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"TRANSMISSION CHARGES
If the Secretary of State considers that the new trading and transmission arrangements would be likely to impact on one or more generators sufficiently to threaten all or part of their generating capacity, he may—
(a) defer the introduction of the new trading and transmission arrangements until they have been redrafted to remove the threat, or
(b) impose a maximum increase that would last for five years, such that no generator would face an increase in his transmission charge of more than 5 per KW or 100 per cent of the existing charge, whichever is the less."

The noble Lord said: It will be difficult for me to join in the mutual admiration that has been underway between my noble friends on our Front Bench and Ministers because I have tabled my amendments to help the Government get out of the difficult position in which they have put themselves.

I shall start by briefly reviewing the situation in Scotland. The electricity industry in Scotland was privatised in 1991, a year after the industry in England and Wales. There were significant differences between the two privatisations and there continue to be important variations between the arrangements for the electricity industry in Scotland and those for England and Wales. For example, the new electricity trading arrangements, known as NETA, introduced in England and Wales in 2001, do not currently apply in Scotland.

The Government are now introducing enabling powers for the Secretary of State for Trade and Industry to establish the British Electricity Trading and Transmission Arrangements, BETTA. These will create a single, unified electricity market across Great Britain. In brief, they will extend the trading arrangements in England and Wales to Scotland.

This will require the creation of a single operator responsible for a real balancing of supply and demand across the electricity transmission networks in Britain. A unified electricity market across Britain would in principle be beneficial to the market and both Scottish Power and Scottish and Southern Energy are generally supportive of the BETTA reforms. In particular, there is no reason why Scottish electricity generation, including the planned new renewable generation, should not thrive in the Great Britain market.

However, there are two key risks to the successful implementation of BETTA, either of which could have profound implications for Scottish generation in regard to the targets for growth in new renewables.

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First, Ofgem has proposed that as part of the reforms there should be a single pricing methodology for charging generators for access to the transmission system. The details of that methodology are vital to the economic viability of generators. The overall impact of current proposals would be severely to penalise Scottish generation.

Secondly, the treatment of the 132,000 volt—known as the 132 kV—network in Scotland is not in itself an issue. For historic reasons, the network in Scotland has been part of the transmission business, whereas in England and Wales the 132 kV network is owned by the distribution businesses. The point at issue is simple. The extension of the transmission rules in England and Wales to the Scottish network would severely distort competition. At present, there are three transmission companies in Great Britain: Scottish Power, Scottish and Southern Energy and the National Grid Company. As I explained, each has a different system for recovering costs of transmission. The National Grid Company has been given the role of designated operator of the unified GB transmission system and, in its own way, it is consulting on use of system charges.

It has circulated an indicative list of which I have been given a copy. It is a terrifying list for Scottish generators. Those England and Wales companies that currently pay to use the system will, without exception, pay less. All but two of those that are presently recompensed for using the system will receive more money. In sharp contrast, the Scottish Hydro charge will rise from 5.44 per kilowatt to 20.69—a 380 per cent increase; while that for Scottish Power will rise from 2.45 to 11.28—an increase of about 430 per cent.

Scottish Power estimates that the overall increases in southern Scotland will be in the region of 460 per cent and, in northern Scotland, 430 per cent. It is little wonder that those companies are extremely concerned about what is taking place. The nearest prices in the south will be 8.51 to Dinorwig Pump Storage—a decrease of 1.51—and North Eastern, at 8.03, a decrease of 1.14. Scottish and Southern Energy, to which the Scottish Hydro Board charge of 20.69 relates, calculates that it will cost it an extra 20 million a year and put at risk both the Peterhead power station and a number of large hydro-electric schemes.

Peterhead power station is reckoned to be one of the most efficient gas-fired power stations in Europe and will be crucial in coping with the closure of coal-fired stations and the intermittent nature of most sources of renewable energy. I am informed that under the proposals, it would pay 20 per cent of all the charges levied on generators throughout Great Britain. If the proposals are accepted, Peterhead power station may well have to close, which will put the Government's renewables policy at significant risk.

At this point, it may be helpful to state that the underlying logic behind the pricing proposals is to create a device that will encourage generators to locate at cheaper points on the network. My concern with that argument is that Peterhead is located in the north-east of Scotland, near Aberdeen, and is fairly isolated.

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It may be typical of the sort of place that will act as a landfall for offshore-generated electricity, land-based wind farms and a variety of other renewable energy ventures. A five-year moratorium on increased transmission charges would enable an adjustment to the thinking behind some of the developments and, perhaps, to the logic behind the proposal.

I cannot emphasise too strongly the importance of the new clause. The implication of not accepting it or, at least, of not producing some provision—I realise that there may be drafting problems—that achieves the same result as the new clause, are far reaching in both political and social terms. Until now, the Committee has been relatively free of political arguments, but I warn the Government that one is about to emerge, because when the Bill leaves this place for the other House, there are seated there a great many Scottish Labour MPs who have recently been under considerable pressure and subject to much criticism for voting on English matters. I suspect that many of them will be hoping to grasp something that is purely Scottish that they can vote on with their heads high. I should be surprised if they did not take up this issue in a big way when the Bill arrives there. Only last night, I received a letter from British Energy. Its attitude towards our amendments is interesting. It thinks that they are too weak and that we should ask the Government to go much further. It states:


    "In particular, Scottish generators will be exposed to a disproportionate burden of GB generator use of system charges, picking up approximately 60% of the total of such charges when Scottish generation only accounts for 12% . . . Such acute step changes are neither appropriate nor desirable."

It makes a further interesting point: it states that proposals,


    "are not consistent with European legislation that requires network operator charges to be cost reflective and proportionate".

Those are serious charges and I hope that the Government will consider them carefully.

I am sorry to go on at some length, but I am speaking to four amendments. I have spoken to the principal amendment. The second amendment relates to renewable energy sources. On that subject, the main concentration of the Bill is on power generated from wind turbines. Some of those will be on land, but many will be placed offshore. The National Grid Company has made its charging proposals based on ease of access to transmission facilities. The areas in which generators receive a payment, as opposed to paying a charge, are all in the south or south-west of England. Under the proposals, certain northern areas in England will pay charges varying from 1.64 per kilowatt—compare that the figures I mentioned for Scottish generators—and 8.03 per kilowatt.

In rough terms, it appears that the further north one travels, the higher the penalty for generating electricity for the high voltage transmission system. When the wind is blowing, concentrations of wind power are capable—or so we are told—of generating a lot of power. The harder the wind is blowing, the faster the turbines will turn. In general terms, that will happen more in the north of the country than in the south and more at the coast than inland.

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Although I have reservations about the faith that the Government place in wind power, that form renewable energy should not be discriminated against. The NGC proposals appear to be stacked against wind power. I should like to hear the Minister's reaction to that.

I want to say a few words about the final amendment. I will have to admit defeat; I have lost the piece of paper, so I cannot say what I was going to about that amendment. Perhaps after the Minister replies and I come to wind up I can deliver my oration then. I beg to move.

The Duke of Montrose: Although I may be in danger of giving the appearance that there is a Scottish Mafia at work, I support my noble friend's amendments in regard to the charges for and costs of transmission. We have talked to various power companies and we have heard of the complicated sums involved. I understand that, in addition to the transmission charges, other charges—known as demand charges—are added. Can the Minister tell the Committee when the demand charges are added to the transmission charges and how the total charges borne by generating companies in different parts of the country compare? It seems a strange and ironic system.

Admittedly the current policy is cost based—which always recommends itself to government—but given that we are told that about 90 per cent of power consumption occurs in England, with 60 per cent of it in the south-east corner of England, such a policy would make everyone situate their generating station somewhere in Essex. If the Government are looking to devolve industrial, generating and other facilities to different points around the country, that may mean that the policy will have to be considered on other than a strictly cost-based level.


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