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WHY SCOTLAND IS FACING AN ELECTRICITY CRISIS!

Download PDF Version here:  Electricity Crisis 06/12/15

THE POSITION NOW

With the security margin between generating capacity and peak demand down to a dangerous 2% in England & Wales forcing the National Grid by expensive emergency arrangements to an increased reserve margin of 5.1%, it is time to examine how Scotland will be placed. Given the existence of the National Grid designed to give security of supply, will our excess generation capacity be used to feed that part of the UK? In turn will this mean there is a risk of power cuts or voltage reductions (known as ‘brown outs’)? In the short run, the likely answer is no but who can tell if there is an exceptionally long and cold winter.

Yet, Scotland for decades has always been a distinct if not independent UK exporter and this pre-dates the privatisation of the industry. This situation is going to change rapidly. Unsympathetic oversight and planning by each of the Department for Energy and Climate Change (DECC), OFGEM (the energy regulator) and the National Grid Plc which sets transmission charges for access to the Grid could combine to see Scotland’s energy profile change for the worse in the middle to long term. This has strategic consequences for every Scottish consumer.

The pattern was set with the privatisation in 1990 of the two Scottish generators, the South of Scotland Electricity Board (SSEB) which as the name suggests was responsible for southern and central Scotland and the North of Scotland Hydro Electric Board (NSHEB). The SSEB had a portfolio of coal, oil and nuclear sources together with hydro-electric pumped storage and some conventional hydro-electric plants.

Prior to privatisation, the two boards had the task of planning for future generating needs but could be and were overridden by strategic decisions of the Secretary of State for Energy in London and the Secretary of State for Scotland, for example, with the direction to proceed with the nuclear power station at Torness even though Scotland had a generating over-capacity. This was at a capital cost of around £1,800 per head of population in Scotland, the financial burden of which pushed up electricity prices in Scotland. Thus the Scottish consumer picked up the tab for this over-capacity through their electricity bills. At the time, the SSEB Consultative Council, which was meant to protect SSEB consumer interests protested to the then Secretary of State for Scotland, but was over-ruled by him.

Since privatisation, not a single conventional thermal generating plant has been commissioned in Scotland by the private companies that replaced the two boards, Scottish Power (SP) and Scottish & Southern Energy (SSE, but sometimes referred to as SHE). It is important to note that SP and SSE are private companies with substantial interests in England & Wales. Unlike SSEB and NSHEB, they have no duty to plan for the future of the electric supply in Scotland, except where it might intrude on their profitable activities.

In 2013, Scotland exported 28% of its electricity. Scotland’s renewable generation makes up 32% of the UK’s total renewables. This is down from 36% from 2012 as England is now embarking on an extensive and expensive off-shore wind development programme.  Scotland has minimal production from off-shore wind, wave and tidal power and biomass.

The “Renewable energy in Scotland” article in Wickipedia outlines the renewable potential as follows:

“The natural resource base for renewables is extraordinary by European, and even global standards. In addition to our existing installed capacity of 1.3 Gigawatts (GW) of hydroelectric schemes, Scotland has a potential of 36.5GW of wind and 75% of tidal power, 25% of the estimated total capacity for the European Union and up to 14GW of wave power potential, 10% of EU capacity. The renewable electricity generating capacity may be 60GW or more.”

Table 1: Current Generating Plants in Scotland

Plant Name Operator Type Capacity (MW) Total
Nuclear
Hunterston B EDF AGR

960

Torness EDF AGR

1,185

Total

2,145

 

 

Coal

 

Longannet (closing March 2016) SP

2,400

 

Total

2,400

 

 

Gas

 

Peterhead SSE Gas

400

 

Total

400

 

 

Pumped Storage

 

Cruachan SP Hydro

440

 

Foyers SSE

300

 

Total

740

 

 

Renewable

 

Conventional Hydro

1,530

 

­­Wind Various Onshore

5,200

 

Other renewable

­710

 

Total

7,440

   

 

Grand Total Capacity                                         

13,125

 

Scotland has a target of producing 100% of its electricity demand from renewable by 2020. By the end of 2014, the figure was 49.4%

On the face of it Scotland will have a bonanza in energy supply. But much of it is scheduled for export for the benefit of the generating companies and the rest of the UK. Without Scotland’s ‘green energy’ and long distance nuclear, there is little prospect of England and Wales approaching, let alone meeting, their own target in that field. The Scottish people are far from being beneficiaries of this resource. Instead they have to endure higher electricity bills, bearing down especially on those suffering from fuel poverty in a climate that is wetter, windier and colder than that of the UK as a whole.

Against this background, this national resource is squandered. Apart from a small number of communities which have gained from consenting to wind turbines, there has been massive profiteering buttressed by generous subsidies paid for by consumers (not either the UK or Scottish Government) and met by many who suffer from fuel poverty while living in a ‘cold climate’ country.

The ‘green’ targets have led to a money-making charter for landowners and multinational generating companies. There has been no manufacturing benefit to Scottish jobs since all the turbines are imported. Truly, Scotland has become an energy colony!

The Mirage of Potential: What about now?

The essence of energy policy must be security of supply at the lowest possible cost. Under present arrangements, neither the Scottish Government (which has local planning powers only) nor the UK Government which has legal control over energy but in reality in our free market in electricity generation, is faced with decision-making being under the control of six companies which direct that market, source supplies, generate electricity and retail it to customers at prices which do not reflect the costs of production or supply. Many of these companies are European rather than British. They do not have long term security of supply objectives. Instead, short-term profit making is the be all and end all!

This is why, apart from the recent Glendoe hydro-electric scheme, there has been no major generating plant commissioned in Scotland since 1990 and why in England, the only tool open to DECC (Department of Energy and Climate Change) was to bribe EDF into building a nuclear power station at guaranteed inflation-proofed supply prices that would make any Director of Finance salivate. Strangely, the cost of new nuclear power does much to make Scotland’s wind power economic although that does not make it cheap!

For Scotland’s potential to be delivered and to meet the needs of our people, there need to be long term contractual arrangements with DECC, and even then, there must be levies on electricity exported from Scotland, these to be used through government to compensate domestic and industrial consumers for higher costs and despoilment of the Scottish natural environment. In short, no compensation of consumers, no exported ‘green’ power from Scotland!

This is not curmudgeonly but business! A deal can be done by negotiation. If the UK Government in England is willing to pay exorbitant prices to French company EDF for new nuclear, why should Scotland be treated less generously? The UK government has already taken a position of choking off on-shore wind in favour of nuclear so there may be no market for Scottish renewables and thus little prospect of realising their potential. It is time the Scottish Government woke up to the realities of this change in policy for England and Wales over which they were not consulted! Scotland’s electricity problems lie elsewhere.

The closure of English and Scottish steel works partly because electricity prices are twice as high as our European competitors is evidence of how much damage the UK energy policies have done to UK manufacturing competitiveness. It must also be said that the low importance given by Westminster to energy policy is demonstrated by the record that in the last fifteen years there have been just as many energy ministers. How can you get a coherent long term policy to operate, especially in the era of profit oriented generators, when you have short-term fitful direction?

The Great British Carbon Capture Mess-up

Continuing its record of ruinous incoherence in developing British nuclear (now surrendered to the French EDF) and abandonment of prioritising non-nuclear renewable, the UK Government has again demonstrated its unfitness to manage long term energy technology. The UK was set to take the lead in developing carbon capture and storage (CCS) using underground storage – in Scotland and England’s case by utilising depleted oil and gas reservoirs.

Firstly the pioneering CCS enterprise at Longannet was cancelled in 2011 and the scheme opened up to commercial competition with the White Rose project in Yorkshire and Peterhead emerging as prime competitors. When White Rose withdrew, the UK Government immediately withdrew its promised funding in October this year thus forcing the cancellation of the SSE and Shell project at Peterhead. One wonders if it were ever serious about awarding funding to Scotland!

Now Shell is transferring its investment to other projects worldwide, including Mongstad in Norway. So Scotland has lost three ways – the closure of Longannet, the removal of developments at Peterhead and the certain loss of the jobs which would have derived from this exportable technology and associated manufacturing.

Still if the UK is not interested in renewing its manufacturing base it can always buy it from abroad, be that from Norway, China or wherever!

If any further indictment of the UK is to be made, one must point to the dangerously low security margin of 2% and contrast the dearth of commissioning of new lower carbon power stations when it has been known that EU Treaty obligations require the closure of many of the older plants, especially those that are coal-fired and could have been retained by CCS. The question must be asked: where will base load electricity come from until the new nuclear comes on stream in 10 years’ time? Indeed, experience also teaches that the period may be more likely 15 years than 10! If so, the crisis will be accentuated.

Scotland’s Dilemma

At first sight, Scotland’s electricity generating position seems secure and the present main threat is the siphoning off of electricity to sustain the Grid in England and Wales. The medium term, though, is not encouraging. The kindest assessment of Scotland’s energy profile is that it is the result of confusion and disinterest on the part of the Westminster Government and OFGEM. A more realistic view is that there is a long term strategy for the provision of base load electricity to integrate Scotland into the UK Grid and make it ultimately dependent on England. This would then be another impediment to Scotland becoming independent. Viewing the mess being made of the electricity provision in England, both views are credible.

Planning for electricity production should be for the long term. If we in Scotland think we are safe, just look at what has happened. In 2012, we had a coal fired station at Cockenzie in East Lothian with a capacity of 1200MW. It closed in 2013. Ahead in 2016 lies the closure of the remaining coal fired plant, Longannet with 2,400MW, capable of serving 2 million Scottish homes. Within the next 10 years, Hunterston B nuclear station will run out of its already extended life of 41 years. Then we lose a further 960MB but in the not too distant future is Torness with the expectant loss of 1,185MW. A total of almost 6,500MW, more than peak demand in Scotland. Where will that leave Scotland?

But yes, do we not have 5,000MW from wind at present with an expected doubling to follow? Yet where is the base load when the wind does not blow or there is dry weather affecting hydro output? Engineers point out that you need almost as much stand by generating capacity to  match demand and to cover for uncertain, intermittent renewables. Where is this base load power to come from? In engineering terms, there is always a need to balance the grid and find sources of electricity to make up the balance. The answer could be, some say, to import it from England and Wales or from the Continent. And here lie very real problems.

Firstly, through mismanagement and short-termism for the reasons outlined earlier, England and Wales themselves are running close to the bone. They will not have much electricity to spare out of their 2% margin so ‘brown outs’ and reduced supplies to industry will affect all parts of the United Kingdom.

Secondly, all the European interconnectors lead to England. None serves Scotland directly and the National Grid does not intend to build them. Scotland could be isolated from Europe. And who is to say that there will be electricity available from Europe?

In the meantime, the following views should be noted:

Commenting on BBC Scotland on 7 October 2015 on news that Longannet was to close in the spring of 2016, Prof Paul Younger, Professor of Energy Engineering at the University of Glasgow stated:

“At a stroke it would remove the supply of about 25% of all electricity consumed in Scotland, which would make it very difficult to keep the lights on when the wind isn’t blowing, without increasing reliance on power imports from England – for which there is not sufficient inter-connector capacity on the National Grid anyway.”

That inter-connector capacity is scheduled for uprating but direction of electricity flow is uncertain.

Transmission Costs

With complete incompetence, Westminster has fouled up its own nest with spare capacity of only 2% to meet peak load and even after throwing vast subsidies towards EDF, the French company willing to be bribed into new nuclear power station at Hinkley Point, there will be a gap of 10 to 15 years before this electricity comes on stream during which time the process of culling some 20GW of coal, old gas and historic nuclear will proceed. It will leave Britain in crisis that not even resurrecting mothballed gas facilities will ease. So imports will be necessary – some from France, some from the Netherlands or other continental interconnectors.

But surely not from Scotland! For here the policy of the British Government, the regulator OFGEM and the multi-national National Grid Plc that operates the system across GB is on the one hand to cut Scotland’s capacity for export to England by imposing draconian grid connection charges of 40% on Scottish generated electricity while simultaneously proposing to strengthen the high voltage cross-border connectors to permit the export of green power from renewables in the future. You could not make it up!

Away back in 2008, the then  First Minister Alex Salmond accompanied by representatives of Scottish Power and Scottish & Southern Energy raised the impact of this huge imposition on Scotland’s thermal generators. It took the Government two years until 2010 to recognise there was a problem and with all the speed of a demented snail to reach a new undisclosed charging regime in 2015 and despite the urgency and an English court action, to delay its introduction until April 2016.

The changes dealing primarily with connection cost of access for Scottish renewables failed to impress Scottish Power who promptly announced the closer in 2016 of their giant Longannet station, and that despite recent investment of £200 million on environmental improvements. A combination of delay, lack of interest, a new system of ‘pot-luck’ auctions and sheer obstruction from London has led to the killing of Longannet. It was operating on borrowed time following a London decision not to use it as a carbon capture prototype which would have led to carbon emissions being stored in depleted oil and gas reservoirs. Yet, with a further four years of life expectancy no Scottish Government would have acted in such a fashion.

Neil Clitheroe, CEO of Energy Retail and Generation at Scottish Power observed that they did not wish to close Longannet and declared:

“For many years, we argued that the transmission charging penalties imposed on Longannet are disproportionately high in comparison with other power stations in the south of England, some of which are actually paid a fee to remain connected.”

The lack of any sensible regional flexibility in the current system penalises generators in Scotland, and discourages investment in new thermal power plants. Simply to get to the 2018 delivery year (when the auction process starts), Longannet needs to pay over £120 million in transmission charges. By contrast if Longannet was in London, the station would receive a fee of £4 million to connect.

Only six months before, Keith Anderson, Scottish Power’s chief corporate officer had warned:

“Scotland needs a mixture of generating types, but there needs to be a fair and level playing field with the rest of the UK in order to develop new power generation in Scotland.”

Longannet will close. 260 jobs will be lost and an unbalanced energy system will emerge.  Perhaps indeed that we are not always “Better Together” in the UK!  So who is responsible? Obviously, it stems from the chaotic Department of Energy and Climate Change in the first place. It is the UK Government Department that sets policy. Then, there is OFGEM, headquartered in London. It details the rules and monitors the third villain of the piece, National Grid plc, again located in the south of the UK. It owns power stations in the USA as well as owning the electricity transmission system in England & Wales and also on contract manages the system in Scotland as part of the all GB Grid. Its target aim is published as ‘delivering shareholder value’.

Since Scotland has been producing 12% of UK electricity and paying 40% of the transmission costs, there is something dramatically wrong and unfair. Our consumers end up paying an extra 4% on their household electricity bills. The discriminatory policy has been devised to favour generating plant nearer the population centres of GB. It has to be emphasised that most European countries do not use this discriminatory location formula. Instead, the transmission costs are met though a flat fee. Even with the GB policy, there is a major discrepancy. Total transmission losses of power are 1,423MW (2.29%) of peak demand whereas there is a 40% penalty imposed on Scotland.

In a submission to the Scottish Parliament’s Energy Committee earlier this year, Sir Donald Miller former Chairman of SSEB and Mr Colin Gibson former Power Director of the National Grid commented:

“The present difficulties stem in large part from the structure of the electricity supply industry following privatisation, and these will not be met by the 2014 Energy Bill, the more so that this does not address the particular problems in Scotland. Therefore we recommend that in the absence of these problems being addressed nationally, the Scottish Government, for the benefit of consumers in Scotland, seek powers to adjust the responsibilities of the industry and the Regulator in Scotland. Finally, we make suggestions as to the form that these changes could take in the interests of securing reliable and economic electricity supplies for the future.”

And developing the argument, they delivered this warning:

“The problems facing electricity supply in the coming years cannot be examined without first considering the electricity situation in the UK as a whole, especially as Scotland under present energy policies will be increasingly dependent on imports from England.”

There is no evidence that the UK Government sees this as a matter of concern which is hardly surprising. More remarkably, there appears no urgency on the part of the Scottish Government to address the future crisis – all the more so since in any future independence referendum, Scottish dependency on English electricity will be a signal element of Project Fear Mark 2!

Clearly, the way in which the UK operates is damaging to Scotland. We need cheaper, not dearer electricity. There should be a level playing field. 

Urgent Action Needed

As with oil and gas, Scotland reaps no national or far reaching industrial benefit from her electricity industry. There is no recognition from London that Scotland’s potential should be harnessed. Far from it! Instead there are prejudicial transmission penalties which are forcing earlier than intended closure of Longannet and distorting the country’s Grid. There is no understanding that with the surge in wind power, the Scottish Grid will become dangerously unbalanced in the absence of new thermal generation. For Scotland, there needs to be an appreciation that the position will become bleak in the middle to long term unless remedial action is taken.

It is surprising control over energy policy was not pressed as an outcome to the Smith Agreement. Given the ongoing damage, urgent action is needed, as follows.

  1. The Scottish Parliament should be given the right to develop a coherent electricity generating policy for Scotland and appoint a Scottish Regulator.
  2. To then secure further thermal investment needed to balance the system, the Scottish Government should hold meetings with the Scottish based generators:
    1. To form a joint venture to build and operate new balancing thermal plant.
    2. To require these companies jointly or through a joint venture company with the Government to take operational control of the Scottish Grid from National Grid plc on the basis that Scottish Power and Scottish & Southern are the owners of the transmission systems in Scotland. If the companies not agree to do so, then the Scottish Grid should be nationalised.
    3. To encourage SSE to proceed with new pumped storage hydro schemes at Balmacaan above Loch Ness (600MW) and Coire Glas above Loch Lochy (600MW) to accommodate the surge in wind energy output or if there is a financial problem, to do so through a joint venture with the Government.
  3. To re-examine the prospects for export of renewable in light of the change in UK Government policy and if one exists, negotiate a longer term contract with the National Grid (E & W) for a regulated supply of renewable power outflowing from Scotland to England & Wales so that Scottish consumers do not end up having to pay subsidies to producers for wind generated electricity not required in England and constrained from the Grid.
  4. To require suppliers of electricity in Scotland (whether or not they are generators) to maintain a sufficient margin of capacity to secure supplies to their consumers and also for transmission operations and generation dispatching to be under the control of a ‘not-for-profit’ Scottish organisation.


 

Conclusion

1.     The Scottish Government should beware of the implications of the new English nuclear contracts for its renewable energy strategy. Details of those contracts are not known but given the need for a high load factor to make these plants viable, more expensive nuclear will be given priority access to the southern market at the expense of cheaper but far flung and intermittent supply from Scotland. The cost to Scottish consumers of ‘constraint’, that is payment of compensation for electricity available to the market for export but not required will be enormous.

2.     It is arguable that one of the factors causing the closure of Longannet and restriction of capacity of Peterhead is that wind energy gains priority access to the Grid and by lowering of the loading of the large thermal plants, reduces their viability even though their output is required to balance the Grid.

3.      If UK Energy policy works – at a time gas and oil prices are so low, why are UK prices so high and not reducing in tandem with the market?

Note:

Gordon Wilson is currently Director of Options for Scotland. He is a former Chairman (leader) of the SNP and when MP for Dundee East an expert on energy policy.

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