Thursday, 30 April 2015

A dirty business at Longannet

A Scottish political issue, for which the responsibility lies at Westminster, is electricity network transmission charges. The present arrangements mean that suppliers pay to access the grid, and consumers face fairly uniform prices (across geographical areas) for their electricity. This made perfect sense in a world in which suppliers were indifferent about where they invested their capital (output for a given investment in a coal power station is independent of where the coal plant is). We now however live in a world in which yields on renewable infrastructure at some locations (e.g. windy Scotland) are vastly superior to the yields on the same infrastructure built at other locations. Do we now want to maintain this pricing structure? The polar opposite alternative is for suppliers to face the same grid access fees at each location, and for consumers to differentially pay for their electricity at a rate commensurate with their choice to locate either close to or far away from the fixed renewable resource. Given the current infrastructure, such a change in pricing would leave the average costs for the UK consumer unchanged, but the incentives for the purchasers of energy would be vastly different (which would of course change the infrastructure and hence the average costs after some time).

Differential consumer prices would, at the margin, provide an incentive for population movement from the congested South to the depopulated North. A larger effect is likely to be on industrial users of energy in capital intensive but low labour input facilities. Data centres, super-computers, server farms, aluminium smelters etc which do not currently get built anywhere because investment is preferentially going towards less efficient locations predicated upon patterns of existing demand, could be built specifically to consume the cheap energy produced in locations with great resources but which are far from current population centres.

Despite the relevance of this issue for Scottish voters in a Westminster election, it has not featured highly in the campaign. The SNP manifesto does say "transmission arrangements should work to support, rather than undermine, production of renewable energy in the most favourable locations", but the focus of this issue in the manifesto is to "press for a change to the transmission charging system that is penalising Scottish generators and threatening the future of Longannet power station". The closure of Longannet comes with job losses - so of course it's an emotive election issue.

But Longannet is a coal fired power station (one of Europe's biggest polluters), and by the argument above, it's appropriate for them to be cited on the basis of existing demand. So is the current pricing structure appropriate here, and hence the looming closure of the site? Stations like Longannet supply baseload power to balance out the peaks and troughs of renewable supply. It makes sense, from the point of view of minimising transmission losses, that the supply of baseload power in Scotland should equal the expected demand in Scotland less the expected renewable supply. If the closure of Longannet makes Scotland's supply of baseload electricity lower than the gap between its demand and expected renewable supply, then the current pricing structure is unreasonably discriminating against generators in Scotland. But if not, then a Scottish polity that has agreed to "ambitious commitments to carbon reduction" should be willing to let Longannet go, and focus purely upon gaining "transmission arrangements [that] work to support, rather than undermine, production of renewable energy in the most favourable locations".

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