SUSTAINABLE DEVELOPMENT COMMITTEE: 8 FEBRUARY 2011

RENEWABLE ENERGY UPDATE

Report by Director of Development

PURPOSE OF REPORT To update Members on the latest position with regard to Renewable Energy matters in and around the Outer Hebrides and to recommend a course of action in respect of Transmission Charging review and Crown Estate reform.

COMPETENCE 1.1 There are no legal, financial or other constraints to the recommendations being implemented.

SUMMARY 2.1 The report provides an update on Renewable Energy matters in and around the Outer Hebrides. The proposed 450MW Radial Connector between the Main Interconnected Transmission System (MITS) at Beauly and the Outer Hebrides is discussed and the impact which prohibitive Transmission Charges (current and forecast) are having on the Radial Connector project is outlined.

2.2 OFGEM’s Project TransmiT review of Transmission Charges is covered with a recommendation that the Comhairle continue to push for an equitable outcome for the Scottish islands from this process.

2.3 The potential of marine Renewable Energy around the Outer Hebrides is discussed and this leads into an account of the Comhairle’s efforts, along with other island Local Authorities, to progress reform of The Crown Estate for the benefit of island communities.

2.4 An update is provided on the Stornoway Wind Farm and Beinn Mhor Power projects, both critical to the delivery of the Outer Hebrides Radial Connector, and the report concludes with an overview of the current status of the ISLEPACT and ISLES projects.

RECOMMENDATIONS

3.1 It is recommended that the Comhairle agree to:

a) continue lobbying the UK Energy Minister, DECC and OFGEM with a view to achieving an equitable outcome from Project TransmiT insofar as the Scottish islands are concerned; and, b) continue lobbying UK Government Ministers with a view to achieving reform of The Crown Estate to ensure the retention of a more equitable share of Marine Estate revenues in island coastal communities.

Contact Officer John Cunningham, 01851 709397 Appendix 1 None Background Paper None BACKGROUND 4.1 Progress with the development of renewable energy in and around the Outer Hebrides continues to be constrained by lack of Grid connectivity and prohibitive Transmission Charges. Although 462MW of renewable generation is now operational, consented, in planning or in advanced development, there is no provision to export this electricity to Grid. 4.2 Comhairle nan Eilean Siar continues to vigorously lobby UK Ministers, OFGEM and DECC for parity of Transmission Charging which will, in turn, allow developers to underwrite the cost of the proposed 450MW Radial Connector and extend the Grid to the islands. 4.3 Notwithstanding short term connectivity issues, the marine renewable energy sector is beginning to move with 50MW of seabed leases issued by The Crown Estate in recent months. This should allow the deployment of demonstrator units by 2014, building up to full scale commercial deployment by the end of this decade.

POTENTIAL GENERATION CAPACITY 5.1 A total of 462.2MW of renewable electricity generation is now operational, consented, in planning or in advanced development in the islands: • Arnish Moor Windfarm 3.9MW (operational) • Pentland Road Windfarm 15MW (consented and in procurement) • Beinn Mhor Power 140MW (consented) • Stornoway Windfarm 150MW (in advanced planning) • Pairc Windfarm 78MW (in planning) • Seven Community Schemes 21.3MW (mostly consented) • Siadar Wave Energy Project 4MW (consented) • Marine Leases 50MW (in development) 5.2 This represents a total of 462.2MW, more than the 450MW capacity proposed for the initial Radial Connector which should be installed and energised by October 2015. Scottish Hydro Electric [Transmission] Limited (SHETL) have sought consent from OFGEM for the installation of a second, parallel 450MW cable over the land section between Beauly and Little Loch Broom to obviate re-excavation of a highly designated land environment. With the straightforward addition of a submarine section at a future date, this effectively doubles the potential capacity of connection to the Outer Hebrides. However, it should be noted that this second cable will represent a convenient connection point for future onshore schemes in the North of or offshore schemes in the North Minch. One offshore windfarm of 100 turbines can now account for 600MW of electricity transmission.

INTERCONNECTION 6.1 As stated above, SHETL, as Transmission Owner for the North of Scotland propose to instal a 450MW (upgreadeable to 900MW) Radial Connector between the Main Interconnected Transmission System (MITS) at Beauly and Gravir on the east coast of Lewis with a subsea spur to Arnish Point, Stornoway. Since this Radial Connector is classified as non-MITS ‘Local Works’, the private developers who propose to use it are required to underwrite its £400m cost in full. 6.2 While Transmission Charges remain at their current, prohibitive level (see section 7 below), the viability of island projects is threatened and local developers are reluctant to confirm underwriting. It has been estimated that, under the current Transmission Network Use of System (TNUoS) regime, a 150MW windfarm in Lewis would be charged a £15m per annum levy for export to Grid of its electricity. This compares to a £4m levy for the same windfarm in Skye and a ‘negative charge’, or subsidy, for generators in the South East of England. 6.3 Providing local developers confirm underwriting by the summer of 2012, SHETL will proceed with procurement of the cable(s) and, allowing three summers for build, the new Radial Connector will be commissioned in October 2015. If underwriting fails for any reason, the islands face the real prospect of no Radial Connector, no commercial renewable energy development and a greatly reduced socioeconomic impact. 6.4 The Comhairle continues to work with the major developers and National Grid to ensure that the conditions exist for delivery of the Radial Connector. One small victory in this respect was the agreement in principle of National Grid to review their underwriting formula to reduce the initial liability of island developers by a factor of ten. While this is helpful, developers will still decline to underwrite while excessive Transmission Charges threaten the long term viability of their schemes.

TRANSMISSION CHARGES 7.1 Largely due to pressure from the Scottish Islands, OFGEM agreed to review the entire system of Transmission Charges during 2011. The current system is cost reflective and ostensibly reflects the capital cost of providing Grid infrastructure in different areas of the country. However, with a Transmission Charge almost four times that of the North of Scotland mainland, the islands are effectively disadvantaged and the Comhairle has relentlessly lobbied for parity of treatment in respect of these charges. 7.2 Project TransmiT, OFGEM’s review of Transmission Charges, is moving slowly to a conclusion but, despite extensive lobbying at all levels, there is little to suggest that the island situation will improve. Through Project TransmiT modelling, the mainland North of Scotland charge has dropped by 60% but the Outer Hebrides charge has dropped by only 20%, opening the differential between the two areas from a factor of four to a factor of seven. Comhairle representatives have, nevertheless, received assurances from UK Energy Minister, Charles Hendry MP, that the island situation will be resolved and, on 13 January 2012, Comhairle representatives contributed to an influential discussion session on island Transmission Charging convened by the Scottish Energy Minister. Officers will now liaise with colleagues in the , Highlands & Islands Enterprise, Shetland Islands Council and Orkney Islands Council to develop a solution for the islands for presentation to OFGEM, probably based around a ‘network sharing discount’ for intermittent generators. A less satisfactory fallback might be intervention by the UK Secretary of State for Energy & Climate Change who is empowered under Section 185 of the Energy Act 2004 to ‘adjust’ Transmission Charges in areas where they are demonstrably blocking renewable energy development. 7.3 Given the growing political pressure for a solution, officers are reasonably confident that Transmission Charges for the islands will reduce, enabling local developers to underwrite the cost of the Radial Connector. MARINE RENEWABLE ENERGY 8.1 During 2010, undertook an extensive Regional Locational Guidance (RLG) exercise in order to identify optimum deployment areas for the Scottish Government’s £10m Saltire Prize programme. The Saltire Prize will go to the first team to continuously generate - over a two year period ending in 2017 - the highest level of electricity, over a minimum hurdle of 100GW/hr, from the power of the sea. Marine Scotland’s RLG mapped the area around Scotland’s coast using multiple layers to reflect wave resource, tide resource, environmental constraints, defence safeguarding, commercial shipping, leisure activity, aviation / weather radar, fishing, wrecks, cable routes and so on. The result of this mapping was the identification of two areas as preferred sites for Saltire Prize deployments – West of Hebrides and West of Shetland. This designation has accelerated the level of interest in the Atlantic resource west of Lewis with several global companies now scoping in the region. 8.2 The Crown Estate, who are partners in the Saltire Prize programme, have since granted seabed leases to (40MW) off the northwest of Lewis and to Pelamis (10MW) off the mouth of Loch Roag. Aquamarine’s ‘Oyster’ device acts like a massive hinged flap, anchored to the seabed and driven backwards and forwards by the waves, which pumps water ashore under pressure to drive a land based hydro turbine. Pelamis’s Wave Energy Converter resembles a long ‘snake’ of tubular sections which move around hinged couplings as the tubular sections rise and fall in the waves. The kinetic energy within these couplings generates electricity which is cabled ashore to Grid. 8.3 Importantly for the Outer Hebrides, Arnish Yard has fabricated large subsections of both these structures in the past and is poised to secure significant fabrication contracts once the structures are procured. Both Aquamarine and Pelamis expect to be in the water with demonstrator units by 2014, ramping up to full commercial generation by the end of the decade. The level of community benefit from these deployments is entirely dependent on the ownership model for the sea bed and this has led to several calls for review of Crown Estate administration of lease revenues from their Marine Estate (see section 9 below). 8.4 Some work requires to be done to assess harbours around the Outer Hebrides for suitability in terms of support for marine Renewable Energy deployments. Officers are currently working with colleagues in Highlands & Islands Enterprise to progress this work.

CROWN ESTATE REFORM 9.1 The activities of The Crown Estate are pivotal to the future prospects of a marine renewable energy industry West of Hebrides. With the best wave resource in Europe, the Outer Hebrides stand to benefit disproportionately from the marine energy revolution which will sweep the world in the second half of this decade. Marine deployments in the Atlantic, West of Hebrides, will drive fabrication jobs at Arnish Yard, research jobs at Lews Castle College UHI and opportunities throughout the wider supply chain. For the first time, the location of choice for a transformational new industry is coinciding with some of the most fragile island economies in the UK and the Comhairle is determined that the local benefit from this opportunity is maximised. 9.2 The current configuration of The Crown Estate means that all lease revenues from these developments bypass the islands en route to the UK Treasury. The Chief Secretary to the Treasury has recently offered to establish a Communities Fund where 50% of these revenues become available to Scottish communities through a grant regime administered by Big Lottery. While the Comhairle welcomes this development as a first step, it strongly contends that 100% of lease revenues should go directly to the affected host communities, to be administered by a locally elected community trust. Administration of the Treasury’s Communities Fund by Big Lottery dislocates benefit from development impact and removes resourced decision making from the communities suffering the disbenefit of marine energy deployments. 9.3 The Leader of the Comhairle has recently given evidence to the Scottish Affairs Committee who are currently conducting an inquiry into the administration of The Crown Estate in Scotland. The Leader, Chief Executive and Director of Development have also been very active in leading a collaborative Highlands & Islands approach to Crown Estate reform. If successful, this approach could see revenues from local deployments split between the host community and a wider Highlands & Islands Regional Challenge Fund while the bulk of revenues from strategic, national interest developments remain in the Highlands & Islands region. This proposal, largely as framed by the Comhairle, has now been presented to the Scottish Affairs Committee in the name of all the islands’ Councils. The parties to the proposal are hopeful that the Committee will recommend to Parliament that a significant proportion of lease revenues from local deployments be retained in the host community and that lease revenues from strategic, national developments in island waters be shared between a national Coastal Fund which can resource, for example, technology development, Emergency Towing Vessels etc and a Regional Challenge Fund benefitting the Highlands & Islands.

STORNOWAY WIND FARM 10.1 In June 2010, Stornoway Windfarm, a partnership between AMEC, EDF and Stornoway Trust, submitted an application for consent under Section 36 of the Electricity Act 1989 to the Scottish Government. The application was for a 152MW, 42 turbine scheme sited exclusively on Stornoway Trust land to the South and West of Stornoway. As a Statutory Consultee, the Comhairle was consulted on this application. 10.2 As the application progressed, it became clear that there were some outstanding issues in respect of aviation and defence radar. A series of meetings have taken place between the developer, Highlands & Islands Airports, Civil Aviation Authority and the Ministry of Defence and it now seems that these issues can be resolved to the satisfaction of key aviation and defence interests. 10.3 Scottish Natural Heritage (SNH) was fully involved in the Scottish Government Study which identified the constraint free development area and has been party to intensive liaison with the developer throughout the process. SNH has now, however, identified a number of potentially negative impacts on Golden Eagles around the Wind Farm site and dialogue is presently ongoing between the developer and SNH in an effort to resolve these issues. It is anticipated that an Addendum (additional information) setting out an agreed solution to these issues will come forward to the Comhairle soon, allowing the Comhairle to take a view as Statutory Consultee on the proposal. 10.5 Community Fund, lease and compensatory payments in the region of £1.6 million per annum, index linked to 2010, will flow into the island economy from this project assuming the base model of ownership. If, as is now likely, the local community, led by Stornoway Trust, mobilise to acquire the offered 20% share of generation, this income could rise exponentially and offer unprecedented opportunities for the retail of renewable electricity to meet local demand and to satisfy the growing UK market for ethically sourced electricity. BEINN MHOR POWER 11.1 Recent press reporting has confirmed that the sale of the 140MW Beinn Mhor Power scheme to International Power Limited is in its final stages. International Power Limited grew out of National Power in 2000 and took over GDF Suez in 2010. The enlarged Group now has a portfolio of 66GW of generation in operation and 22GW in construction making it a major global player. 11.2 Officers have been in constant contact with representatives of both Beinn Mhor Power and International Power Limited throughout this process, principally to ensure that the Community Benefit package originally agreed with Beinn Mhor Power transfers intact. This objective has now been achieved.

ISLEPACT 12.1 Comhairle nan Eilean Siar currently coordinates the pan European ISLEPACT project which seeks to reduce carbon emissions in 12 island groups by 20% by 2020. The project is important in terms of the Comhairle’s reputation as a leader on island climate change matters within the European Union and in terms of the benefit it can bring to the Outer Hebrides in the form of significant external funding to deliver the Bankable Projects identified through the ISLEPACT process. 12.2 The ISLEPACT project comprises eight Work Packages and the priority for most of the current year has been around Work Package 3 – Island Sustainable Energy Action Plans (ISEAP). Under this Work Package, project partners were required to compile a baseline scenario for current energy consumption before proceeding to develop a detailed Action Plan. Collation of baseline energy consumption for the Outer Hebrides is now complete and an Action Plan is in place. 12.3 The next stage of ISLEPACT consists of the preparation of a suite of Bankable Projects to drive the participating island groups towards the 20% by 2020 target. For the Outer Hebrides, the proposed Bankable Projects are: • an Outer Hebrides Energy Supply Company (ESCO) to facilitate Comhairle investment in local community Renewable Energy projects with the prospect of retailing electricity to the local market or further afield. (As part of its remit, the Energy Unit is already developing a brief to inform the establishment of a Hebridean ESCO); • a Low Carbon Scheme for Island Properties, aimed at delivering innovative energy efficiency solutions for ‘hard to treat’ properties such as the traditional Board of Agriculture croft house, thereby combating Fuel Poverty in the islands; and, • a Sustainable Transport Scheme exploring the use of alternative fuels such as Biofuels or Hydrogen in the road and marine sectors. Through the first half of 2012, these Bankable Projects will be worked up through a detailed feasibility process, ready for submission as a fully costed list of projects with their own funding profiles by the close of ISLEPACT phase 1 in July 2012. 12.4 The most recent ISLEPACT Project Meeting was held in Stornoway at the end of September 2011 when representatives from the Outer Hebrides, Samso, Gotland, the Azores, the Canaries, Madeira, the Balearics, Sardinia, Crete, Malta, Cyprus and the Aegean Islands came together to assess and discuss progress. Continued support of ISLEPACT by the European Commission beyond 2012 is important and, on 18 January 2012, it was confirmed that 383 Members of the European Parliament (six more than the minimum required) have signed a Written Declaration on ISLEPACT calling on the European Commission to mobilise financial resources to support ISLEPACT to its 2020 conclusion. THE ISLES PROJECT 13.1 Irish Scottish Links on Energy Study (ISLES) is a collaborative study between the Scottish Government, the Northern Ireland Executive and the Government of Ireland, funded by the EU’s Interreg IVA programme. It assesses the feasibility of creating an offshore interconnected transmission network and subsea electricity grid based on renewable energy generation around the west coast of Scotland and the Irish Sea. The final report of the ISLES project was released at a conference in on 23 November 2011. 13.2 The interconnection solution explored by the ISLES project is highly conceptual and, indeed, some of the technology required has not yet been invented. However, the ISLES report signals a direction of travel and a strategic view of interconnection that will benefit the Outer Hebrides in the long run. In particular, the project estimates a total generation capacity across the study zone of 16.4GW (including 12.1GW of offshore wind and 2.3GW of wave / tidal). It is estimated that, for the ‘Northern ISLES’ zone (the Hebrides, Argyll and Northern Ireland), interconnection capacity of 2.8GW can be put in place by 2020 using current High Voltage Direct Current (HVDC) and Voltage Source Conversion (VSC) technology. 13.3 Under the ISLES scenario, electricity will be transported through a backbone of interconnected 500MW HVDC hubs, likely to be located on dedicated offshore platforms. The indicative ISLES model (for 2020) shows a northernmost 500MW HVDC hub off Barra but this level of capacity is considered too conservative. In addition to the wave energy capacity anticipated West of Hebrides, account should be taken of offshore wind deployments which can produce 600MW in one installation. 13.4 The ISLES Feasibility Study and report will be a key input as the three participating governments seek to develop and refine their energy priorities based on wider European strategy. The Leader recently attended a Conference of Peripheral Maritime Regions (CPMR) meeting in Aberdeen where it was reported that the EU’s Multi-Annual Financial Agreement for 2014 to 2020 will include a €50 billion Connecting Europe Facility for Transport, Energy and ICT. Of this €50 billion, €9.1 billion will be allocated to a ‘Trans European Energy Infrastructure’ fund and the purpose of this fund will be to bring Renewable Energy to market with an 80% co- financing rate where projects contribute to the security of Europe’s energy supply. With a little imagination and a partnership between Scotland and Ireland, this fund could support the outcomes of the ISLES Study.

CONCLUSION 14.1 It is clear that the Outer Hebrides, in common with Shetland and Orkney, is at a critical juncture in terms of Renewable Energy development. The wave and wind resource around the Outer Hebrides is among the best in Europe but, due to the idiosyncracies of the outdated UK electricity network, it is very difficult to get that Renewable Energy product to market. The Scottish Energy Minister stated last week that it will not be possible for Scotland and the UK to achieve binding carbon reduction targets without the contribution of the Scottish islands and that a solution to the present Transmission Charge impasse “simply must be found”. 14.2 The Comhairle’s Energy Unit has been highly active in engaging with key policy makers to achieve an equitable Transmission Charge regime for the islands. This has involved work on European Community Directive 2009/29 which prohibits Transmission Charge discrimination against islands. An amendment will be submitted to the European Parliament shortly which calls for a clarification of Directive 2009/29 to outlaw island developers being disadvantaged by a Member State’s Transmission Charging regime compared to developers in urbanised areas. 14.3 Resolution of the Transmission Charge impasse will unlock developer underwriting for the proposed 450MW Radial Connector and this will, in turn, lead to over £1 billion of private investment in the fragile island economy. The Energy Unit is aware of the consequences of a failed Radial Connector project and is in daily contact with developers, regulators, Transmission Operators and Government to ensure that this transformational opportunity is not missed.