UK electricity market to usher in new network charges

The UK electricity industry is gearing up for the introduction of a new system of charging generators and consumers access to the network, which will reduce costs for generators.

As of this Wednesday, 1 April, charges for using the network will be split based on a 23:77 ratio between generation and demand.

This will reduce the burden on generators, which were previously charged based on a split of 27:73.

But the change from the start of April is not expected to have a noticeable impact on the wholesale market, according to Tom Edwards, consultant at Cornwall Energy.

“It reduces the residual, which feeds through into the TNUoS (transmission network use of system charge). But many stations are taking a hit on the TNUoS so they run as much as possible anyway.”

Despite the introduction of the new charging methodology, generators further north will remain at a sizeable disadvantage to those in the south of the country.

Generators in north Scotland will continue to be penalised with a transmission tariff of £25/kW while those in central London and even west Devon and Cornwall will benefit by over £5/kW for exporting to the grid.

Acknowledging the current imperfections in the methodology, stakeholders have also been working on new proposals that would see the generation and demand split for charges weighted even further towards demand at a 15:85 split.

Another working group is expected to be held next month before the proposal is put out for consultation.

The proposed cost split would replicate the approach adopted by Project Transmit and also bring the UK into line with the rest of Europe.

In some EU countries, the cost of maintaining the electricity network is borne entirely by suppliers and consumers.

In addition to bringing costs in line with EU-wide generation, it is hoped that the proposal would improve the predictability of transmission charges for generators and reduce the likelihood of annual changes to the regime as currently happens.

Despite the improved price signal it would create for generators to operate, Edwards believes the impact would be slight at first.

“It won’t affect the marginal plant as many of the important marginal gas plant is in the south where the residual is already negative so they already want to run,” Edwards said.

Although the proposals are designed to increase operating hours of plant and prevent mothballing, the primary aim is that plants considering permanent closure will reconsider.

ScottishPower, the owner of Longannet, has previously stated that it is leaking money to tune of £40m each year to gain access to the transmission network for the coal-fired plant.

After months of wrangling over the cost of transmission, the plant could confirm its closure as early as the end of this month after failing to secure a supplemental contract for grid support services to the National Grid (see EDEM 23 March 2015).

And Edwards believes that neither proposal is radical enough to offer succour to Longannet.

“Any reduction is good for Longannet but it needs a more fundamental change in charges to level the playing field with competitors in the UK market, and in the European market where generators pay significantly less,” he said.

Last week at ScottishRenewables’ annual conference in Edinburgh, the Scottish National Party’s (SNP) spokesman for energy and member of the UK parliament (MP) Mike Weir told delegates that the party would tackle the issue of transmission charges at the earliest opportunity if it is represented in government.

Weir argued that the methodology for transmission charges does not take account of centres of population and that more weight needed to be assigned to the centres of population that exist outside of greater London and the southeast of England.

Murdo Fraser, a Conservative member for the Scottish Parliament (MSP), warned that any future conservative government is unlikely to shift far from its current position, arguing that equal transmission charges across the country would increase costs for the consumer. Henry Evans