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REPORT TO: ECONOMIC DEVELOPMENT AND INFRASTRUCTURE SERVICES COMMITTEE ON 28th JUNE 2011

SUBJECT: FUTURE OF ELECTRICITY TRANSMISSION IN THE NORTH OF SCOTLAND- CONSULTATION WHITE PAPER

BY: HEAD OF DEVELOPMENT SERVICES

1. REASON FOR REPORT

1.1 Scottish and Southern Energy has published a consultation paper on “Keeping the lights on and supporting growth”, setting out their plans for the next decade. This report summarises their plans and advises members which proposals affect Moray.

1.2 This report is submitted to Committee in terms of Section G(3) of the Council's Administrative Scheme relating to industrial and commercial development.

2. RECOMMENDATION

2.1 It is recommended that the Committee notes the content of the Scottish and Southern Energy White Paper.

2.2 To homologate the qualified support that has been indicated on behalf of the Council to the proposals.

3. BACKGROUND

3.1 Transmission Ltd (SHETL) is the licensed electricity transmission owner in the North of Scotland. SHETL owns the 5,000km of high voltage electricity network of underground cables and lines serving 70% of Scotland’s land mass.

3.2 As a monopoly, businesses like SHETL are registered by the Gas and Electricity Markets Authority (OFGEM) who are price controlled. Amongst other things this determines the amount of revenue they are able to earn from network users and the framework for the capital investment they are able to spend in maintaining and upgrading networks.

3.3 SHETL is currently undertaking a consultation on the price control that will apply from April 2013 and developing a business case that will be presented to OFGEM to fund projects from 2013 to 2021. The business case includes proposals to invest in and maintain the existing network and to invest in new assets to accommodate growth in demand. The White paper, published on 3rd June follows on from several previous stages of consultation. The consultation period ends on 20th June. Given the timeframe for responding to the consultation, a reply has been sent on behalf of the Council providing qualified support for the proposals( Appendix 1). The committee is requested to homologate that support.

4. PROPOSALS ITEM: 7

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4.1 SHETL has three key objectives over the next decade;-

• To keep the lights on for customers in the north of Scotland • To invest for a greener future • To minimise the impact on the environment as far as possible

4.1.1 The White Paper sets out proposals for improving customer service and identifies how SHETL will work to minimise impacts upon the environment.

4.1.2 The business case being put forward by SHETL sets out the following future large capital projects;-

• Caithness to Moray. Reinforcement of the transmission network in the far north of Scotland to accommodate future onshore and offshore renewable generation in the area and in Orkney and Shetland. Project comprises an HVDC link from Caithness to Moray with an offshore “hub” and onshore reinforcement in Caithness. • Shetland link. A new 600MW HVDC link between Upper Kergord on Shetland to the proposed offshore HVDC hub in the Moray Firth, then onto Blackhillock in Moray. This link will allow for new large and small generation schemes on Shetland. • Orkney. For marine generation in the Orkney waters and further onshore wind generation, an AC subsea link between the Orkney islands and the Scottish mainland. This could be followed by a future HVDC connection. • Kintyre- Hunterston. Installation of subsea cables between the Mull of Kintyre and Hunterston to allow for the connection of around 500MW of renewable generation in the Argyll and Bute area. • East Coast 400kV upgrade. The uprating of one of the 275kV east routes which runs from the central belt to Blackhillock, to 400kV to increase the capability to export renewable energy from the north of Scotland to the areas of demand in the south. • East Coast High Voltage Direct Current (HVDC) subsea link from to the north of England to provide a significant increase in north-south transfer capacity. • Western Isles. Linking the Western Isles, including a 450MW HVDC link between the Isle of Lewis and Beauly and a new subsea link between Grabhair and Stornoway.

4.2 These schemes represent the majority of SHETL’s capital expenditure over the next decade. These projects are likely to be sufficient for the majority of the contracted generation, which includes onshore generation in the Western Isles and Shetland, offshore generation in the Pentland Firth and Orkney waters. If any of the contracted generation fails to be developed, then these projects may be delayed until their requirement is re-established.

4.3 Some of these projects raise implications for Moray. Further detail on these projects was provided in SHETL’s Green Paper, published earlier this year.

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4.4 Caithness Strategy

4.4.1 The transmission network requires reinforcement in the far north to accommodate future onshore and offshore renewable generation. This project involves a number of elements. Planned transmission developments in Moray include a new 600 MW HVDC link between a new 132kV substation at Spittle near Mybster in Caithness and Blackhillock in Moray. This will add to the export capacity of the Caithness region provided by the upgraded Beauly to line. At Blackhillock this involves a new converter station for the HVDC link together with a 400kV switching station connecting into the new 400kv network on the east coast. Outline consent for a development platform and electricity convertor station at Blackhillock was granted consent on 16th April 2010.

4.4.2 SHETL considers that this is the most environmentally acceptable and cost effective approach to open up the region, including the marine potential. The alternative option, set out in the Electricity Networks Strategy Group (ENSG) Report 2009, was for full onshore rebuilds between Dounreay, Beauly and Keith. The estimated cost of this scheme is around £600M and could be completed between 2015 and 2018.

4.4.3 In support of the overall Caithness strategy, there is an option for an offshore HVDC hub and switching station in the Moray Firth with the uprating of the HVDC link between the hub and Blackhillock from 600MW to around 1.2GW. A further option is to terminate the proposed HVDC link from Shetland at the hub, rather than Blackhillock.

4.4.4 The hub and incremental works project has been developed over the past 18 months in response to a grant programme from the European Commission for innovative incremental works that might be added to existing planned works. In December 2009 SHETL was successful in gaining 50% grant funding up to €74.1M for the project, under the European Energy Programme for Recovery (EEPR). The hub and incremental works project is a strategic investment that is unlikely to be economic without the grant funding.

4.4.5 SHETL consider the offshore hub to represent an economic and efficient development of the transmission system in the North of Scotland. SHETL’s preliminary analysis suggests this would be the most economic means to accommodate new generation connections in the far north; e.g. the initial proposed marine generation in and around Orkney and the Pentland Firth or offshore wind in the Moray Firth.

4.4.6 In addition the project brings an innovation benefit of proving multi terminal HVDC technology essential for the realisation of large scale offshore generation. The project uses an integrated approach for offshore connections leading towards a future offshore super grid.

4.5 East coast 400kV upgrade.

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4.5.1 The existing 275kV system on the east side of SHETL’s licensed area runs from the boundary with in the central belt to Dundee at Tealing, onto Aberdeen at Kintore with connections at Rothienorman to Peterhead power station on the Buchan coast before continuing to Blackhillock by Keith. Planned upgrade works include:

• The uprating of the existing 275kV tower line between Blackhillock, Moray, to Kincardine in the central belt to a 400kV operation;

• Substation works at Rothienorman, Kintore, Ailyth and Blackhillock.

4.5.2 The estimated cost of this scheme is around £350M and could be completed between 2016 and 2019.

4.6 Shetland Link

4.6.1 The Shetland link consists of a new 600MW HVDC link between Upper Kergord on the Shetland mainland and Blackhillock, Keith. The link consists of 320km of subsea and 25km onshore underground cable, with AC/DC converter stations at each end. The estimated cost is £450 million which could be completed by 2015.

4.7 In addition to the business as usual expenditure SHETL expect to significantly increase expenditure on expanding the network to facilitate the growth of renewable generation in the North of Scotland to meet the UK renewable energy targets.

4.8 The potential scale and timing of this investment is not fixed. Nevertheless, SHETL forecasts indicate that the size of the SHETL network could increase by some 3 to 4 billion compared to the value of the existing business of around £400M.

4.9 Ofgem calculates that the average customer electricity bill in is projected to increase by around three and a half times over the next decade, with a unit cost of 38p in 2010 to £1.30 in 2020. The increase is driven by the scale of investment forecast to facilitate the growth of renewable generation in the North of Scotland leading to an increase in size and complexity of the network.

5. SUMMARY OF IMPLICATIONS

(a) Single Outcome Agreement/ Service Improvement Plan

An efficient electricity transmission system supports the following outcomes;-

1- We live in a Scotland that is the most attractive place for people doing business in Europe. 2- We realise our full economic potential with more and better employment opportunities for our people. ITEM: 7

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14- We reduce the local and global environmental impact of our consumption and production.

(b) Policy and Legal

None.

(c) Resources (Financial, Risk, Staffing, Property, Equalities)

None.

(g) Consultations

None.

6. CONCLUSION

6.1 SHETL has published proposals for investment to accommodate growth in demand and investing in existing assets to maintain current levels of network performance.

6.2 SHETL expect to significantly increase expenditure on expanding the network to facilitate the growth of renewable generation in the north of Scotland to meet the UK renewable energy targets.

6.3 A number of projects have been identified, with some potentially affecting Moray.

Author of Report: Gordon Sutherland, Planning and Economic Development Manager Background Papers: Ref: GS