How the SNP’s green policies sealed Longannet’s fate

How the SNP’s green policies sealed Longannet’s fate

by James Corbett
article from Sunday 29, March, 2015

THE SECOND least surprising piece of news this week broke on Tuesday, when Scottish Power announced that it was very likely that Longannet Power Station in Fife would have to close next year. The decision came following the announcement that Scottish Power had failed to win a contract from National Grid to supply voltage control, a contract that would have provided additional income to keep the plant going until the previously anticipated closure date of 2020. Instead, that contract was won by the gas burning station at Peterhead, operated by Scottish and Southern Energy.

The least surprising news of the week came in the reaction from the Scottish Government, who tried to blame the closure of the Longannet entirely on UK energy policy.

In a brazen-necked performance in the Scottish Parliament, SNP Energy Minister Fergus Ewing (pictured) told us that the closure was principally due to National Grid’s transmission charging regime, which penalised Scottish producers. The best that can be said about the SNP’s response is that it is only partially true. We always knew that Longannet was going to close by 2020, because of the difficulties of any coal-burning station meeting EU emissions directives, and because of the introduction of carbon pricing. Both of these policies are enthusiastically supported by a SNP Government which has committed us to the most ambitious climate change targets in Europe.

Longannet is undoubtedly disadvantaged by the transmission charging regime operated by National Grid, but this in itself is not the reason for closure. Indeed, the Peterhead station, being further north, pays higher charges than Longannet, but there is no proposal from SSE to close it.

So why do Scottish electricity producers have higher transmission charges than those in the south of Britain? It is important to understand the whole basis for the locational charging scheme operated by National Grid, which has just been through a significant review by Ofgem known as “Project Transmit”.

In scientific terms, locational charging undoubtedly makes sense. It is sensible to locate sources of power generation as close as possible to where electricity is consumed. Transmitting electricity is expensive and inefficient, with higher losses the greater the distance. Therefore, there is a strong argument for devising a transmission charging system which incentivises the generation of power closer to the point of consumption, rather than further away, which is exactly what the current system does.

In response to concerns from Scottish producers and others, the Project Transmit process was commenced in 2010, and completed in 2015. The outcome was to reduce the transmission charges which Scottish producers would otherwise be paying. Unfortunately due to the outcome being challenged by judicial review, we have not yet seen these changes come into operation, but when they do there will be benefits for Scottish producers.

In Parliament on Wednesday, Fergus Ewing argued that because Longannet was close to the central belt of Scotland it was being unfairly hit by the locational charging regime. However this is to misunderstand the whole basis on which the system operates.

The charging regime is designed to disincentivise the overprovision of electricity generation in areas where there is insufficient local demand. We currently have in Scotland, according to National Grid, some 11GW of generating capacity. But peak demand is only 5.4GW. The transmission charging system therefore sends out a market signal to discourage further generation, with high transmission charges.

So if Longannet closes, what we will see is a reduction in the charges payable by other operators. According to National Grid, in 2016/17 a small gas-fired power station would pay £12.90 per kW of additional generation were it to be built in Stirlingshire or Fife, where Longannet is located, or £15.63/kW if built in East Aberdeenshire, where Peterhead is. However, if both Peterhead and Longannet were to close before 2016/17, then the tariffs would reduce. In that case, a gas-fired power station would pay only £0.19 p/kW in Stirlingshire and Fife, and would be paid (rather than pay) £5.44 p/kW in East Aberdeenshire. So it is perfectly clear that the amount of capacity on the grid is a crucial fact in determining transmission charging.

And it is here that the essential failure at the heart of SNP energy policy is laid bare. For what the SNP has done in government over the past eight years is consent to the thousands of wind turbines that we see springing up across the country. And the more capacity we see brought on the grid, the more the transmission charging mechanism acts against current conventional producers.

So despite Fergus Ewing’s protests, SNP energy policy in promoting wind power is actually contributing to the very transmission charges which he blames on Westminster.

Every time in the last eight years Fergus Ewing as Energy Minister agreed to grant consent to a new wind farm in Scotland, he was driving another nail into the coffin of Longannet. Either he was ignorant of this, in which case his competence as a Minister has to be questioned, or he was fully aware, in which case his current posturing against UK Government energy policy is utterly disgraceful.

Now there is certainly an argument for looking again at the whole locational charging regime. But it is important to remember that this very regime protects consumers against higher charges.

National Grid has calculated that a move towards a “postage stamp” or “socialised” system, where all generators would pay the same regardless of where they were located, would increase consumer bills by billions of pounds. The increases would be particularly acute in the North of Scotland, while consumers in London and the South East would end up paying less.

So in proposing a move towards a socialised system, let us be clear what the SNP are suggesting. They are suggesting a substantial transfer of wealth from electricity bill payers towards multi-national power companies. And let us not forget that, according to the most recent survey, we already have nearly 40% of Scottish households in fuel poverty.

The SNP’s approach to energy now appears to be to exacerbate fuel poverty in the North of Scotland, to benefit consumers in London and the South East of England, and to put more money into the pockets of large power companies. On any reading, that seems a very strange definition of social justice.

What this whole episode exposes, once again, is the utter failure of SNP energy policy. As academics have pointed out, they are anti-fracking, anti-nuclear, and obsessed with wind power. When Longannet closes we then face the loss of both Hunterston and Torness by 2023, collectively representing 55% of Scotland’s electricity generating capacity. There is nothing currently being brought forward in order to replace this.

Energy-rich Scotland will be left importing power from England in order to keep the lights on. What an indictment that will be of this SNP Government’s utter failure in the energy field.

 

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