This article appears as part of the Winds of Change newsletter.
"There is," a director at one of ScotWind’s most-progressed projects told me, “a conflict between policy and market." That conflict revolves around what's called transmission charging, TNuOS (transmission network use of system) charges, and it represents a jeopardy to Scotland's offshore wind.
"You can’t,” said Mark Baxter, project director for Caledonia, an Ocean Winds project in the outer Moray Firth, “have policy driving a renewable revolution and industrialisation opportunity in Scotland, on the one hand, and then an energy market saying 'don’t build renewables in Scotland'. If you genuinely want the outcome of offshore wind development you’re going to have to do something to the market situation. ”
What Baxter was referring to as we chatted at last week's Scottish Renewables Offshore Wind Conference, is an archaic system of transmission charging devised for an era of coal and gas-fired power stations, that leaves Scottish projects, particularly those in the blowy north, charged more to feed into the grid than those in the south, closer to demand. Some projects in the south of England even get paid to connect!
It’s an unfair system that is set for reform in 2029, but still looks set to scupper Scottish projects in the interim as they prepare to bid in the next auction round for crucial UK government price guarantees called contracts for difference.
READ MORE:
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Offshore wind developers are pushing for an interim solution. But at the conference, Chris Stark, head of Mission Control at the UK Government's Department for Energy Security and Net Zero , gave no such commitment. When pushed for an answer, though he didn’t give a hard ‘no’ , he suggested that the process of longer term reform was being prioritised.
Baxter summarised: “Chris Stark didn’t say no directly to interim changes, but he implied that it was tough to do something because they are focussed on the long term. The result is we’ve got this reform gap, being that we don’t know what this nationally reformed market will look like till 2029.”
Nikki Keddie, head of external affairs and policy at Ocean Winds, echoed, “It felt like Chris Stark was saying, ‘We’re willing to hear about what options there might be, but don’t get too excited about it.’”
Such delay is not good given there is another, eighth, auction round (AR8) coming up later this year. It is not good for those much-vaunted ScotWind projects that won the Scottish Government’s high-profile seabed leasing rounds, principally because of where most of them are geographically placed.
The securing of a contract by Scottish windfarm Berwick Bank in the recently announced seventh auction round (AR7) has been much celebrated, but would likely not have happened if it had been further north.
As Baxter pointed out, “If you just lifted and shifted Berwick Bank and put it in the Moray Firth, and it was a like for like, it would lose. That is as simple as you can make it. It’s the penalty of moving from East Lothian to Moray or to Pentland.”
"This year Berwick Bank succeeded at auction, but the last time that was achieved was 2022. What we can’t afford is another three years. AR7 has been successful for Scotland because of Berwick Bank, but can that be repeated? And can it be repeated capturing some of the northern projects, north of the central belt? AR8 needs to create more opportunities for Scottish projects. And that’s what we’re concerned about at the moment."
Part of the problem is that TNuOS charges are themselves volatile. “As a developer going into an auction,” Baxter said, “or looking to go into an auction in AR8, we have to understand how we might deal with that uncertainty.”
Last year, said Baxter, the Caledonia project was “on the edge of ready” to go into AR7, but "actively decided not to”.
It is not alone in feeling nervous. Ocean Winds have been following closely what happened with West of Orkney, the only ScotWind project to have already been given Scottish Government planning consent, which put a pause on further investment last month, blaming TNuOS charges, until it could see “a clear route to market”.
“West of Orkney," Baxter told me, "is in a higher TNuOS zone than us, one above us, so we sit below that. We’ve been working with them on what the messaging is around this, along with Scottish Renewables.
“TNuOS is not a fixed cost. It’s a variable cost, which is the main issue. You can’t forecast it and it’s so volatile. When we took investment decisions on our Moray East and West sites, we took decisions based on a forecast that we thought was realistic, and it was way out, and it effects the value of that investment. So investors that we have in those projects see this erosion of value on the basis of this."
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The plan, said Baxter, is for Ocean Winds to be eligible for auction AR8, which starts later this year, and they are on track, and pulling everything together. Once they have prepared, they will check where they sit, said Baxter, “in a merit order of projects”. “We will look at all the projects that are eligible for the auction and assess where we think we are compared to those developers and then ask, is it worth it?”
TNuOS will be a factor in this, but it is not the only worry. A further Ocean Winds concern, noted Nikki Keddie, is whether Caledonia gets planning consent from the Scottish Government soon enough, given the pause the upcoming election will mean on consents. “If," she said, "it doesn’t happen now in terms of consent, then there’s this tiny window in the middle of the summer.”
Caledonia, she said, and a few other projects that are ahead, should be prioritised for consent. “Caledonia is the only project that will be able to bid into AR8 with the current assumptions in the current framework, unless anything changes. So why don’t the Scottish Government prioritise in terms of grid connections? Some of the projects that are in there have got grid connections years and years after we do. We have earlier grid connections compared with pretty much everyone else.”
I contacted the UK Government about TNuOS. A DESNZ spokesperson said: “We are reversing decades of underinvestment and delivering the biggest upgrade to the grid, as we work to halve the time it takes to build new transmission infrastructure by reforming the planning system.
“We are looking at transmission charges as part of our Reformed National Pricing review, and will update in due course.”
That all this seems fairly chaotic is perhaps no surprise. So many reforms and constructions are happening alongside each other as the clean energy revolution accelerates, it's not surprising that some of it seems a mess. At one point Chris Stark, during a panel discussion at the conference, described creating a strategic spatial plan for clean energy as "like building the plane as it flies". It seems an apt description for everything happening in the energy space. A lot of planning and investment, but also a hastily constructed wing and a prayer.
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