprised that the SNP is proposing that.
That is on top of a situation in which existing fuel costs are rising because of base costs and green levies. As many will acknowledge, it is also against a background of an increase in fuel poverty. We should not be looking to exacerbate that. We need a balanced approach. That is why we agree with the thrust of what the Scottish Government is trying to do, and we are sorry that it has got bogged down with dogma in the motion.
Mary Scanlon made a fair point when she said that, given that the proposals that will come forward on 4 May will go to further negotiation, they do not represent the end of the story. We need to continue to have those discussions.
The minister is looking for consensus in the debate. I say to him that there is little that divides us. It is a pity that the SNP Government did not draft a better motion, around which consensus could have been reached. I support the amendment in Mary Scanlon’s name.
15:12
To pick up on Murdo Fraser’s final comments, the general tone of the debate has been consensual. It would be a shame if that was not reflected at decision time. Members have all recognised in their contributions that the system of charging could be more equitable. I shall concentrate on that.
This is a time of radical change for electricity generators throughout the UK. Legally binding climate change targets and soaring targets for finite conventional sources of energy such as coal and gas have created a real need for fundamental reform. Our economy relies on the secure supply of electricity, while, as consumers, we are more aware than ever of the financial and environmental costs of electricity generation.
The upside of all that is that Scotland is well placed in the UK to meet those future energy demands. However, to do so we must first agree on a transmission network that will help us to exploit Scotland’s renewables potential. We need a fair and equitable charging regime that allows our renewable generation ambitions to become a reality. We need that to fight fuel poverty, address climate change and ensure that the areas best placed to provide that energy are not disadvantaged.
The initial proposals from project transmit come close to meeting our needs and are to be welcomed, but it is clear that there is the belief, at least here in the Scottish Parliament, that they could be improved further. The high cost of transmission to and from our islands is unfair and will hold back potential development.
It is worth looking at the cost. The scale of the task ahead is enormous. It has been estimated by Ofgem that energy customers throughout the UK already pay £2 billion a year in transmission costs. Ofgem has concluded—through project discovery, I think—that up to £200 billion of investment is needed in energy infrastructure. I sympathise with Maureen Watt’s comment that it surely cannot be beyond the wit of man or woman to come up with a more equitable system but, when we look at such figures and realise that someone has got to find that funding, we can see why the situation is not so straightforward.
In fact, although project transmit listed four reasons for rejecting the socialised or postage stamp approach, it is clear that the key factor is cost. It concluded that all the charging options would help to meet the UK’s renewable targets
“with no material differences in the implications for security of supply. The key differences ... are the impacts on power sector costs and consumer bills”
and went on to say that the postage stamp approach would push up consumer bills by £6.9 billion. Interestingly, like Mary Scanlon, it argued that it would also
“exacerbate existing regional patterns of fuel poverty”.
However, I am not totally convinced by project transmit on that point. Analysis of the wider socioeconomic impacts or benefits did not fall within its very tightly defined remit and as my Labour colleague Margaret McDougall, Rob Gibson, Mike MacKenzie and others have pointed out, a fairer, more equitable regime that allowed for community development would be good in tackling fuel poverty in Scotland.
As Murdo Fraser said, the argument is balanced and, in the interests of fairness, I think that although there is a case for ensuring greater equity in the transmission charging system we cannot simply ignore the historical arguments for continuing to generate electricity as close as possible to the population base. We must adjust the charging system to harness new sources of power, but it is a simple fact that, when electricity is transmitted over long distances, power gets lost and we need to balance the need to move towards renewables with the on-going need to optimise energy efficiency in transmission as well as in usage. As a result, although some of us have expressed concerns, most of us, including Stuart McMillan, have welcomed the project transmit review for at least moving us significantly in the right direction.
At this point, I want to highlight an issue that has not yet been mentioned. In its briefing, Scottish Renewables expressed concern that because Scotland lacks high-load-factor plants that low-load renewables can be balanced against, there might be a significant difference between Ofgem’s indicative tariffs and the actual tariffs that will be set when the new system is put in place. Indeed, it suggests that the actual tariffs could be 25 or 30 per cent higher than those that are set out in the project transmit review and has asked Ofgem to clarify the matter. I certainly seek reassurance in that respect. After all, if, after agreeing with what project transmit has concluded, we find out that the final cost is 25 to 30 per cent higher, how can we have confidence in its figures and calculations for the way forward?
Real concerns remain about the charging regime. We have a window of opportunity to get pricing right for the future, but the review needs to address the question of our islands that everyone in the chamber has raised. A failure to do so not only affects us now but affects our ability to develop wave and tidal generation.
As some of my Labour colleagues have pointed out—indeed, our amendment refers to it—some of our largest community-owned renewables are based on the islands. For example, the community trust on Shetland is a major partner in the Viking project, which is developing an onshore wind farm that will secure the future of a trust fund built originally on oil revenues and used to provide facilities for the local community. It is difficult to quantify the social good that has come from the trust in the past, but it is good that this partnership will ensure benefits for the island in future—if, of course, it can access the grid.
As I said earlier, Orkney has been widely recognised as a location for developing and testing wave and tidal devices; for example, the European Marine Energy Centre allows developers to test prototypes in all sea areas and even to generate electricity for the grid. However, grid access charges that disadvantage the islands could affect Orkney’s reputation as a world leader in this field. I understand that there are also great opportunities in the Western Isles, where community-owned estates dominate and might be best placed to benefit from the boost to the local economy.
I fully understand that the onus is on Ofgem to provide a solution but, as our amendment urges, the Scottish Government should use its powers if Ofgem fails to do so. I believe that we are united in asking the organisation to review its charging regime to give Scotland’s islands a fairer deal.
15:20
This has been a useful debate. As Ken Macintosh has just said, although we might not have thought so at certain times during the debate, there is far more agreement than disagreement. I want to foster the agreement and eliminate the disagreement, if I can, although I know that I might be being ambitious in looking for total unanimity.
Will the minister take an intervention on that point?
I am always delighted to get some help from a coalition partner to persuade their colleagues to do the right thing.
To aid the building of that consensus, can the minister clarify the Government’s position on a separate regulator for Scotland, should we go down the independence route? That seemed to be what his colleague Chic Brodie suggested during his contribution.
I will deal expressly with that point later, if I may.
It is recognised throughout the chamber that proposals that would see considerable progress on the mainland of Scotland are broadly welcomed. As Mr Pentland said, that is a step in the right direction and we made that clear early on, as soon as Ofgem’s draft proposals were announced. However, Ken Macintosh was right to point out the caveat that Niall Stuart of Scottish Renewables has asked for confirmation that what is proposed is what will be delivered and that there is no suggestion that the proposed level of charges will not apply in areas where there can be no balancing provision—where there are no conventional power stations to balance the charge and supply electricity to the grid when wind power is not available because it is intermittent, as Mr Fraser likes to point out.
Broadly speaking, we welcome the compromise. I hope that, during my opening remarks, I indicated that we take a pragmatic approach to the proposals, and we have put a lot of effort into finding a solution to the problem rather than taking an absolutist stance, which we have not done. We have worked with Ofgem, MSPs, the leaders of all three island local authorities, and Highlands and Islands Enterprise to find a solution, and we believe that we have found a compromise. That has been studied, but it needs to be modelled further. We have encouraged Ofgem to look very carefully at that solution and we hope that it will still do so.
When Ofgem meets tomorrow, I hope—given that its draft proposals perhaps imply that it is less than confident in the proposals as they relate to the islands and that more work needs to be done—that it will agree to move a step forward and say that more work needs to be done to study the compromise proposals that we have brought forward, working together, following the meeting on 13 January, to which I referred and which Mr McArthur and all island councils attended.
Of course, we did not just have one meeting. The First Minister made his views known at a meeting with Mr Buchanan that I attended. On 23 March, I wrote a letter to Charles Hendry MP; it was co-signed by the leaders of all three island councils. In that letter, I pointed out:
“According to the modelling we have seen, UK consumers will potentially be over £3bn better off over the 20 year life of 1GW of Island wind compared with an identical amount of a technology attracting 2 ROCS - ie offshore wind. This strongly supports the case for encouraging island generation, and this can easily be done by addressing high transmission charges through Project TransmiT”.
The £3 billion figure reflects the fact that wind farms that operate in the islands have a higher level of efficiency than those elsewhere because the islands tend to be windier. Applying the science of that analysis, we have calculated that there will be a £3 billion saving to the consumer, provided that the islands’ potential for wind power can be addressed.
I recently approved the 370MW—or thereabouts—Viking wind farm proposal in Shetland that was alluded to. That is in part a community benefit scheme that will provide more than £30 million a year to the communities of Shetland and which could, inter alia, eliminate fuel poverty.
Much of what Ken Macintosh has said is correct. We think that the social benefits should be taken into account. However, to be fair to Ofgem, it is entitled to take account only of matters per statute. Its remit is statutorily defined and therefore we cannot blame it for not taking into account something that it expressly may not take into account. Where I slightly disagree is that the solution of renewables obligation certificates is a lever that is intended to incentivise investment and revenue for various types of renewable energy. To apply that lever to transmission charges, which is something else entirely, is really not the best way to go about this.
We think that the best way to solve a transmission charge problem is with a transmission charge solution. Section 185 of the Energy Act 2004 has not been mentioned. It is a sort of fallback option, but it would provide only a limited period of confidence of a maximum of 10 years, although it could in theory be only one year. We therefore think that that does not offer a solution, and I believe that that opinion is shared by those in the islands.
I think that Mr Fraser expressed a basic and fundamental agreement with us, which I hope can be expressed in the vote this evening. I say that in the genuine hope that the Conservatives will look again at the wording of the motion. I know that it is unusual in the Parliament to try to persuade somebody in the course of a debate, although I guess that, outwith the chamber, people think that that is the purpose of a debate. The motion refers to the fact that
“there remain strong arguments for change to a flat rate of charging”.
Will the minister give way?
Hang on a second. Let me develop the argument and then I will happily take another intervention from Mary Scanlon.
The motion goes on to state that the Parliament
“welcomes the emerging outcomes for both renewable and conventional generators on the mainland, which will move away from the current status-quo approach”.
I have repeated twice that we welcome the compromise proposals that have emerged. Therefore, Mary Scanlon’s point that there would somehow be additional charges to consumers is wrong, because it is based on the assumption that we do not welcome those proposals and we adhere to the postage stamp proposal, but we do not. Therefore, that charge is wrong. In any event, we do not accept—more to the point, Scottish industry does not accept—that the calculation of an additional £7 billion cost is correct. That is disputed. Unfortunately, the details of the modelling and assumptions on which the calculation was based have not been shared with us or anybody else.
The motion does not commit the Parliament to the postage stamp solution. It says that we welcome the progress that has been made, but that we want a solution for the islands. I very much hope that, now that I have pointed that out in a spirit of co-operation, the Conservatives will consider the issue again so that we can have agreement not just among the SNP, Labour, Liberal and Green members, but across the board from every party in the Parliament.
I simply point out that, earlier, I quoted page 36 of the consultation document on electricity transmission charging of 14 February 2012.
Briefly, please.
We cannot support the motion because the Government proposes an additional £30 charge for people in Scotland and no additional charge for those in London.
Minister, you are in your final 15 seconds.
The motion simply does not do what Mary Scanlon says it does.
I commend the motion to the Parliament. This is a vital debate. There is a process ahead, and I hope that we will all seek to ensure that it is successful. For it to succeed, Ofgem should change tack at its meeting tomorrow. That would be a key step in getting the right solution for Scotland and the islands of Scotland.