Deputy First Minister, Kate Forbes, said that she was “astonished” that the charges had not been reformed prior to the round.

Why Scotland’s offshore wind projects keep missing out on UK contracts

(Image: PA)

These charges, developed in a pre-renewables era of energy generation are called transmission network use of system (TNUoS) charges. They mean that Scottish projects, especially those further north in Scotland, are charged to transmit, while those in the south of England are paid to do so, depending on how far they are from the location of demand.

Scotland saw two big winners of offshore wind contracts in the UK Government’s latest Contracts for Difference (CfD) allocation round: Berwick Bank, set to be the world’s largest offshore windfarm on completion, and Pentland floating wind. But no sign of any ScotWind project, all of which are much further north than Berwick Bank.

Responding to the results of Allocation Round 7 (AR7), Scottish energy experts and business leaders called for the “removal of the barriers” that risk holding projects back. These include “time spent moving through planning and high transmission charges”.

Currently only one ScotWind project is considered sufficiently progressed to be eligible for the Contracts for Difference allocation round: the West of Orkney windfarm, the only ScotWind windfarm with planning consent.

Whether West of Orkney applied to the round is unknown – but, based as it is in the far north of Scotland, it would be required to pay among the highest transmission charges.

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Responding to the allocation round, Kate Forbes said: “There was a concern that Scottish projects would essentially self exclude because of the competitive disadvantage of transmission charging.

“I think we have seen proof that that has taken place because we know that transmission charging needs to be reformed. The UK Government has accepted it needs to be reformed. But actually, because it hasn’t been reformed in advance of AR seven, there is a competitive disadvantage for Scottish projects.

“So I think it points to the fact we desperately need to see that reform of TNUoS and transmission charging so that Scottish projects are not at a competitive disadvantage when it comes to AR8.”

Kate Forbes (Image: Gordon Terris)

Forbes expressed concern at the impact on this on “momentum” in the clean energy transition in Scotland.

Those concerns were echoed by Russell Borthwick, Chief Executive at Aberdeen & Grampian Chamber of Commerce, who said: “The wait continues for these multi-billion-pound opportunities in our region to materialise, and, without action, there is a risk these projects will not come forward in future rounds.”

“We welcome support for projects such as Berwick Bank and any progress on floating offshore wind, which underline the scale of opportunity in the UK’s offshore energy industry.

“However, at a time when the North-east is grappling with thousands of job losses in the oil and gas sector, we continue to face major barriers that risk leaving our offshore wind pipeline stalled and investment on hold.

“Four years on from awards, not one ScotWind project has received a Contract for Difference, meaning the wait continues for these multi-billion-pound opportunities in our region to materialise and, without action, there is a risk these projects will not come forward in future rounds. Lengthy planning times and escalating and uncertain transmission charges are key barriers to delivery.

“These structural challenges must be addressed urgently so future allocation rounds can ensure Scottish projects can compete and succeed at scale – starting with the AR8 round expected to open later this year.”

Maggie McGinlay, Chief Executive of ETZ Ltd, an economic development agency dedicated to accelerating North East Scotland’s energy transition, also voiced concern.

“The North and North East of Scotland,” she said, “are well placed to deliver offshore wind and sit close to the majority of ScotWind and INTOG projects, representing billions of pounds of potential investment.

“Support for a further 8.4GW of offshore wind across the UK – including part of Berwick Bank and Pentland, a small floating offshore wind project – is welcome. However, nearly four years on from the ScotWind awards, the focus must now be on removing the barriers that risk holding further projects back so they can compete in the next allocation round.

“Time spent moving through planning and high transmission charges continue to slow the progress of Scottish projects, including those opportunities off the North and North East coast.

“If AR8 is to succeed, projects must be able to move from seabed leasing into delivery with viable routes to market. Addressing transmission charging and ensuring Scottish developments can compete in future Contracts for Difference rounds will be critical.”

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,.

Of the 12 projects that secured contracts in this round, only two were in Scotland. The 1.4GW phase B of Berwick Bank Wind Farm, is the first fixed offshore wind farm in Scotland to be procured by the CfD scheme since 2022. Meanwhile, the Pentland Floating Offshore Wind Farm floating, is a test and demonstration project.

SSE secures 1.4GW CfD for Berwick Bank Wind Farm

Berwick Bank is also a project which is at the southerly end of Scotland’s developments, and further south than any ScotWind project. As such, it is set to have much lower TNUoS charges.

According to NESO’s ‘Five-year view’ of TNUoS, published last year, the difference, in the coming years, between projects further south, and those in the north, is only set to grow.

This is also, said Andrew MacNish Porter, head of economics and markets at Scottish Renewables, a particularly acute issue for projects in northern Scotland.

“The difference,” he explained, “in charges between the north of Scotland and the south of Scotland is greater than the difference in charges between the south of Scotland and the south of England.”

He added: “Whilst we’re very pleased to see Berwick Bank come forward, the fact that it was the most southerly of the Scottish projects eligible for AR7 and significantly further south than the majority of the ScotWind pipeline means it will be subject to considerably lower charges than Scottish projects looking to compete in future allocation rounds.”

The process of change by the UK Government is already underway through a long term process called Reform National Pricing, but that timeframe is too long for many of the projects in development now.

Claire Mack, Chief Executive of Scottish Renewables, said: “It is worth noting that Berwick Bank is the only fixed bottom project to be awarded a CfD and it connects into a significantly lower cost transmission zone in the South of Scotland compared to other eligible projects which missed out that would have connected into those much higher prices zones in the North.

She expressed concern that there remain barriers to the development of offshore wind in Scotland. “To build on the success of AR7 and to ensure our world-leading pipeline of offshore wind developments are ready to move forward through AR8, we urge the UK Government to work with industry to urgently find solutions to the prohibitive grid charging regime to allow all Scottish projects to compete fairly in future CfD allocation rounds.”