A blog by Andrew Urquhart, Head of Whole System, SSEN Transmission

2021 is shaping up to be a truly momentous year in the global fight against climate change as we look forward to COP26 in November, which we are delighted to be one of the leading energy sponsors of as part of the SSE Group. In the UK, whilst the policy landscape is positive following the publication of the Government’s White Paper and its clear direction of travel for net zero policy, barriers still remain, none more so than the cost paid by generators to connect to the transmission system.

Managed by National Grid as the Electricity System Operator (ESO), and regulated by Ofgem, Transmission Network Use of System (TNUoS) charges are currently paid by all transmission connected and embedded generators over 100MW capacity in GB for use of the transmission network and calculated through various factors, mostly location. In general terms, generators that are located closer to areas of demand pay less, with those in more remote areas paying more to transmit power onto the system. This naturally results in higher costs for the delivery of renewable projects in Scotland compared to other parts of GB, with particular disparity in the north of Scotland and Scottish islands which are furthest away from the biggest areas of demand in the south of England.

Our generation customers and wider stakeholders in the north of Scotland consistently tell us that charges for transmission access, as well as uncertainty about future charges, are acting as a blocker to the commercial viability of renewable energy projects. This in turn creates uncertainty for us in terms of efficient system planning for the network, whilst also impacting on the energy markets where generators seek to earn revenue.

Evidence shows us that TNUoS charges are indeed many, many times higher in the north of Scotland than elsewhere in GB. The charges for a single generator can also swing dramatically from year to year and this is near impossible to predict or plan for commercially. It’s important to note however that the issue of volatility and unpredictability is not unique to the north of Scotland but experienced by all generators regardless of technology or location.

Our analysis of the issue is quite stark, for example:

  • While a wind farm in the north of Scotland pays £5.50 per unit of energy, an equivalent wind farm in Wales will get paid £2.80 per unit
  • Generators see swings in their charges typically over 50% up or down each year; for the nine generators we studied, year-on-year changes have been between up 774% and down 2090%
  • Charges are unpredictable – Using National Grid’s own data, the average forecast error to under-estimate the actual charge by one third.

There’s two ‘big picture’ factors that sit uncomfortably with this analysis. First that the cost of the onshore GB transmission system has been largely stable over the past few years, and Ofgem’s assessment of the RIIO-T2 settlement is continued stability moving forward – in fact, costs will fall by around 0.6% from 2021 to 2026. Ofgem has, quite rightly, focused on efficiency and stability in transmission costs for RIIO-T2, but this is not reflected in the charges that ultimately end up in consumers’ bills.

Second is the strength of the national effort for decarbonisation and the energy transition. The UK and Scottish Government has put in place a number of ambitious policies to encourage and support greater deployment of renewable energy to meet our emission reduction targets, underpinned by targets, enshrined in law, for net zero emissions by 2050 and 2045 respectively. The requirement to invest and innovate to reach net zero, whilst supporting a just and green recovery, is fundamentally agreed as the collective goal.

Together these factors, for us at least, raise serious questions about whether the current transmission charging regime (which was initially devised 30 years ago) is still fit for purpose in a net zero world, effectively penalising renewable generators in the areas with the greatest resource. With Scotland’s contribution to the UK’s net zero targets in mind, we’re backing calls from our customers to review and reform the current transmission charging methodology to support decarbonisation at the scale and pace required.

We’ve published a paper to further explore the issue for Scottish generators in further detail, based on feedback from our customers and comparative evidence from existing operational schemes. Our findings, which are backed by Scottish Renewables and independently verified by Baringa, suggest that there is a clear case for reform here to overcome existing barriers and support greater deployment of renewables in Scotland. Our own North of Scotland Future Energy Scenarios analysis suggests that 20-23GW by 2030, and 30 – 37GW by 2050 of renewable capacity will be required in our transmission network area to support net zero delivery. To demonstrate the scale, we currently have just over 8GW currently connected.

In what is shaping up to be one of the most important years for the climate, lets widen the debate on TNUoS and look for workable solutions to support the transition to net zero.

The full report can be accessed here.  To share your views or discuss the report in further detail please contact Andrew.Urquhart@sse.com.

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