Utility Week

UTILITY WEEK | 1ST - 7TH AUGUST 2014 | 15 Scottish referendum transmission and distribution consumers more wind blows, Germany exports to France because the market price in France is higher than in Germany, despite the fact that given subsidies, wind generation costs more than French nuclear," the trader said. "That's the reason retail prices are about €325/MWh in Germany and about €180/ MWh in France," he added. So an independent Scottish market could saddle its consumers with higher payments to subsidise renewables, due to the smaller consumer base, while exporting at a lower price to major demand centres further south. As far as the wholesale market is con- cerned, Scotland might ˆ nd it really is 'better together'. JA W ithin Scotland's utility provision, the electricity sector is particularly vulnerable to major changes if the Scottish electorate votes for independence. In particular, investment in electricity gen- eration is expected to be adversely a‹ ected. In any event, current investment levels in the UK are worryingly low for several rea- sons – political uncertainty, low returns from gas plant, seemingly endless changes to the renewables subsidy regime and the weak- ness of many utility balance sheets. Indeed, not only has SSE put a virtual cap on major energy investment until a" er next May's general election, but it also argues that the forthcoming referendum "increases the risk of regulatory change and legislative change with regard to the electricity and gas industry in Scotland". Signiˆ cantly, the SNP has espoused renewable power generation and has set aggressive targets for output from such sources. However, with the possible excep- tion of onshore wind, major subsidies will be needed for the foreseeable future. Of course, they could be ˆ nanced by an independent Scotland, but this would almost certainly mean sharp price increases. Currently, Scotland receives almost 30 per cent of all consumer-funded renewable energy subsidies despite just one-tenth of UK households being located there. Hence, there are real concerns about the durability of renewable power subsidies LANDMARK CHANGES FORECAST FOR SCOTLAND'S POWER NETWORK Today 2030 Generation providing control Generation providing control (all transmission connected) (transmission and distribution connected) 10-15 600,000 Large generating units in frequency control mode If 10% of small units using waste, hydro and PV are assisting frequency control Distribution network automatic controls Distribution network automatic controls 10,000 devices 900,000 devices Automatic controls in homes Automatic controls in homes None 15 million In broad terms all demand is passive If half the smart meters link with energy management devices The expert commission's report sets out the ˆ rst steps the Scottish government would take. Number one: establish a national regu- latory authority, which would appoint a sys- tem operator. This could be National Grid, one of the networks or a newly created body. The system operator, whoever it might be, would quickly have to establish agreements with National Grid, in its role as system oper- ator for the rest of Great Britain, around "crit- ical interdependencies for supply, demand and grid services". Step two would be some tough decisions on transmission and distribution costs. Because Scotland has more rural areas than the rest of Great Britain, its network costs are signiˆ cantly higher. When transmission upgrades planned for this year have been completed, Scotland will account for 12 per cent of Great Britain's transmission capac- ity, but 21 per cent of its cost. These costs are currently spread across the union and are under review by Ofgem's Project Transmit. Scotland's distribution costs are also sub- sidised, through schemes such as the Hydro Beneˆ t Replacement Scheme and Common Tari‹ Obligation. If these subsidies were removed, Scottish customers' annual energy bills would rise by about £38 per household. The Scottish government acknowledges the scale of the task, but says "both positions can be expected to adjust in the negotiation that would follow a vote for independence". If the Scots vote "yes" on 18 September, what was once a matter for silence will become the subject of a whole lot of talking. EB under the Energy Act 2013 and the level per megawatt-hour that would be paid if Scot- land were to become independent. Nonetheless, Spain-based Iberdrola, owner of Scottish Power, seems relatively relaxed and has committed itself to an ambi- tious long-term investment programme in Scotland, seemingly irrespective of the refer- endum result. Inevitably, the trend in energy prices will be a key political issue in Scotland, espe- cially in view of the 18-month price freeze pledge made by Labour leader, Ed Miliband. While SSE has conˆ rmed that its utility prices will not rise until 2016 at the earliest, it will be heavily a‹ ected by the referendum result; a" er all, most of its proˆ ts are earned in Scotland. Furthermore, SSE's heavy investment in recent years in Scottish renewable genera- tion capacity means it is heavily exposed to any material changes in subsidy payments. Similar criteria apply to Scottish Power. The Centrica scenario is quite complex given the wide-ranging Competition and Markets Authority (CMA) inquiry, which seems to be focusing speciˆ cally on Centrica and its dominant share of the UK retail gas market. The CMA is expected to recommend some divestments by Centrica and the sale of its Scottish Gas operations is a possible outcome. Certainly, Scottish Power and SSE would be very interested if this came to pass. NH Renewable subsidies could be fi nanced by an independent Scotland, but this would almost certainly mean sharp price rises. Investment dries up as independence looms

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