Ofgem must urgently reform network charges or risk Britain’s energy transition, says industry body

A report published today (February 24) by Scottish Renewables, the industry body for renewable energy in Scotland, has called on Ofgem to take immediate action on network charges and secure Scotland’s vital role in delivering economic growth and clean power as a cornerstone of Britain’s new energy mix.

Scottish Renewables is urging Ofgem, the regulatory body for the UK’s energy industry, to protect investment and avoid unnecessary costs to consumers by bringing forward interim reforms whilst it undertakes a fundamental overhaul of the current Transmission Network Use of System (TNUoS) regime.

TNUoS charges, which cover the cost of building, operating and maintaining the UK’s electricity network, are volatile, unpredictable and outdated. The current rules were designed more than 30 years ago and do not align with the UK Government’s Clean Power 2030 Mission. Scottish renewable energy projects, which will help secure our future energy supply, are penalised by tens of millions of pounds every year under the current charging regime, deterring investment and undermining the value they could deliver to consumers.

Existing Scottish generators have faced £2.9 billion of unforeseen and unavoidable TNUoS charge increases since 2015. Without reform, TNUoS charges will continue to undermine the competitiveness of Scotland’s clean energy industry and have already prevented Scottish projects from securing investment via the UK Government’s Contracts for Difference (CfD) scheme, eliminating the jobs and supply chain boosts that they would have delivered.

Given the scale of these impacts, Scottish Renewables has written to Ofgem to request the rapid implementation of the following reforms ahead of a future-proofed charging regime being developed:

• For existing projects, provide an option to fix charges at a given level over the operational life of the asset, potentially using a central forecast that would have applied at the time of CfD bids or the equivalent commercial decision point for non-CfD projects.
• For new projects, allow developers to fix their TNUoS charge at the level current when they submit their bid in a CfD auction, rather than use unreliable long-term forecasts based on a flawed charging methodology.

Claire Mack, Chief Executive of Scottish Renewables, said:

“In a strategically planned energy system with assets supported by long-term fixed prices, the role of network charging urgently needs to be re-examined to ensure it aligns with future clean energy objectives.

“It has been clear for some time that the current transmission charging regime is not fit for purpose and we have now seen projects, job and supply chain opportunities lost as a direct result. The UK Government and Ofgem must now get on with the enduring reforms that will ensure network charges work effectively within a reformed electricity market to support decarbonisation of the UK’s energy system at best value to consumers.

“We recognise that developing and implementing a comprehensive reform to transmission charging will take time and must align with other, as yet undetermined, aspects of a strategically planned system. However, the UK Government’s 2029 deadline for delivering enduring TNUoS reform comes too late for operational projects which will soon become economically unviable. It also comes too late for new projects which need clarity on the TNUoS charges they will face over their operational lifetime before submitting bids in upcoming CfD allocation rounds.

“Our proposals have been developed closely with the sector and we are calling on Ofgem and the UK Government to urgently give clarity on how these will be delivered in time for Allocation Round 8.”

Simon Gill, of The Energy Landscape and author of the report, said:

"Transmission charges have long been a challenge for Scottish generators, but recent forecasts indicate that both the scale of these charges and the uncertainty they create are set to increase significantly. For example, charges for generators in the north of Scotland are projected to more than double between now and the end of the decade.

“Projects that are already operational, or close to investment decisions, cannot respond to these changes. Rather, they reduce project value, limit the ability to recycle capital, and increase financing risk at a time when substantial investment is required.

“More fundamentally, in an increasingly capital-intensive electricity system, the current locational approach to transmission charging risks delivering poor outcomes for consumers, as both risk premiums and locational charges are embedded in CfD prices.

“A comprehensive review of how the transmission network is funded is therefore needed. In the interim, fixing TNUoS charges for both existing and new generators would support investor confidence, drive better outcomes for consumers and support delivery of a more strategically planned energy system."

Ends

Notes to editors

• Read Transmission Charging in Scotland: Jeopardising Britain’s Energy Transition, a report prepared for Scottish Renewables.
• Read ‘The impact of unpredictable volatility in TNUoS charges on operational assets in Scotland: Technical Report’
• Transmission Network Use of System (TNUoS) charges recover the cost of installing and maintaining the transmission system in England, Wales, Scotland, and offshore.
• The UK Government’s CfD scheme is a financial agreement that supports low-carbon electricity generators by providing a guaranteed price determined through competitive auctions, shielding both projects and consumers from volatile market prices, and ensuring new renewable generation is delivered at best value to consumers.