"You have to be sensible about this to ensure that the
most efficient and cheapest system wins," said Peter Bolitho , a
Coventry, England-based trading manager at E.ON U.K.. "If it's
more efficient to build a power station in the south where the
demand is, then it's better to do that rather than to extend
transmission lines at a higher cost from more remote areas." ...or is it better to help save the climate? comments our way
+------------------------------------------------------------------------------+
Scottish Wind May Gain in 'Overdue' Cost Review: Energy Markets
2010-10-12 12:30:08.850 GMT
By Catherine Airlie
Oct. 12 (Bloomberg) -- Scotland, source of almost half the
U.K.'s renewable energy, may benefit from a proposal to scrap
the 20-year-old rule blamed for impeding wind and sea power.
Ofgem, Britain's electricity-grid regulator, said it will
take comments until Nov. 17 from energy companies and academics
on changes that may abolish the system that charges the highest
carriage rates to generators furthest from consumer centers.
It's due to make a decision next year.
"The review of transmission charging is long overdue,"
said Martin McAdam, chief executive officer of Edinburgh-based
Aquamarine Power Ltd., which is working with Scottish & Southern
Energy Plc to develop 1,000 megawatts starting with a wave
project off the coast of Orkney, Scotland. "The high
transmission charges are preventing potential developers from
committing to underwrite the construction of new capacity."
Scotland, with 7,300 miles (11,800 kilometers) of coastline
and commitments for turbines to supply 1.7 million homes, has
the potential to produce 10 percent of the wave power and 25
percent of the offshore wind energy in Europe. It also has the
U.K.'s highest transmission charges. Britain gets a lower
proportion of its power from renewables than other nations in
the 27-member European Union except Malta and Luxembourg.
The power industry pays 2.5 billion pounds a year to ship
electricity from generators to customers, according to Ofgem.
The charges, equivalent to about 5 percent of wholesale prices,
are passed through to end users. U.K. baseload power for next
summer traded today at 44.35 pounds ($69.86) a megawatt hour, up
3 percent this year.
200 Billion Pounds
Britain needs to spend 200 billion pounds this decade to
replace power lines and stations and invest in renewables,
according to Ofgem. Current transmission charges reflect costs
of building cables, the distance to consumption centers and
congestion on gred.
A windfarm in the Scottish Highlands pays 22.79 pounds to
move every kilowatt of electricity on the grid, while a power
plant in central London is eligible for a subsidy of 6.41
pounds, according to National Grid Plc.
"The logic behind the charging system is that it attempts
to reflect long-run costs of investing in the network to
transport power longer distances from areas of generation to
areas of high demand," said Adrian Palmer, the London-based
senior manager at Redpoint Energy, an energy research firm.
"The regulator is looking at how better to distribute these
costs to power generators and power suppliers."
'Cheapest System Wins'
Changes to the system would benefit Scottish Power Ltd., a
unit of Bilbao, Spain-based Iberdrola SA, and Perth-based
Scottish & Southern Energy Plc, while shifting costs to
companies such as Dusseldorf-based E.ON AG, whose U.K. fossil-
fuel plants generate about 10 percent of the nation's power.
"You have to be sensible about this to ensure that the
most efficient and cheapest system wins," said Peter Bolitho, a
Coventry, England-based trading manager at E.ON U.K.. "If it's
more efficient to build a power station in the south where the
demand is, then it's better to do that rather than to extend
transmission lines at a higher cost from more remote areas."
Centrica Plc, Britain's biggest energy supplier, in April
started operating its new 885-megawatt gas-fed power station
near Plymouth, southern England, an area where little power is
made. Generation on the south coast gets a payment of 1.36
pounds for every kilowatt produced, according to National Grid.
Centrica's south coast power station reduces the need to
transport power across the country and limits power lost through
transmission, the company said on its website.
'Hindering Progress'
Scottish Power's coal-fed power stations in Cockenzie and
Longannet can generate a combined 4,000 megawatts. The company
also operates 500 wind turbines with capacity of 400 megawatts,
and hydro plants in Scotland. It also owns three gas-fueled
stations in southeast England.
"We have been concerned for some time that the current
rules on charging for transmission are hindering the U.K.'s
ability to make cost-effective progress toward key environmental
and energy policy goals," Nick Horler, CEO of Scottish Power,
said in a Sept. 22 statement on the company's website.
Under EU targets, Britain must source 15 percent of its
energy from renewables by 2020, up from the 2.2 percent share in
2008. Sweden gets about 44 percent from renewable, and Finland
gets 31 percent.
Scotland has connection agreements in place for 12,000
megawatts of wind power, Stewart Larque, a London-based
spokesman at National Grid, said in a Sept. 24 interview.
Thatcher's Legacy
"This huge amount of proposed wind generation suggests the
current regime isn't discouraging" investment, Larque said.
"We don't think the current system is unfair, but there's so
much change going on and new challenges that now probably is a
good time to take a step back and review the whole system."
Britain's power network was built in the 20th century to
move coal-fired power from Northern England to power consumers
in the south and Midlands, according to Robert Gross, director
at Imperial College London's Centre for Energy Policy and
Technology. Existing transmission prices were set in 1990 under
Prime Minister Margaret Thatcher to cut power costs by promoting
generation as close as possible to consumers.
Aquamarine Power's Oyster wave-power machine, in
development since 2003, would be subject to the U.K.'s highest
transmission charges. The company plans to develop 200 megawatt
of wave capacity off the coast of Orkney, the first step in a
deal with Scottish & Southern Energy Plc to develop 1,000
megawatts of wave-power capacity.
"We need to make the grid fit for the 21st century,"
Gross said. "We need to take wind by wire from Scotland and the
North Sea."
For Related News and Information:
U.K. power-market stories TNI UK PWRMARKET <GO>
Today's top energy news ETOP <GO>
U.K. electricity prices ELEU <GO>
Natural-gas markets menu NATG <GO>
--With assistance from Louise Downing in London. Editors: Mike
Anderson, Justin Carrigan.
To contact the reporter on this story:
Catherine Airlie at +44-20-7073-3308 or cairlie@bloomberg.net
To contact the editor responsible for this story:
Stephen Voss on +44-20-7073-3520 or sev@bloomberg.net
