Renewable energy developers on Scottish islands need longer-term certainty over support, says expert

Out-Law News | 30 Apr 2014 | 4:38 pm | 3 min. read

Renewable energy developers based on the Scottish islands need more certainty now about what support mechanisms will be in place after 2019, an expert has said following the publication of an independent report on grid links with mainland UK.

The report, which was commissioned jointly by the Scottish and UK governments and prepared by consultants Xero Energy, sets out a series of actions to encourage investment and help deliver the necessary connections between renewable projects on the Western Isles, Orkney and Shetland and the mainland. However renewable energy expert Nicholas Shenken of Pinsent Masons, the law firm behind Out-Law.com, said that developers needed commitments to action.

"Of course it is welcome to see further recognition that island developers need stability on grid costs and certainty over long term support, but the industry needs to know now how the issues are to be resolved, which, if any, of the report's suggestions can be implemented, and when," he said.

"The UK government's EMR delivery plan only runs until 2019, with no formal visibility on what the landscape for support will look like beyond this date. The huge potential of the Scottish islands as a source of renewable energy generation is not news, but the key will be how proposals are now taken forward to deliver that potential and deal with the hurdles presented by uncertainty around support mechanisms, TNUoS [transmission network use of system charges] levels and the required grid upgrades - and associated costs," he said.

The report was commissioned by the two governments in recognition of the challenges that renewable energy projects planned for the three Scottish island groups will face in relation to accessing support within the timeframe of the first Electricity Market Reform (EMR) delivery plan period. According to Scottish Energy Minister Fergus Ewing, the long lead-times and high cost of subsea connections to the mainland mean that these projects can take upwards of four years to achieve approval and build.

Although the UK government has provided for enhanced strike prices in relation to contracts for difference (CfDs) for island projects under the EMR delivery plan, Xero Energy said that the purpose of this measure "risks being undermined" without factoring in lengthy grid connection lead times and the governments committing to levels of support that would be available over a longer term period. Island projects also faced issues around expensive grid connection and charging that were not experienced by projects on the mainland, the report said.

The report considered the possibility of coordinating or aligning grid connections agreements between multiple developers as a way of keeping costs down, However, it noted that previous arrangements off the cost of Wales and in the Pentland Firth showed that while this was useful for getting necessary transmission upgrades off the ground, different development timetables and risk profiles led to issues later on. Other possibilities explored in the report included the use of government-backed loan guarantees, changes to the regulatory framework or innovative funding methods such as tax incremental financing (TIF) to take these upgrades forward.

Different locations within the three island groups have the potential to produce different types of renewable energy, according to the report. It cited Orkney's growing reputation as a European hub for wave and tidal developers, the Viking Energy offshore wind project in Shetland and the need for policy certainty in order to take forward plans for transmission reinforcement for the Western Isles as the biggest issues for each location.

The report also backed the work of the inter-governmental Scottish Islands Renewables Group, and the role played by it in overseeing co-ordination and delivery of support provisions. This group brings together the UK government's Department of Energy and Climate Change (DECC); the Scottish Government; Highlands and Islands Enterprise; the island councils of Orkney, Shetland and Eilean Siar; National Grid in its role as national system operator; Scottish Hydro Electric Transmission Ltd as local transmission operator; and market regulator Ofgem in an observer role.

Scottish Energy Minister Fergus Ewing said that both governments recognised the "huge" renewable energy potential of the Scottish islands, which "could make a substantial contribution to both governments' 2020 renewable energy targets and longer-term climate change ambitions".

"Our collaborative approach is based on this shared understanding, and through the work of the inter-governmental Scottish Islands Renewables Group, we will continue to build momentum towards delivery of these vital connections," he said.