FIOS COLUMN OCTOBER 2017

October 16, 2017

When we reviewed the island’s renewable energy development prospects in September, there was some suggestion of a ray of hope being emitted. Has this become any brighter since then ?

 

There is a complicated jigsaw that has to be completed before we see the long awaited sub-sea cable/interconnector coming to fruition. There are quite a number of pieces in the jigsaw. Firstly, allowing island projects to compete in the energy auction to win subsidy and a contract to sell electricity to the National Grid. Secondly, island projects succeeding in the auction at a price that enables their wind farm projects to be viable. Then the developers of these projects underwriting the cost of the sub-sea cable/interconnector to protect SSE in case of abortive expenditure. Assuming this can be achieved to the satisfaction of SSE Networks and approved by Ofgem, the contract has to be awarded and the infrastructure built. A final piece is the ongoing transmission charging – the annual amount that the wind farm developers have to pay annually to SSE to create a payback for SSE.

 

Whilst the news on the auction has been positive, the sub-sea cable/interconnector sits firmly in the background and ‘the meter is running’. The last capital cost that was publicly stated was £780m over 2 years ago. SSE Networks indicated that they would be re-tendering the work in 2017 but nothing further has been announced. What is the prospect of this investment being less than £1bn now ?

 

We saw in the September article that the prices set in the last auction had fallen significantly to a level far below that required by the island wind farm developers. What prospect is there of island developers being able to proceed with wind farms at such a low market price and underwrite a more expensive sub-sea cable/interconnector ? Given Ofgem’s long-standing approach to protect consumers from negative impact on their bills, it will be difficult to see how Ofgem could consent to new infrastructure at such a scale and at such a distance from the major centres of population without political persuasion - that has not been evident to date.

 

Maybe we should ask how did island wind farms make it into the Conservative manifesto in June, and are now able to participate in the next energy auction, despite a vociferous anti-wind farm element in the Conservative Party ? There has clearly been some very effectively lobbying carried out by various parties such as the Scottish Government, the MP and the island authorities. It is also worth noting that National Grid is highly dependent on EDF for supplying a large amount of the energy required to meet UK demand and, accordingly, EDF is likely to have the ear of the UK Government. EDF is now the prospective developer of the Stornoway and Uisenis wind farms, adding up to 342 MegaWatts, thus an influential advocate for the proposed sub-sea cable/interconnector.

 

The Conservative Party’s approach to energy is generally that market forces will produce the best result and progressively eliminate subsidies. The last energy auction will have reinforced the validity of this policy as the renewable energy sector seemingly heads for a subsidy-free existence. Could it be that permitting the inclusion of island wind in the auction is a way of bringing the issue to an end once and for all ? The Conservatives can argue that island areas were given a ‘fair crack of the whip’ but ultimately couldn’t compete with the alternative technologies that offer better value for money. Only time will tell…!

 

In the meantime, the existing island generators have to manage with an electricity grid that is apparently poorer than in many parts of Africa. This was a comment from a respected energy consultant earlier this year when he spoke at a community energy conference in Harris. The island grid is at capacity and no new energy projects are permitted to connect above 3.68 KiloWatts, which is equivalent to a small domestic photovoltaic (solar power) array. More recent aspiring community developers such as Urras Sgire Oighreachd Bharabhais are left with no clear prospects of obtaining a grid connection, which has until now been the key to unlock a long-term sustainable income source for the community land trusts.

 

There is no major risk to the existing community generators, such as Galson Energy, as they are not dependent on the proposed sub-sea cable/interconnector but there are operational challenges arising from the general lack of investment. The community generators have been attempting to secure the agreement of SSE to generate during periods of grid maintenance rather than endure the total shut-down for many weeks which is currently insisted upon. It is technically possible to continue generating at low levels of rated power but, to date, SSE has not been willing to accept this type of arrangement. After years of discussion, it is beginning to emerge that ageing and inflexible infrastructure is the chief impediment. It is understood that  various plant and equipment installed in the 1980s are reaching the end of their useful lives and major investment will be required in the short-term. Similarly, the existing sub-sea cables between Lewis/Harris and Skye are of a similar age and, although SSE state they comply all operating standards, their remaining lifespan must be fairly limited.

 

The upshot of this is that electricity infrastructure to Lewis and Harris, and no doubt the Uists and Barra as well, requires major investment in the near future. Will this be in the form of a new sub-sea cable/interconnector in the order of 450-600 MegaWatts to facilitate major new developments, or will there just be a wholesale replacement of the existing infrastructure with little or no additional capacity ?

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