Security of Scotland’s energy supplies: Holyrood MPs hear statements by EDF, Scottish Power, Centrica, OFGEM, Vattenfall and Calor Gas

Holyrood logoBy DARA BUTTERFIELD

More than 40 energy trade associations, suppliers, regulators and pressure groups have lobbied the Scottish Parliament over the security of Scotland’s energy supplies.

The responses so far have been wide ranging and have included much support for the Electricity Market Reform package and its associated contracts for difference.

The onshore wind industry has also received vocal support and there has been a general focus on increasing interconnectivity to further security of supply.

Centrica and Scottish Power have identified that the 100% target for renewable generation by 2020 will also mean that gas-fired stations will have to operate as ‘short-run’ stop-gap generators, with Scotland relying on electricity imports from England if there is not enough wind power to turn the turbines.

Meanwhile, Vattenfall – a Scandinavian utlity giant – makes the not unsurprising case for increased interconnector links between Scotland and Scandinavia and for greater use of hydro-power.

MPs on Holyrood’s Energy Committee today (3 Jun) resume their inquiry with evidence from, among others, Scottish & Southern Energy, Scottish Power, OFGEM Scotland, and National Grid.

Meanwhile, submissions already presented to MPs in Holyrood include the following summaries:

EDF Energy (which owns and operates the two Scottish nuclear power stations)

EDF Energy believes that the Electricity Market Reform (EMR) package, including the capacity market, provides the right framework to drive the transition to a decarbonised generation mix, whilst maintaining security of supply and minimising costs to consumers.

We believe it is important for investor confidence that the momentum of EMR is maintained with minimal changes in the key mechanisms.”

 

Scottish Power

Security of supply in Scotland is being increasingly supported by interconnection with England, especially at times of low wind output. In our opinion, the main priorities to underpin security of the energy system in Scotland are as follows:

  •  Maintaining a strong focus on infrastructure and interconnection investment;
  • Maintaining a strong focus on cost effective onshore wind as a key source of energy production
  • Promoting the future role of pumped storage and other sources of flexibility, especially in Scotland
  • Ensuring that the GB arrangements are sound and, in particular, that adequate capacity is being procured under the Capacity Mechanism.

As well as helping drive decarbonisation, cost effective onshore wind in Scotland can make a contribution to energy security by reducing the dependence on imported fuels. The continued deployment of increasingly low cost onshore wind in Scotland will however depend on the continued availability of Contracts for Difference (CfDs) under EMR.

In terms of non-renewable technologies, the current system of locational transmission charges places a material cost disadvantage to projects seeking to locate in Scotland.

Under current policies, it is therefore likely that the supply of electricity in Scotland will be largely decarbonised as soon as 2020. For now, it seems likely that the necessary backup for when the wind is not blowing will be provided through interconnection with the rest of the GB single market.

 

Vattenfall

Increasing interconnected wind power across the UK as coal plants come offline will deliver improved security of supply and minimise price rises for the consumer – a scenario where wind replaces end of life coal and nuclear, prices rise by 4% vs an 8% rise where gas replaces old plants.

The CfD framework, under EMR, is the principal tool – for the long term – to bring forward renewable generation. As well as encouraging more mature technologies like onshore, solar and offshore wind, the right development of the framework will support the development of ocean energy.

Key adjustments required to the framework for future auction rounds to ensure a continued pipeline of renewables to replace fossil fuels are:

  • Clarity around available budgets, auction timings beyond 2015 and post-2020 strike prices
  • Extension to period between CfD award and Milestone Delivery Date
  • Better signalling of available budget and impact of revisions to forward price curves
  • Clarity on DECC’s post 2020 vision for the CfD framework, in particular the timing of move to technology neutral auctions

Delivering increased interconnection to Europe, in particular to pumped storage hydro in the Nordic countries, is a significant opportunity to develop storage and flexibility at scale in the medium term as well as more effectively balancing European renewables and smoothing price spikes for the consumer.

As well as supporting DSR to come forward under future Capacity Market auctions, the Scottish Government should continue to support the development of storage projects to ensure they are commercially viable, particularly at scale, in the 2020s and support Scotland’s move to a reliable decarbonised electricity system.

 

OFGEM

Investment in transmission infrastructure contributes to security of supply in three main ways. It allows the connection of new generation to replace ageing or retired power stations and new sources of generation which increase the diversity of our power supply.

Investment in infrastructure also strengthens the capability of the system to securely transport electricity from where new generation is built to where demand is located. Extending the transmission system into new areas can also increase operational flexibility.

We have approved funding for more than £2.9 billion investment in the Scottish transmission system which is currently under construction.

 

Calor Gas

Calor has significant concerns regarding the technologies currently supported by the Scottish Government in order to decarbonise the electricity grid and reduce carbon emissions.

The Scottish Government’s target of sourcing 11% of heat demand from renewable sources by 2020, whilst laudable, will require a significant change in the way technology is used by households to provide heat.

Energy Saving Trust Scotland statistics show that Scotland currently generates 2.8% of heat demand from renewable sources, indicating that significant progress will need to be made before the end of the decade.

There are no major security of gas supply concerns and a low carbon plan which favoured gas could also give time to establish the renewable supply chain and develop and commercialise other technologies including CCS, district heating, micro-generation and large scale biomethane.

 

Centrica

We believe that to maintain UK electricity supplies we need an effective capacity market that procures sufficient volume in the coming years.

This should be a key priority across the UK. We also need to secure the future of the North Sea, to ensure long-term domestic supplies of UK gas for electricity and heating and to maintain the jobs and economic contribution of the sector.

The Capacity Market is the right mechanism to secure GB 2 electricity supplies, but it is critical that it procures sufficient volume and ensures investment in new power stations. National Grid relies on flexible gas capacity being available to back up renewables when they are not generating.

This means that there are gas-fired power stations that don’t run for much of the year, but are vital to keeping the lights on.

A consequence of the growth in intermittent renewables has been the creation of a loss-making environment for gas stations in the UK – evidenced by the number of plant closures and very little new investment in gas generation.

The Capacity Market should address this challenge as gas fired power stations are the right technology to transition us from a high to a low carbon world over the next 30 years.

Gas is a bridging fuel, producing half the emissions of coal, that will help the UK meet its carbon reduction targets.

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