Utility Week

14 | 1st - 7th August 2014 | utILItY WEEK Networks Scottish referendum R eligion and politics: there are some things you just shouldn't talk about. What would happen to the transmis- sion and distribution networks in Scotland in the event of a "yes" vote is apparently another. System operator National Grid and the distribution network operators, Iberdrola-owned Scottish Power and SSE, all maintain a stony silence when quizzed on the subject. It's sensitive: any comments on life aƒer independence could be construed as support for the yes campaign, and these crucial infrastructure providers are studiedly neutral. The Scottish government is not so reti- cent, however. Last month, it published a paper on energy by its Expert Commission on Energy Regulation, Energy Regulation in an Independent Scotland. This is the only available blueprint for the messy work of untangling Great Britain's transmission and distribution networks. It sets out the imme- diate steps that would need to be taken (a system operator appointed, operating agree- ments established) and highlights the many questions that need to be answered. Among these are the role of National Grid, the reallo- C reating a separate wholesale electric- ity market for Scotland would be so fraught with regulatory, technical and economic complexity that it's small won- der Scotland has called for a single energy market (SEM) regardless of the referendum result. Although this SEM model may have worked in Ireland to unite electricity markets on either side of the border, Westminster has warned that the subsidy and supply arrange- ments between Scotland and rUK mean that things would have to change in the event of independence. Ed Davey has repeatedly warned that Scotland might not only lose funding for its cation of Scotland's higher transmission and distribution costs, which are currently social- ised across Great Britain, and the steps that needed to manage such a huge programme of change. Today, there are three key players in Scot- tish transmission and distribution. National Grid is the system operator, although it does not own the physical networks as it does in the rest of Great Britain. These are owned by SP Transmission Limited, part of Scottish Power, and Scottish Hydro Electricity Trans- mission Limited, part of SSE. Scottish Power and SSE also own and operate the distribu- tion networks, through their subsidiaries SP Energy Networks and SSE Power Distribution (see map). On 18 September, that could all change. renewables output, but could also lose reve- nue from exports should the UK find cheaper alternatives from continental Europe. In the event of a break-up, rUK would import electricity based on the prevailing market price, as is currently the case with French and Dutch imports, a UK power trader told Utility Week. "Currently £115/MWh is being paid to Scottish windfarms by consumers. If there was a separate energy market, rUK could import at, say £40/MWh, because Scotland will generally have too much energy relative to its demand," the trader said. He pointed to the German and French market dynamic as an example. "When the Mum's the word on transmission Market split could cost Scottish consumers Pioneering example While a "yes" vote could have significant ramifications for the energy market in Scot- land, the water market already operates as a separate entity. It has successfully pioneered competition for non-domestic customers; a model that England is now following. The biggest impact of independence for the water market would likely be the establishment of a new pan-utility regulator, as proposed by the Scottish Government. This body would take on Ofgem's Scottish responsibilities, as well as the work of the current Scottish water regulator, the Water Industry Commission for Scotland (WICS). Utility Week spoke to WICS' chief executive Alan Sutherland. I don't have an official view, and the policy in Scotland is that economic regulation of the water sector in Scotland would continue – irrespective of the result of the vote on 18 September. The government seems to be content with how the regulatory framework operates as regards price setting, and proud of the way the contestable market for non-household customers is developing in Scotland – and that was always an initia- tive of the nationalist government. "The Scottish Government has indicated its belief that a pan-utility regulator would be the best route, and none of the other parties seems to disagree. That's something that could happen irrespective of the result of the referendum. "In my view it would be wise to start afresh – rather than, say, rebranding WICS and giving it additional powers. There's a clear message from other countries that have established single utility regulators that it is better to start again, learning lessons from the regulation of water and from other utili- ties both in Scotland and elsewhere." The SNP wants to retain a single wholesale energy network, but working out who pays for what will be complex. The proposed pan-utility regulator in Scotland could benefit from the lessons learned in the Scottish water industry. " Mum's the word on transmission Market split could cost Scottish consumers

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