UK consumers to continue to subsidise cost of electricity for Shetland Isles householders

Electricity pylonsThe Govt. has confirmed that energy consumers from across the UK will continue to subsidise householders’ fuel bills in the Shetland Islands.

This has been announced by the Dept for Energy (DECC) after a consultation with Scottish energy companies, consumer groups, Shetland and other Islands councils, Citizens Advice Scotland, Smartest Energy, Outer Hebrides Co-operative Energy, the Shetland Fuel Poverty Action Group – and one member of the public.

The Hydro Benefit Replacement Scheme protects domestic and non-domestic consumers from the high costs of distributing electricity in the North of Scotland. In 2015-16, it provided assistance of £57 million to consumers in the North of Scotland, and in 2016- 17 this increases to £58 million.

This is worth around £41 per household per year.

The Common Tariff Obligation ensures electricity suppliers in the north of Scotland (such as Perth-based giant SSE) are not able to charge comparable domestic consumers different prices solely on the basis of their location within the area. This is designed to protect consumers in remote rural areas or islands from the relatively high costs of supplying electricity in these areas.

The Common Tariff Obligation also helps to underpin a cross-subsidy arrangement for most electricity consumers on Shetland, who would otherwise face significantly higher electricity prices than comparable consumers on the mainland.

The resulting costs – which amounted to £28.5m in 2014-15 – are currently spread across all consumers in the North of Scotland, but these are expected to increase from around the end of the decade onwards.

This is because Lerwick Power Station is nearing the end of its operational life, and there is a need to identify and deliver new arrangements to meet customers’ electricity needs on Shetland.

In light of this potential cost increase, the Government has confirmed that the full costs of the cross-subsidy for Shetland will be spread over Great Britain.

A majority of the consultation respondents favoured an increase in the assistance amount provided through the Hydro Benefit Replacement Scheme, on the basis that electricity distribution charges remain higher in the North of Scotland even with the assistance provided.

A DECC spokesman said: “The government remains committed to protecting consumers in the north of Scotland from the high costs of electricity distribution in the region, and will continue the support provided through the Hydro Benefit Replacement Scheme and the Common Tariff Obligation. .

“The Government also remains committed to the introduction of GB-wide funding for a Shetland cross-subsidy at the same time that Shetland’s new energy solution is implemented.

“This will be done through the Hydro Benefit Replacement Scheme, although it will only be possible to confirm full details once the outcome of Scottish Hydro Electric’s competitive tender for the new energy solution is clear.”

Pixie Energy

Pixie logo Pixie Energy is an incubator and a facilitator of strategic research and project work, focusing on energy regulation, policy and markets at the local and national level. Find out more about Pixie Energy here.

Local Energy Matters: Scotland

Local Energy Matters: Scotland is a free-to-download brochure with a focus on energy tariffs in the two Scottish electricity distribution regions, as well news on local energy and low-carbon schemes.

Previous editions can be download here.

Scottish energy market overview

You can read an overview of the Scottish energy market here.

Scottish Government energy feed