Higher costs of transmission charges to current and future Scottish offshore wind projects could risk supply chain growth in the country, according to a report commissioned by the Scottish Offshore Wind Energy Council (SOWEC).
The research was carried out by independent consultancy ITPEnergised and uses the latest National Grid ESO forecasts for Transmission Network Use of System charges.
It finds that charges to connect to the transmission system in certain UK zones are set to double between 2016 and 2026.
SOWEC said that such findings will be most impactful in Scotland which already has the highest transmission charges in the GB network.
It added that this will present a challenge for Scottish projects to lower the cost of energy, compete for government subsidies and attract continued investment into the sector.
The report also highlights the difference in charges between the highest and lowest tariff zones which is projected to double from 2016/17 to 2026/27, increasing from £23 to £48 for every kW of capacity connected to the transmission network.
This will see annual charges for a notional 1GW project range from in excess of £33m in the northwest of Scotland to a ‘negative charge’ of £9m in southwest England in 2026/27.
Impact of charges on the cost of energy would also range from £7.43 per megawatt-hour to-£2.04 per megawatt-hour when presuming a constant load factor of 51%.
The maximum difference between potential ScotWind and Crown Estate Leasing Round 4 projects is £8.36/MWh, while the biggest cost differences would occur for projects connecting in the north of Scotland at transmission zone 1 which is the zone closest to the majority of ScotWind leasing zones.
SOWEC said that in comparison, successful offshore wind projects in the 2019 CfD Allocation Round secured strike prices of between £39.65 and £41.61 per megawatt-hour, meaning that transmission charges represent up to 20% of project bids in the worst-affected parts of Scotland.
SOWEC industry co-chair Brian McFarlane said: “On the eve of the results of ScotWind, we can see a once in a generation opportunity to build a Scottish supply chain to support the rapid offshore wind growth it will stimulate.
“Industry is working hard to invest in Scottish suppliers, ports and communities.
“However, rising transmission costs mean that the offshore wind industry in Scotland faces an uphill struggle to remain competitive with the rest of the UK to allow these significant benefits to be realised.”
Guy Madgwick, chief executive of Red Rock Power and SOWEC developer group chair said: “The report shows clearly that Scottish offshore wind projects are not competing on a level playing field when bidding for Contracts for Difference.
“The level of charges is now threatening to constrain investment in Scottish offshore wind, which will in turn impact on progress to Scotland’s and the UK’s net zero targets.
“Ofgem is currently looking at options to reform transmission charges and we would urge the regulator to recognise the damage done by the current system and to significantly reduce the difference in costs between northern and southern parts of Great Britain.”