The "massive costs" faced by developers in Scotland's first Marine Energy Park to connect their wave and tidal projects to the grid could potentially hold back investment, an industry body has warned.
Speaking as the Marine Energy Conference begins in Inverness, Niall Stuart of Scottish Renewables said that despite an independent review by energy regulator Ofgem charges affecting island-based projects, such as those in the Pentland Firth and Orkney Waters, were adding significant costs to and threatening the economic viability of wave and tidal projects.
"Ofgem's review was expected to bring down charges for renewable generation given its commitment to facilitate the move to a low carbon energy sector," Stuart said.
"However, we are seeing charges on the islands continue to increase, dwarfing those on the mainland. We have to remember that our islands are where some of our best natural resources are and if we are to meet important climate change and renewable energy targets we must find a way to ensure wind, wave and tidal projects can generate electricity for homes and businesses across Scotland."
Transmission Network Use of System (TNUoS) charges are paid by all electricity generators connected to the UK's electricity transmission network. However, island-based generators must also pay for 'local works', including the connections from the Scottish mainland to the islands. These charges are calculated per kilowatt of generation connected to the network.
Ofgem began 'Project TransmiT', its independent review of the charging arrangements for gas and electricity transmission networks designed to "facilitate the timely more to a low carbon energy sector whilst continuing to provide safe, secure, high quality network services at value for money" in September 2010. The project is now in its closing stages.
In its new report [5-page 246KB PDF], Scottish Renewables said that although the review had reduced connection costs for generators based on the mainland, estimated projected annual connection charges for the Pentland Firth and Orkney Waters area have almost doubled – from £56 million last year to £107m in 2020. Had the affected projects been built in the UK's other Marine Energy Park, in the south-west of England, they would instead receive an annual subsidy amounting to around £2m.
The mainland Pentland Firth area has seen a decrease of £4.6m in annual connection charges since the start of the review process, according to the report.
However, 'local works' charges in the Orkney Waters area - including expensive undersea grid cabling from the Scottish mainland to the Scottish islands - have resulted in a "massive rise" in the cost of these projects.
In addition, the increasing capacity of renewable electricity due to be generated in the Orkney waters from wave and tidal projects will require a new, larger grid cable at additional cost.
The Government has the power under the Energy Act, as amended by the Climate Change and Sustainable Energy Act, to adjust transmission charges for renewable electricity generators in a specified area in the UK.
Stuart called on the Government to use this power, which can be exercised if renewable development in a particular area is likely to be deterred or hindered to a "material" extent by the level of transmission charges that would otherwise apply, for the benefit of projects in the Orkney Islands.
"We would like to see the Secretary of State for Energy and Climate Change use his powers to adjust the transmission charges and ensure costs do not deter renewable energy generation in the north of Scotland, home of the world's leading wave and tidal sector," he said.
The Government designated the Pentland Firth and Orkney Waters area as a Marine Energy Park in July. The designation is intended to highten the international profile of the region and its reputation as a world leader in marine energy. The area also incorporates the European Marine Energy Centre (EMEC), where testing of a wide range of new wave and tidal energy devices is already underway.
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