Utilities Futility

In the comments following “For Peat’s Sake” I expressed reservations regarding the planning process, and particularly the concept of “planning gain”, whereby in return for being granted a planning consent developers enter into a formal planning agreement in which they promise to provide benefits to the local community. In principle, this seems like one of those much-vaunted “win-win” situations. The developer obtains a valuable planning consent, and the local community enjoys net benefits at the end of the process.

The situation seems to me to be straightforward when the planning application is one where consent is obviously appropriate, with issues around the fringes, and the only real question being how much it is reasonable to expect the developer to provide to the community in return for the profits the developer stands to make.

It strikes me as being much more contentious when – as, for instance in the context of the Viking Wind Farm on Shetland – the application concerns a development of huge scale and significance, and is one which bitterly divides the community in question. In that case, although perfectly legal and proper under the current system, annual payments to the community from the developer going forward start to look suspiciously like a bribe in return for the planning consent. Asking whether the payment is big enough to compensate for the harm caused by the development is arguably asking the wrong question. The correct question, to my mind, is whether there is any place for such a system at all in a modern democracy. Given that in Shetland the local authority is in favour of – indeed is pushing – the concept of wind energy, there must be the perception (whether or not it is the reality) of a huge conflict of interest when the local authority also sits in judgment on the planning application (and negotiates the size of the “planning gain” payments too). As it happens, the Viking Wind Farm was granted planning consent by the Scottish Government. Had the Council objected it would have triggered a public inquiry, but by not doing so the Council in effect gave tacit approval. In addition, the Council (via the Busta estate) is the landowner of part of the wind farm site and will presumably receive payments from the developer for that. There have also been a number of supplementary planning applications concerning the wind farm that the Council has determined. It is strongly arguable that there is a real conflict of interest and there is certainly the appearance of conflict. This does not inspire confidence in the planning system in respect of grand projects of this type.

Speaking of asking the wrong question…

New Lords committee launches Call for Evidence on Ofgem and net zero

On 23rd June 2021 the House of Lords Industry and Regulators Committee announced the launch of its first inquiry, into the role of Ofgem, the UK’s energy market regulator. The link to the Committee’s call for evidence can be found here:

https://www.parliament.uk/business/lords/media-centre/house-of-lords-media-notices/2021/june-2021/new-lords-committee-launches-call-for-evidence-on-ofgem-and-net-zero/

Given that it is written into statute (albeit the latest “net zero” version was sneaked through by statutory instrument*, not Act of Parliament) I suppose it was too much to expect the Committee to consider the crucial question, namely the appropriateness of “net zero” in the context of the UK’s wider energy system and Ofgem’s supervisory role.

And indeed, the Committee is not interested in such a question – how could it be, given this statement?

Having initially focused on protecting the interests of consumers, Ofgem has increasingly been given responsibilities in relation to other areas, particularly the security of the UK’s energy supply and decarbonisation. In the Energy White Paper, the Government committed to including a requirement for Ofgem to carry out its regulatory functions in a manner consistent with securing the Government’s policy outcomes, including “delivering a net zero energy system while ensuring secure supplies at lowest cost for consumers”, in its proposed Strategy and Policy Statement for Ofgem.”

It seems that Ofgem’s priorities are being changed. The interests of consumers now seem to be of less importance than “delivering a net zero energy system”. In the course of this change, big questions are being asked, not least by the House of Lords Industry and Regulators Committee.

The Committee invites evidence on a number of issues including:

Ofgem’s role in the wider energy system

Ofgem’s statutory objectives, duties and powers

Ofgem’s relationship with Government and Parliament

The impact of Ofgem’s environmental objectives on the cost of energy, particularly for consumers

The security of the UK’s energy supply during the net zero transition

I would urge anyone interested and with sufficient knowledge of the subject-matter to offer their thoughts to the Committee, however much its deliberations may be a foregone conclusion. Guidance on how to make submissions can be found here:

https://committees.parliament.uk/call-for-evidence/512/ofgem-and-net-zero/

Ofgem – a Shetland Case Study

The Committee is seeking evidence on ten specific questions. It’s worth analysing these questions in turn against the recent Ofgem treatment of the application by SSE for approval of a subsea cable link from Shetland to the Scottish mainland. Not least since suspicions abound in Shetland that far from operating as an independent regulator supervising developments in an objective way, protecting the interests of everyone involved in, or affected by the Viking Wind Farm development in an even-handed manner, Ofgem has instead been working hand-in-glove with SSE. Perhaps, given its revised remit, it had little choice.

Here, then, are the Committee’s questions:

1. What role should Ofgem play in the transition to net zero? What changes, if any, should be made to its remit, responsibilities and resources?

Given the Shetland experience, Ofgem should play no role in the transition to net zero, since for it to take sides on that issue means it inevitably has to favour “renewables” developers over those putting forward other alternatives. The gas fired power station proposal for Shetland was a case in point, much less polluting than the existing set-up and cheaper, but it did not fit with Ofgem’s objectives. The gas alternative would have cost around £100 million, less than a tenth of the cost of Viking Wind Farm and the inter-connector.

2. How well does Ofgem balance environmental objectives against its responsibilities in relation to affordability for consumers?

What does the Committee mean by Ofgem’s “environmental objectives”? These days, environmentalism seems to have nothing to do with being custodians of Britain’s wild places, and everything to do with “net zero”. In the context of this Inquiry, I strongly suspect that the Committee isn’t remotely interested in whether Ofgem is offering sufficient protection for Shetland’s whimbrel, merlin and red throated diver population, or its peat, and is concerned only with how well it’s achieving the “net zero” obligation. The words “net zero” or “zero” appear four times in the list of questions, while only one question relates to “affordability for consumers” and only one to “security of supply” (see below).

3. How well does Ofgem fulfil its obligations to consumers? Does Ofgem take consumer views into account sufficiently, particularly those of vulnerable consumers?

The latest statics show 31 per cent of Shetland households are in fuel poverty with 22 per cent living in extreme fuel poverty. Approving very costly “green” energy schemes, requiring extensive grid upgrades, can only add to consumers’ bills.

4. What implications will the transition to net zero have for the security of the UK’s energy supply? How does Ofgem currently manage issues relating to security of supply?

Cable reliability has not been adequately researched by Ofgem. An inquiry into repeated failure of the Western Link has been ongoing for the last 18 months with nothing published to date.**

On 29th September 2020, a new 6MW engine was delivered to Lerwick Power Station. Within the transmission link consultation no mention was made as to how security of supply to Shetland was to be achieved. An upgrade of the existing Lerwick Power Station has recently been confirmed. At least this demonstrates a concern to ensure that lights stay on in Shetland, but how does this fit in with “net zero” and Viking Wind Farm? Nationally, last year’s outages, much discussed at CliScep and elsewhere, should cause eyebrows to be raised.

5. Is Ofgem’s current system of price controls appropriate? Does it provide sufficient incentives to invest in the context of the transition to net zero?

This is almost certainly too big an issue for this article, leading as it does in to, inter alia, the question of constraints payments. Viking Energy will almost certainly receive substantial sums from constraints payments in due course. Perhaps I’ll talk about this issue in a subsequent article.

6. Is the current system of governance for the UK energy market appropriate to secure the transition to zero? What improvements could be made and what role should Ofgem play?

I would submit that Ofgem’s role as regulator should be first and foremost to ensure security of supply and (a very close second) to look after the interests of consumers, particularly with regard to cost. It is self-evident (see below) that these vital tasks conflict fundamentally with the race to “net zero”.

7. Are Ofgem’s duties and powers appropriate and sufficiently clearly defined? Do Ofgem’s objectives conflict and, if so, how should any conflicts be managed?

Do Ofgem’s objectives conflict? Most certainly they do – “delivering a net zero energy system while ensuring secure supplies at lowest cost for consumers” is a triangle that can’t be squared!

8. Is Ofgem’s relationship to Government and Parliament appropriate? Are there issues related to the split of responsibilities, transparency or accountability?

So far as concerns transparency and responsibility, in March 2019 Ofgem issued a “minded to approve” statement about a transmission link to Shetland subject to Viking Energy making a winning bid in the upcoming Contracts for Difference (CfD) auction. However, as Viking Energy was unsuccessful in the auction, local residents expected plans for the Viking Windfarm to be put on hold. And yet, from summer 2019 it was apparent that SSE were progressing with their plans for the Viking Windfarm, which would be built only if a subsea cable to Shetland was available.

On 23rd April 2020, a statement from Ofgem gave conditional approval for the cable, subject to Ofgem being convinced that Viking Windfarm would proceed to construction. A consultation was announced about the cable approval but within the documents released, important cost benefit analysis figures were heavily redacted. Several Freedom of Information requests were submitted by local residents in connection with the redacted figures but these were not revealed until after the cable approval had been finalised, creating the suspicion in some minds that delaying tactics had been employed.

On 18th June 2020 the Consultation was closed. On 16th July 2020 Ofgem gave approval for the transmission link to/from Shetland, subject to confirmation of an investment decision by SSE regarding the Viking Windfarm. On 17th July 2020 the award of the contract to supply and install the transmission cable was announced. This led some local residents to conclude that this had been put in place well before the cable approval announcement by Ofgem.

On 30th July 2020, responses to the consultation were finally published and showed that a majority of responses had opposed the approval of the transmission link. Ofgem’s reasons for approval emphasised that Shetland should be provided with the facility to export power. On 3rd August 2020 further announcements about contracts for various parts of the Viking Wind Farm and cable works were made. Would these complex contract negotiations have been undertaken if there were serious doubts about the cable approval being forthcoming from Ofgem?

The timetable of events concerns local residents with regard to the issue of transparency, to the extent that Ofgem’s handling of this matter was the subject of formal complaints.

9. How does Ofgem compare to similar bodies internationally? What lessons can be drawn from the experience of other countries or jurisdictions?

Suggestion – don’t copy New York or California if you want to guarantee security of supply…

10. Are there any other aspects of Ofgem’s work that the Committee should consider?

The National HVDC Centre might be a good idea, given the road that politicians are sending us down, but Ofgem’s role in it does lead, yet again, to questions regarding conflicts of interest and the suitability of Ofgem being required to have a variety of conflicting roles:

An Ofgem funded state-of-the-art simulation and training facility established to support all HVDC schemes connecting to the GB grid.

The Centre works with Transmission Operators, System Operators, Offshore Transmission Operators, Interconnector projects and Manufacturers to de-risk projects and ensure the integrity and security of the grid network.

Was the funder of such a project ever likely to reject the application for an inter-connector between Shetland and the Scottish mainland?

Other worryingly cosy relationships exist, not just between Ofgem and developers, but between developers and the UK government. For instance:

SSE NAMED AS MAJOR PARTNER FOR COP26”***

SSE has today been confirmed as a major partner for COP26 as it gears up for a year of climate action ahead of the flagship summit in Glasgow, where world leaders will be seeking a more ambitious climate change agreement.

The business is among the first Principal Partners to the UK Government and will work with government and other stakeholders to support the delivery of a successful and impactful COP next November.

The news comes as SSE continues to deliver its £7.5bn investment programme, leading the way in developing the low-carbon assets and infrastructure required for the UK to reach its target of net zero emissions by 2050.

Today SSE has also confirmed ambitious plans, alongside fellow sponsors National Grid and Scottish Power, to develop a multi-billion pound underwater super-highway that will see the North Sea become the hidden power house of Europe, supporting the UK supply chain and delivering hundreds of green jobs throughout construction and operation.”

When power companies/developers are Government partners, and when Ofgem funds a centre for developing the projects desired by power companies and on which Ofgem sits in judgment, what confidence can consumers and locals have that the Government is interested in putting in place an objective and transparent system of oversight, and what confidence can local objectors to “renewables” schemes have that Ofgem will consider them impartially?

*The Climate Change Act 2008 (2050 Target Amendment) Order 2019

**https://scotlandagainstspin.org/2020/01/the-western-link-a-new-failure-highlights-the-overbuild-of-scottish-wind-and-raises-new-questions-renewable-energy-foundation/

***https://www.sse.com/news-and-views/2020/11/sse-named-as-major-partner-for-cop26/

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July 6, 2021 at 08:31AM

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