There are fears that plans to increase charges to remote generators could undermine renewable energy schemes in Scotland.
Lawyer Peter Willis argues that such a scheme could breach European legislation.
Electricity regulator Ofgem’s plans to make renewable generators in Scotland pay more for electricity transmission are likely to be against EU law.
Ofgem is proposing to adopt a change to the rules governing payments for transmitting electricity from where it is generated to where it is used.
A proportion of the electricity is lost in transmission – and this increases the further the energy is transported.
Currently generators and suppliers pay for these losses on a uniform basis.
However, Ofgem is proposing to change the rules so that charges reflect the distance over which electricity is transmitted.
Under these proposals, as it acknowledges itself, “charges for generators in northern England and Scotland would go up, and charges for southern generators would go down”.
This would have a disproportionate impact on renewable energy schemes in Scotland – which currently accounts for about 95% of the UK’s wind and hydro-electric generation capacity. Even in 2013, it will account for about 80%.
The reason is simply one of geography – Scotland’s natural resources of wind and water are better suited to renewable generation than those of most of the rest of the UK. Scotland would become less attractive for investment in renewables.
Ofgem may have reckoned without EU law, however. In 2001, the EU adopted directive 2001/77, in order “to promote an increase in the contribution of renewable electricity sources to electricity production”.
It requires national governments to ensure that transmission charges do not “discriminate against electricity from renewable energy sources, including in particular electricity from renewable energy sources produced in peripheral regions, such as island regions and regions of low population density”.
Ofgem claims that the new rules will encourage the development of renewable energy schemes in the rest of the UK.
Unfortunately Ofgem can’t dictate the geographic distribution of natural resources, and its proposals will inevitably hinder the development of renewable energy schemes in the places best suited to them.
Much of Scotland’s renewable energy comes from the island regions and regions of low population density mentioned in the EU directive.
The discrimination is clear. EU law takes precedence over national rules.
National governments and regulators must bring their rules into alignment with EU directives, and are not allowed to introduce new rules that conflict with directives.
There is clear scope for those affected to challenge Ofgem’s proposals as being contrary to EU law.
Essentially this could be through the special mechanism for challenging new Ofgem rules (where Ofgem incidentally lost the first such challenge a couple of weeks ago) or through the courts, or both.
The European Commission in Brussels is also likely to take a keen interest in any complaint about government obstruction of the development of renewable energy in an area that it regards as a showcase for Europe.
Scotland’s renewable energy may be rescued by the EU.
Peter Willis is head of EU and competition at law firm Dundas & Wilson.
27 July 2007
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