Electricity Market (Scotland)

– in Westminster Hall at 2:00 pm on 8th September 2004.

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Photo of Alex Salmond Alex Salmond Parliamentary Leader (Westminster), Spokesperson (Constitutional Affairs; Treasury), Leader, Scottish National Party 2:00 pm, 8th September 2004

It is a great pleasure to introduce the debate. I make no comment on the fact that the Minister for Energy, E-Commerce and Postal Services is not present; I understand that he is in China. He told me on the telephone the other day that he had been inspecting the great wall. If Ofgem, the subject of this debate, had been in charge, the great wall would never have been built. If Ofgem's plans proposals and theories go ahead, it will make it extremely difficult to exploit Scotland's renewable energy and electricity potential.

It is entirely suitable, and very welcome, that the Minister for Trade and Investment is present, as the debate is about whether there can be trade in electricity between the nations of Scotland and England.

This extremely serious matter is coming to a conclusion: in November we will know whether the proposals being made by the National Grid company will be accepted by the Ofgem board, and pursued. If the proposals in option B of the consultation exercise are carried through, there will not be a significant increase in the generation capacity of renewables in Scotland, and we will miss out on the renewables boom that so many of us hope for, exploiting Scotland's vast energy potential and allowing it to supply markets across the UK and perhaps further afield. I thought that all parties shared that desire.

I hope we can agree on the scale of the renewables potential. Scotland already has 1,200 MW of hydropower because of the vision of a Minister, Tom Johnstone, after the second world war. He pursued hydro schemes against a huge amount of official opposition and blockage by landlords and vested interests. He wanted to develop the project because he had a vision that the highlands and islands of Scotland, especially the highlands, could have a vast generating capacity, serving the whole of Scotland. No one would now argue that we do not welcome our 1,200 MW of installed hydro capacity; indeed, many would argue that there is scope and room for more.

There is a huge array of energy resources in Scotland, both traditional forms of energy generation and hydrocarbons, including Europe's finest and most technically efficient combined cycle gas station, which is in my constituency of Peterhead. The station has 73 per cent. technical efficiency, which shows that even hydrocarbon stations can be so technically efficient that they help the Government's targets in respect of energy balance and the greenhouse effect.

Scotland has substantial coal-fired stations and nuclear capacity, but many debates on the subject concentrate on what will happen in the renewables sector. According to the Risoe laboratory in Denmark, which has a long-established wind farm industry, Scotland has 25 per cent. not of the UK's wind capacity but of Europe's. The other Scottish Members present in the debate know that we are a windy nation, and sometimes our constituents suffer the consequences. None the less, 25 per cent. of Europe's potential wind capacity shows Scotland's enormous potential in that respect.

Scotland also has 10 per cent. of our wave power capacity—at present, the only working commercial wave power station is on the island of Islay. Professor Ian Bryden of Robert Gordon university described the Pentland firth as the Saudi Arabia of tidal power. Let us start with the agreement that there is enormous potential for renewable energy in Scotland, which is the why the Government's 40 per cent. target for Scotland is higher than the target for south of the border.

It would therefore be a tragic missed opportunity if exploitation of that renewable energy were prevented by regulations and the arbitrary imposition of unfair and discriminatory charges. Yet that is exactly what might happen under the National Grid company's proposals, which are unfortunately being put forward because it is adopting charging policy based on theories conducted within Ofgem about how to decide the interest charges on a system. Let us be clear that we are not talking about charges for transporting electricity—we all accept that a transportation charge should be built into the transmission of electricity. We are talking about entry charges: what is paid per kilowatt to get electricity on to the national grid.

The absurdity of the proposals can be best shown by the following example. In the north of Scotland, option B under the National Grid company's proposals would be to charge generators £20 per kilowatt to get on to the grid. However, the good news, I suppose, is that someone who wants to put a wind farm on top of Big Ben would be paid a subsidy of £9 per kilowatt. So a wind farm up Big Ben brings a £9 subsidy, whereas a major offshore wind operation in the north of Scotland carries a £20 a kilowatt tax.

The theory behind the proposal is locational pricing. Basically, Ofgem wants power stations in the UK to be approximately configured to the population: they want the population to match the power stations, or vice versa. There are a couple of obvious difficulties with that for renewables and particularly for wind power. I do not think that the population of London wants a wind farm up Big Ben. Indeed, the population in many areas of the country is resisting wind farms anywhere. I do not think that the population of London would be particularly enthusiastic about any power station in the precincts of outer London. In many senses, it does not matter what subsidy Ofgem comes up with; it will not reflect the reality that there will not be many new power stations in central or outer London.

The other obvious difficulty is that if there was a wind farm up Big Ben, the wind required to keep that station operational blows about 30 per cent. of the time. A wind farm offshore—in the Moray firth, for example—would be up 50 per cent. of the time, because the Moray firth, and this may come as a surprise to the academics and to Ofgem, is somewhat windier than central London.

If only the economists and Ofgem could have had a tutorial from the late Member for Portarlington, David Ricardo, one of only two great English economists in history, the other being John Maynard Keynes. Some of us remember that David Ricardo developed a theory of comparative advantage, which states that one should produce things where it is technically best to do so in order to increase the wealth not only of that area, but of the international community. I am sure that the Minister in charge of international trade is absolutely up on the international trade theories of David Ricardo. Therefore, to increase the benefit under that theory to both Scotland and England, the right place to produce renewable energy, such as wind power, is where the wind blows most and where it is technically most efficient to produce that power. That would certainly benefit the economics of Scotland but also the economics of England. Instead of creating obstacles, trying to prevent that happening, putting barriers in the way of that development, and trying to strangle at birth the development that we all hope for in wind and other forms of generation, Ofgem should be encouraging the development of renewable energy in the places of best comparative advantage.

Ofgem's latest press release was issued before this debate—they must have got wind of what I was going to say. Ofgem is in a state of some confusion. On the one hand, the press release repeatedly states that the proposals are those of the National Grid Company and that Ofgem has still to judge them when they are submitted. For example, I quote:

"The company"— that is, the National Grid Company—

"will then submit final proposals to Ofgem for its approval at the end of September."

That is technically true, but it is under the Ofgem scheme and its theory of locational pricing that the National Grid Company has produced these ridiculous proposals.

It is not only me and other Scottish Members who are jumping up and down about the issue—if one looks at the exchanges at Scottish questions yesterday, it is fair to say that the Secretary of State for Scotland is also deeply concerned. I do not think that the former Energy Minister, Mr. Wilson would mind me saying that he is equally concerned about the implications. For many years, he had a vision of the north of Scotland being the powerhouse for renewable energies and—if I interpret his remarks in debate correctly—I believe that he is deeply frustrated at the prospect of an obstacle being placed in the way of that development. If it was just politicians talking about the matter, we might have to bow to the experience of the experts in Ofgem and the National Grid Company, but the very companies on which we will depend to develop the resources are saying the same as we are.

A week last Thursday, I attended a glittering dinner in Fyvie castle, which is not currently in my Banff and Buchan constituency, but will be shortly, although the event was not to celebrate that. It was to celebrate Talisman Energy's 10 years in the North sea. The dinner was addressed by the Minister for Energy, E-Commerce and Postal Services and by the First Minister of Scotland, both of whom celebrated the fact that one of the projects that Talisman is engaged in with Scottish and Southern Energy Group is the development of the Beatrice field in the Moray firth, which is potentially Europe's largest offshore wind farm.

It seems to me that offshore wind has many advantages over onshore wind. There will be nothing like the same environmental resistance that is experienced with onshore wind farms. Despite a relatively benign climate at present, Scotland has only 200 MW of installed capacity in wind farms. If the Beatrice project comes to fruition, that single offshore project alone will generate 1,000 MW of power, which is five times the entire installed wind capacity onshore. That single project would meet some 20 per cent. of Scotland's entire electricity needs, and would be up and running for 50 per cent. of the time, as opposed to installations in even the best location for onshore wind, which would run for less time than that.

Let us agree that it would be marvellous to have the Beatrice project come to fruition—that was certainly the view of the Energy Minister. The Government, the European Commission and, to a minor extent, the Scottish Executive, have backed the demonstrator models that will go on to the Beatrice platform over the next year or two. There is funding for the research and for the demonstrator models, which will establish and prove the technology, but what does Talisman Energy say about the proposals that are currently being made by the National Grid Company? I shall read exactly what it says:

"It is bad news for us and for anyone producing renewable energy in remote parts of Scotland. The changes Ofgem is talking about are 50 per cent. to 60 per cent. higher than we thought. At the moment it is the biggest single threat we see and it could threaten the viability of the project."

The very company that is being celebrated by Ministers both for its huge success in 10 years in the North sea and for its vision in being one of the partners in that amazing project, which would put 200 wind farms into the Moray firth and generate a gigawatt—1,000 MW—of electricity says that the proposals from the National Grid Company and Ofgem are "the biggest single threat" to the viability of the entire project.

Moreover, it is not just Ofgem. I am sure that the Minister knows of the proposals relating to Scottish Power. I am considering legal action against the discrimination that is implicit in the proposals if they come to fruition; although in its area of generation the charges are less than they are in the north of Scotland, they are still discriminatory. Ian Marchant, the chief executive of Scottish and Southern Energy Group has said:

"Whilst Scottish generators account for 14 per cent. of total installed capacity they will pay all of the UK's generation and transmission charges. Yes, England and Wales will net pay nothing.

I can't believe this is true but my experts assure me it is. I have even double checked it."

The major generator in the north of Scotland is perfectly clear on the discrimination implicit in the charges.

One might of course say, "Well, that's MPs. They are up in arms and so are the major companies going ahead with the projects, but the MPs have a vested interest in getting development in their constituencies and the companies have a vested interest in not paying huge charges." However, I was impressed to receive this morning a message from Maf Smith—I was more impressed than I was by the Ofgem press release. Maf Smith is the chief operating officer of the Scottish renewables forum. He writes:

"Under BETTA Scottish generators will subsidise English and Welsh generators by £70 million per year."

He adds:

"If you wanted to remove the £70 m subsidy you would need to reduce the Scottish locational charges by at least £10/kW . . . The corresponding increase . . . in English-Welsh generation charges would be approx £1/kW. Thus a small increase in English-Welsh charges would allow significant drops in Scottish charges and make the system equitable."

It is Ofgem's view, and the Government will no doubt echo it, that all the huge increases, which are not denied, and the amazingly high charges in Scotland and, to some extent, the north of England are offset by the fact that under BETTA the interconnector will now be paid for by the entire system as opposed to the Scottish generators alone. There are two difficulties with that argument. First, it is not true. There will still be a net loss to Scottish generators—with respect to existing capacity; never mind what comes on stream in the future—of £6 million a year under option B of the National Grid Company. With, hopefully, increased generation in Scotland, that net loss will become greater. There will be more power stations paying those large charges. There is a moving target, and the figure is already net.

The second reason the argument is wrong is that the fact that the interconnector fell only on the Scottish generators was already a block to competition in the system. That is why more electricity is not being exported from Scotland to England and Wales now. The fact that that a system was created under the vision of the previous Energy Minister to remove the blockage in the system and allow proper competition across the generating capacity of the UK and to allow Scottish generators to sell more of their technically efficient energy into the UK market, is being used to justify unfair discriminatory charges on new power stations in Scotland. Surely the Energy Act 2004 was designed to remove the blockages to competition and allow the increase in generation capacity—not to institutionalise charges by introducing them in another way.

Things could not be graver. We do not know definitely that option B of the National Grid Company will go ahead or that Ofgem will accept it. Neither of the two options is good for Scottish generation, although option A, despite the fact that it still includes discriminatory charges, is slightly better. There is much informed comment in the industry, and the attitudes displayed in Ofgem's press releases would lead one to believe that that it is so thirled to the ridiculous theory of locational pricing that option B might well be the one to come forward.

If we can we want to get our retaliation in first. The Government will look ridiculous if on the one hand they help and stimulate the development of renewable energy, and set it hugely ambitious targets of 40 per cent. of generation in Scotland, while on the other hand Government agencies such as Ofgem prevent the realisation of the dream of Scotland as the renewable energy capital of Europe.

The stakes could not be higher. Not only will the Beatrice field development generate 1 GW of electricity, but the total investment costs of the project will be approximately £1 billion and it will generate, directly and indirectly, thousands of jobs—300 alone in the construction phase and many others in the long term. That is only one of potentially half a dozen major projects of such a scale across the variety of renewable energy resources.

Not only are such new developments under threat of being strangled at birth by the ridiculous charges. Existing generation, the hydro power and the Peterhead power station are also threatened by the imposition of the charges. The Government say that they have given a 10-year protection for renewable energy—five years that then rolls on for another five years. That is true if we are talking about a small wind farm development up a hill somewhere. If it has a short payback period and can be up and running in nine months to a year, the protection might be effective. However, even if the Beatrice project demonstrators work perfectly and show that the project can come to fruition, it cannot be up and running until 2010 or 2011, and the payback period for the project is estimated at 15 years. Even in the best possible scenario, a major project such as Beatrice would have two, three or four years of protection before facing the full blast of paying £20 million tax just to get into the national grid.

What I hope to have demonstrated is that both arguments—first, Ofgem's claim that the charges on Scottish generators are offset by the removal of the interconnector charges, and secondly, the Government's argument about the 10-year protection for renewables—do not apply. The first is simply not true, and in any case, the balance would change over time, institutionalising unfairness in the system. On the second argument, although the provision might protect small-scale renewable projects in the 10-year horizon, it will not protect major projects such as the Beatrice field and the ones that the Government like to boast about their help for.

The stakes could not be higher. On the one hand, if we have a fair and equitable pricing regime to get into the electricity system, there could be billions of pounds of investment and thousands of jobs, particularly in the north of Scotland but all over Scotland as well. On the other hand, we could be undermining our existing capacity in the north of Scotland and strangling at birth the hope that we can become the renewables capital of Europe.

My final point takes me back to the former Member for Portarlington, David Ricardo. I repeat the point that producing renewables in the areas of technical efficiency and taking advantage of Scotland's range of amazing resources in wind, wave and tidal power is certainly a good thing for Scotland. However, it is also good for the rest of the UK and for Europe as a whole in making a more effective contribution to the protection that we all want to give to the environment. I appeal for consistency in Government policy and the removal of the unfair charges, and I hope that, as the Minister for Trade and Investment is now acquainted with the subject, David Ricardo will prevail and Ofgem will be defeated.

Photo of Alan Reid Alan Reid Opposition Whip (Commons) 2:24 pm, 8th September 2004

I congratulate Mr. Salmond on introducing this important topic and his excellent explanation of what is a complicated matter.

Any proposal that involves higher connection charges for electricity generating stations that are far from centres of population is bound to discourage investment in renewable energy in the north and west of Scotland. Since much of the UK's potential resources for renewables are located there, it is difficult to see how the Government's renewable generation targets will be met if a connection charging system is introduced that discriminates against electricity generating stations that are located in the north or west of Scotland. There is protection in the Energy Act 2004 for renewable generators but, as the hon. Gentleman explained, the 10-year sunset clause will discourage investors because they will be worried that whichever Government are in power in 10 years might have a very different renewables policy and not be as kind to them as the current Government, who introduced the clause, might be.

As a result of land reform in Scotland, many more communities are buying the land on which they live and work; the island of Gigha in my constituency is one example. After years of rule by absentee landlords, the islanders bought their island, and one of the many schemes in which they are investing is a scheme to build three wind turbines to generate electricity for their own use and to sell the surplus to the grid. Schemes such as that one on Gigha will be adversely affected if a charging system is introduced that places higher connection charges on schemes on remote islands.

In addition, a Wavegen experimental station on the island of Islay is leading the world in research into generating electricity from wave power. Given the strength of the wind, waves and tides that we get in the north and west of Scotland, this is clearly an ideal part of the country for generating electricity from onshore wind, offshore wind, and wave and tidal power. We should not discourage that enormous potential by adopting any proposal that involves higher connection charges.

Both the Government and the Scottish Executive have policies of investing large amounts of money in the research and development of renewables, and the logical extension of that policy is surely fair connection charges. Once we have developed wave and tidal power to be commercially viable, we do not want to discourage the resultant schemes from going live. In summary, the north and west of Scotland have a tremendous role to play in allowing the Government's policy of greater renewables to be put into effect, and we should not adopt any policy that involves higher connection charges in that part of the country.

Photo of Michael Weir Michael Weir Shadow Spokesperson (Trade and Industry), Shadow Spokesperson (Environment, Food and Rural Affairs), Shadow Spokesperson (Health) 2:27 pm, 8th September 2004

Having spoken on Second and Third Readings of the Energy Act 2004 and served on the Committee that considered it, I seem to be thinking about energy in my sleep these days.

It will come as no great surprise that I very much agree with what my hon. Friend Mr. Salmond said about transmission charges. I shall concentrate on a slightly different point in a moment, but I want to make another point about transmission charges before I move on. Section 185 of the 2004 Act states:

"The Secretary of State may make an order under this section if it appears to him . . . that a particular area of Great Britain is suitable as a location for the generation of electricity from renewable sources".

That area is assumed to be the north of Scotland; any other area would be completely illogical. The point is that this is an area-based scheme, not a project-based scheme. Subsection (11) states:

"A scheme shall not be applied in relation to a time more than ten years after the commencement of this section."

Subsection (12) states:

"A scheme . . . shall not be applied for a period of more than five years; but . . . may be renewed . . . by a further order under this section for a period of no more than five years".

The effect is that there will be an area-based scheme for a maximum of 10 years, which means that only a scheme that was up and running when the area-based scheme was brought into being would get 10 years of benefit from the capping of the charges. Any scheme that was not up and running at that time would not get the benefit even of the 10 years, the five years, or whatever the length of the scheme would be. If the scheme in the Beatrice field, which my hon. Friend mentioned, was up and running when the area-based scheme was introduced, it might get 10 or so years' benefit. Another similar scheme a few years later would not get that 10 years' benefit, but it might get four or five years' benefit, depending on when it was up and running. So there is a disincentive to the scheme under section 185 for the future development of renewables. I make that point to back up what my hon. Friend said.

Section 184 relates to distribution charges as opposed to transmission charges. As hon. Members will know, distribution charges relate to the cost of distributing electricity to consumers, while transmission charges relate to accessing the national grid. That is important for the north of Scotland. When the then Energy Bill introduced BETTA, we were told that it would benefit Scottish consumers. In various debates during the passage of the Bill, I asked several Ministers what those benefits would be. Frankly, the best they were able to come up with was that consumers could benefit by switching to new suppliers. I find that argument unconvincing, because, in my experience, consumers benefit from switching only if they are high users or pay by direct debit, although even the savings for those who pay their existing supplier by direct debit are fairly minimal.

In any event, Ministers' arguments have been somewhat undermined by the substantial price increases announced by British Gas last week and by npower only this morning. Those of our constituents who do not have bank accounts or who pay by means of pre-payment meters—I spoke about this issue at length in Committee and I do not propose to do so again—would not benefit from any switch in supplier, even if they could find one willing to take them on. Those with pre-payment meters pay far more for their energy, although they tend to be less well off. The Library notes that accompanied the original Energy Bill put things very clearly:

"The tariff paid by domestic electricity consumers depends, in part, on the method of payment used. Broadly speaking there are three distinct options: standard credit"— that is, payment by quarterly bills

"direct debit and prepayment. Standard credit is, in effect, the default method of payment for most electricity consumers. Choosing to pay by direct debit confers a discount, while prepayment involves a surcharge."

That means that those who are least well off and have to use prepayment meters pay most for their energy.

The issue is even more important in Scotland. Figures produced by Energywatch Scotland show that until 1997 electricity consumers paid less in Scotland than in England and Wales. Since then, however, people in Scotland have not seen electricity prices fall at the same rate as people in England and Wales, contrary to the Government's original argument for introducing BETTA. Since 1990, consumers in England and Wales who pay by standard credit have seen prices fall by 31.4 per cent. in real terms, while the figure in Scotland is about 20 per cent. The gap narrowed slightly in 2002 and 2003, but, strangely, it has widened for those who pay by direct debit and particularly for those with pre-payment meters. Again, the system is penalising the least well off.

The Government's much trumpeted reduction of the number of households in fuel poverty has, according to Energywatch Scotland, largely been brought about by lower fuel prices, not Government action. Even so, as the regulatory impact assessment published with the Energy Bill showed, 13 per cent. of households in Scotland meet the Scottish Executive's definition of fuel poverty. However, it is important to note that the incidence of fuel poverty in the 16 local authorities that lie wholly or partly within the hydro area is approximately 4 per cent. above the Scottish average. In some areas, particularly island areas, the figure is much higher. The price increases announced by British Gas and npower may well reverse the declining trend in the number of households in fuel poverty, because prices will rise dramatically.

To return to my point about distribution charges, the Energy Act presents Scotland with a particular problem: hydro benefit. I urge those hon. Members who are not au fait with the history of hydro benefit to read the regulatory impact assessment, which contains an detailed and interesting account on page 119:

"Hydro Benefit has existed in various forms since 1943 when the North of Scotland Hydro-Electric Board . . . was created in order to electrify northern Scotland. More generally, the NoSHEB was established to help promote economic development in the Highlands and Islands, which had experienced relatively high unemployment and depopulation in the preceding decades."

The regulatory impact assessment also states:

"Given the abundance of hydro electricity in northern Scotland, Hydro Benefit was devised for social reasons as a means of ensuring that some of the advantages enjoyed by SHE", which NoSHEB, as we knew it, became,

"through its ownership of cheap hydro generating assets could be used to offset some of the expense that its customers would otherwise bear through the relatively high costs of transporting electricity to and within the Highlands and Islands."

The assessment goes on to say that

"average distribution costs in North Scotland were easily the highest of any region in Great Britain—over 50 per cent. higher than the national average—in 2002/03, even after the reduction afforded by Hydro Benefit. The average cost in North Scotland without the subsidy would have been around 100 per cent. higher than the overall GB average, largely because of the large, sparsely populated terrain that must be wired to transport electricity to local consumers. Indeed, SHE served only 2 per cent. of all electricity customers by number (both domestic and non-domestic), yet had by far the highest system length per customer of any distribution area in Britain".

Unfortunately, hydro benefit also came under threat from Ofgem, which seems to be the villain in this debate and the debate on the Energy Act 2004, although this time it cannot offload the problem on to the National Grid company. It was Ofgem that stuck the knife into Scottish consumers, by deciding that the hydro benefit was illegal under European law, despite the fact that the Monopolies and Mergers Commission had already conducted an investigation in 1995 and concluded that hydro benefit was in the public interest. That caused a great deal of controversy in the north of Scotland, as can be imagined.

It is fair to acknowledge that the Government reacted to that and introduced in the House of Lords what is now section 184 of the 2004 Act, which, as I have said, allows the Secretary of State to introduce a price cap and distribution charges in an area in Great Britain. Again, however, as with transmission charges, that area is not defined or is assumed to be the north of Scotland. The provision was widely welcomed in Scotland, but there are problems with it. The reduction in the replacement of hydro benefit is not guaranteed in the same way that hydro benefit was. Subsection (11) of section 184 provides that the scheme be reviewed three years after its introduction and at three-yearly intervals thereafter. It is also worth noting that the decision to introduce the scheme at all is at the Secretary of State's discretion. Presuming that it is introduced, however—I understand that Scottish Hydro-Electric has undertaken not to change charges until then—it will be for only three years. That is the only guarantee that consumers in the north of Scotland have for that benefit. They can have it for three years, but there could then be a fairly dramatic increase in prices.

I mentioned percentages earlier, but the situation should be put in context, with pounds, shillings and pence. Whatever happens to electricity prices over the next few decades, the reasons of geography that make electricity distribution much more expensive will not change. Distribution in the highlands and islands is now costed at £225 per customer, as compared with the next highest area, where the figure is £131. That is a substantial difference. If Ofgem were to use the same madcap economic theories as for transmission charge, and to go to locational charging, I dread to think what the charges would be for distribution to some of the island areas of Scotland.

Photo of Alex Salmond Alex Salmond Parliamentary Leader (Westminster), Spokesperson (Constitutional Affairs; Treasury), Leader, Scottish National Party

If Ofgem had been around in the immediate post-war period, two things would be certain: first, the hydro stations would never have been built and secondly, there would have been no benefit in their being built in the north of Scotland. Neither would have been allowed by Ofgem.

Photo of Michael Weir Michael Weir Shadow Spokesperson (Trade and Industry), Shadow Spokesperson (Environment, Food and Rural Affairs), Shadow Spokesperson (Health)

Given the history of the matter, my hon. Friend is correct. There might have been an attempt at hydro generation in the Thames—the Thames barrier might have looked rather different. I have to ask the Minister why there is such a short period for the benefit, and why is it to be reviewed at three-yearly intervals. Its mainstay, the geography of the highlands and islands, is not going to change. Distribution will always cost more in those areas than in the south of England or a more densely populated area.

What is the reasoning behind the frequent reviews? They cause nothing but uncertainty to consumers and businesses in the north of Scotland and to the electricity generators, who face the double whammy of not knowing the future charges for either transmission or distribution. That could hurt consumers in remote and rural areas of Scotland very badly.

The combination of the ludicrous system of locational charging for transmission and opposition to the hydro benefit by Ofgem delivers a double whammy to the people of Scotland. An energy-rich nation faces higher energy costs and the sabotage of a huge renewable potential. That must not be allowed to happen.

Photo of Alistair Carmichael Alistair Carmichael Shadow Spokesperson (Energy and Climate Change), Liberal Democrat Spokesperson (Energy and Climate Change) 2:41 pm, 8th September 2004

I add my congratulations to Mr. Salmond both on having secured the debate and on the substance of his speech. There was very little in it with which I disagreed. I should also, as this is my first chance to do so on the record, congratulate him on having successfully reapplied for the leadership of his party. I have never been sure why he wanted it, and it remains to be seen whether he reflects on the best political advice that I have ever been given, which is to be careful what one wishes for. However, he has it, and I am sure that he will again be effective. I have also to thank him for his endorsement of one of my political and economic heroes, John Maynard Keynes.

Photo of Alistair Carmichael Alistair Carmichael Shadow Spokesperson (Energy and Climate Change), Liberal Democrat Spokesperson (Energy and Climate Change)

Mr. Duncan expresses some surprise from a sedentary position. Perhaps he has seen the press reports that some on the fringes of my party have cast aspersions on the efficacy of Keynsian thinking. I am not one of them. John Maynard Keynes was a Liberal.

Photo of Alistair Carmichael Alistair Carmichael Shadow Spokesperson (Energy and Climate Change), Liberal Democrat Spokesperson (Energy and Climate Change)

It is idle to speculate on that. He was, rightly, a Liberal and it is difficult for many liberals to exist within today's SNP, but I take the hon. Gentleman's intervention in the spirit in which it was offered.

Much comment has been made about how Ofgem regulates the markets with whose regulation it is charged. The hon. Gentleman has already speculated that, had we had Ofgem at the time, we would not have seen the development of hydro energy in the post-war period, and would not have had the hydro benefits. It is true that the parts of those two crucial planks of Government policy not accounted for by Ofgem would be caught by state aid rules. The highly artificial way in which Ofgem seeks to regulate the market, driven in some ways by free market zeal, is exceptionally unhelpful.

All hon. Members who have spoken today have highlighted the tension at the heart of Government policy between the desire to promote markets as a mechanism for delivery and that for a particular social good, the promotion of renewable energies. Ofgem is a major potential barrier between the two.

It has always escaped me why Ofgem has an office in Millbank. On the basis that generation should be done where it is best done, surely regulation of markets is best done where generation is done, and there is precious little generation done on Millbank. If the staff were to get out of their office on Millbank and into the areas where electricity generation is important, they would see at the sharp end the impact of some of the things that they seem to regard as abstract.

Photo of Alex Salmond Alex Salmond Parliamentary Leader (Westminster), Spokesperson (Constitutional Affairs; Treasury), Leader, Scottish National Party

The hon. Gentleman is on to something, because Government policy, as I understand it, is to distribute public sector jobs across the country. That is the Government's locational theory of the civil service. Can the hon. Gentleman think of somewhere to which the new Ofgem's headquarters could be moved?

Photo of Alistair Carmichael Alistair Carmichael Shadow Spokesperson (Energy and Climate Change), Liberal Democrat Spokesperson (Energy and Climate Change)

I can think of a number of places, Kirkwall and Lerwick being the most obvious. If, however, it were just a question of getting away from London, I have a particular ambition to get the Northern Lighthouse Board out of the offices on George street. It is ridiculous to have a lighthouse board based in George street in Edinburgh, so once I have achieved that, there will be a vacant building that Ofgem might be able to occupy. I fear, however, that we are straying a little from the main thrust of today's debate.

It has been said by all contributors that there is tremendous potential for the development of renewables, particularly in the highlands and islands. Two barriers to that make me pessimistic, however. First, we have been speaking long enough now about the notion of communities benefiting from having renewable generating facilities sited locally—principally, at present, wind farms. Everybody agrees that that is a good idea, but somehow it never seems to happen. The Government must now start to consider it seriously, and come forward with concrete schemes that will make such pious thoughts a reality.

Secondly, our local authorities must show greater strategic thinking in planning policy for wind farms. I perceive, particularly in the highlands and islands, a growing unease in many communities, a lot of which could be addressed with more strategic thinking in local authority planning policies. I know that that does not happen quickly or easily, but it is important none the less.

Photo of Mr Peter Duncan Mr Peter Duncan Shadow Secretary of State for Scotland, Local and Devolved Government Affairs

I hope that the hon. Gentleman is not suggesting that it is appropriate for local democracy for scrutiny of the proposals to be removed and replaced by central Government diktat.

Photo of Alistair Carmichael Alistair Carmichael Shadow Spokesperson (Energy and Climate Change), Liberal Democrat Spokesperson (Energy and Climate Change)

No, absolutely not. I do not think that the hon. Gentleman has listened to a word that I said on that point. All that I said is that the local authorities, in constructing their planning policies, must have a greater strategic view of what is appropriate for their area. That is not at all the same as what the hon. Gentleman is suggesting, which is the withdrawal of powers from local government. In fairness to him, that was very much the hallmark of 18 years of Conservative Government so it is not in any way surprising that the hon. Gentleman should think along those lines, but I can assure him that my mind runs along very different lines.

The financial regime for the transmission of electricity, largely established by the Energy Act 1994, is extremely important, not least to my constituents. Communities in the northern isles face very significant economic challenges, and we see renewables as an important part of ensuring our long-term viability as communities. It was a particular pleasure for me during the recess just past to witness the opening of the European Marine Energy CentreEMEC—in Stromness in my constituency. That is one point on which we have not dwelt sufficiently: we have used renewables today as a synonym for wind power, but there is a lot more to renewable energy than wind farms. The next phase, and the long-term contribution beyond wind farms, is the development of wave energy, to which other hon. Members have briefly referred, and tidal energy. Because of its predictability, tidal energy has the potential to contribute to the base load generation capacity, which will be of supreme importance if renewables are to play the part that we think that they can play.

Some time ago, an answer was provided to a question asked by Mr. Key, in which the Department for Trade and Industry identified 40 sites of tidal streams that were suitable for the generation of electricity. 13 of them were in the Pentland firth or north of it, that is to say in my constituency. That will be the next opportunity. However, unless we get wind generation right and the framework correct, it will not happen because the infrastructure will not be there to ensure that the developments that will inevitably come from the peripheral, coastal and island communities are developed to their full potential. That is why this is a matter of supreme importance for the general renewables industry.

Just yesterday Shetlands island council agreed to a £150,000 funding package for a major community-owned wind farm project known as Viking Energy. It is therefore vital that renewable energy producers in the north of Scotland do not face punitive charges that threaten their future development. The hon. Member for Banff and Buchan referred to the charge of £22 per kilowatt that has been calculated as an example for mainland Scotland. He may not be aware that if one applies that same line of thinking to projects in Shetland it will be in the region of £70 per kilowatt. That is as good as saying that these projects will never happen. That is the real danger of the economics that are applied in a doctrinaire manner. The hon. Gentleman described it as discriminatory. My objection to the Ofgem thinking is that it is not discriminatory enough. I should like to see discrimination in favour of the development of renewables. I know why he used that term, and I do not take issue with it but I want to see the discrimination moving in another direction.

I am prepared to give the Government some credit for reaching where they have. I have been involved in this issue for some considerable time. I give the Minister for Energy, E-Commerce and Postal Services some credit for having stuck to his guns and to ensure that he has a power to cap excessive charges. I met him along with the chairman of Ofgem and Mr. MacDonald in February and it was apparent to me—I am fairly sure that the hon. Member for Western Isles would agree—that the Government were facing significant pressure from Ofgem to abandon a proposal that is now part of the Act and which would leave our energy producers to the vagaries of the market.

In their unceasing quest for cost-reflective pricing, Ofgem seem to be indifferent to the impact on Scotland's burgeoning renewables sector. Of course such an approach is a result of Ofgem viewing every policy decision from a narrow free-market economic standpoint. The real problem is that renewable generators are at present totally unaware of how Ofgem will meet the new requirement. That is critical in the run-up to the post-BETTA situation that will operate after April 2005. The Minister will be aware that Scottish Power and Scottish and Southern Energy currently charge flat rates. Reference has been made to the fact that there will effectively be a £9 subsidy in the south of England as opposed to the £22 charge. To my mind that is regulatory nonsense.

The Department of Trade and Industry has indicated that it will consult on a rebate or a cap on renewables in the highlands. When will this consultation take place? It is anticipated that it will occur this autumn but as far as I am aware that has not been confirmed. Could the Minister, either today or later in correspondence with his colleague, provide a clear timetable for consultation on the issue of a rebate or cap for peripheral locations? A cap or rebate will help individual schemes, but until we know the level we do not know what benefit it will be. What does the Minister envisage happening after this 10-year period elapses? The uncertainty that that generates is unhelpful in the extreme.

Finally, I turn to the analysis offered by Ofgem. It maintains that BETTA is broadly cost neutral and notes that generators in Scotland pay £92 million now in charges and will pay £90 million under BETTA. Although the figures used have an accurate basis, I would suggest that the analysis is simply wrong. The figures used relate to conventional generation, as in practice only conventional generation is traded via the interconnector with England. They do not account for the costs that renewables will face. Renewables are not currently traded over the border, so the costs proposed represent large increases for renewable generators of up to twice the current level.

As I understand it, the Government are also using Ofgem's analysis. However, Ofgem's analysis is irrelevant here, as it does not factor in charges that are faced by renewable generators. The Scottish renewables forum estimates that as a result of the new charges, Scottish generators will be subsidising English and Welsh generators by about £70 million a year. That is hardly the level playing field that BETTA is supposed to create. At best, it only preserves rather than removing any qualities.

Ofgem is right to want to introduce some cost reflectivity into charging, but it is wrong to make that the only consideration. A high cost reflectivity brings higher instability and also raises the costs of generation that cannot move. The wind and waves are where they are; one has to generate from them where one can find them, and that is in our peripheral areas.

I urge the Minister to provide a clear signal to the national charging company about how it is to develop charges. Ofgem must adapt to fill its obligation under the Energy Act 2004 to ensure sustainability. That means that Scottish renewable power generators must not be priced out of the energy market.

Photo of Mr Peter Duncan Mr Peter Duncan Shadow Secretary of State for Scotland, Local and Devolved Government Affairs 2:57 pm, 8th September 2004

I share in the common congratulations to Mr. Salmond on his timeous selection of this debate in our first week back after the summer recess. I suppose that a lot has changed over the last couple of months. For him to have shown such foresight over that period is truly remarkable.

Obviously this is an important and pertinent debate, but I greatly enjoyed—I thought it was one of the most important debates—the discussion about which party John Maynard Keynes would belong to. I thought that that was an instructive indication of the way in which Scottish politics is likely to head in the coming months and years. We look forward to that juncture. If there is any doubt remaining in the minds of hon. Members, I reassure them that he would not have best found himself in my party.

The market for electricity in Scotland is clearly different. It has been historically different—hon. Members have referred to the foresight of the hydro engineers in the past, but there is a different commercial field in Scotland. Research by the Scottish Energy Environment Foundation shows its importance: three out of the top 10 companies by turnover in Scotland are electricity utilities. That is clearly a different emphasis to the rest of England and Wales. The Scottish market is much more integrated and much less fragmented than that south of the border.

I reiterate the welcome made by my hon. Friends in the passage of the Energy Act; we look forward to the better provision of new opportunities for Scottish energy generators after the passage of the Act. I hope to provide considerable support for the substance of what the hon. Member for Banff and Buchan said. We will probably diverge in emphasis a bit later on, but it is always useful to start on common ground.

The hon. Gentleman has made an important and succinct summary of the case against discrimination in energy transmission. His opening remarks have shown how clearly existing Scottish generators will suffer if the proposal—option B, as it has been described—is allowed to go through. Locational pricing was originally an Ofgem concept. The National Grid Company has brought forward proposals to comply with that concept. Ofgem has to look long and hard at the way that it has taken this debate. It is not going to move forward an important sector of Scotland's economy and, on that basis, Ofgem will need to look long and hard at it before moving forward.

I want to provide the hon. Gentleman with support for his suggestion, which was reiterated by Mr. Carmichael, that wind projects should be located where they are most efficient and effective. There is clearly little point in creating a market that will encourage the creation of renewable projects in areas where they are least effective. That would be crazy, and it would not add anything to the wider debate on energy needs in Scotland or the GB market. I found little to quibble with in what the hon. Gentleman said on those two points.

I hope that Scottish consumers will see some improvement in the cost of electricity. Consumer prices have been attractively low in recent years, but that has provided a huge challenge for policy makers and companies in the energy sector. As Mr. Weir pointed out, the Scots have missed out relative to those in other parts of Britain on the benefits since deregulation. I read this morning that Energywatch has found that Scottish prices have increased by 10 per cent. since privatisation, whereas they have decreased by 5 per cent. in England and Wales. Clearly, that will not help in the wider selling of an effective market in Scotland. It has even been advocated that we switch to English or Welsh companies, a truly extraordinary remark for a Scot to make. Prices may have fallen in real terms, but we clearly have not shared in the benefits of privatisation. I was interested to hear that the National Audit Office has recommended that Ofgem should review the differences in consumer prices. I look forward to its response.

Much of the debate has focused on wind and renewable energy. That is inevitable, given that they tend to be the most peripherally located forms of generation. The Scottish Executive's target—it wants 40 per cent. of generation to be renewable by 2020—figures significantly in that debate. I understand that we are currently approaching the 12 per cent. mark. Scotland is rich in wind and wave resources, but I counsel hon. Members that my party does not necessarily share the common dash for wind. We see a place for it, but we see a place also for renewable energy and a balanced energy mix. We are hugely concerned at the unrestrained dash for wind energy in Scotland.

I sympathise entirely with the comments of the hon. Member for Orkney and Shetland that we tend to focus on wind to the exclusion of other forms of renewable energy. I will share a personal anecdote. When researching the purchase of a solar panel for my house recently, I was interested to note that the technology had not moved on significantly since my father undertook a similar purchase in 1975. The photovoltaic sector has not made an incremental jump in those 25 or 30 years. However, although renewable energy has huge potential, I would not support those who wanted to focus exclusively on wind energy.

Photo of Alex Salmond Alex Salmond Parliamentary Leader (Westminster), Spokesperson (Constitutional Affairs; Treasury), Leader, Scottish National Party

I can see a community benefit in onshore wind power—it would be even better with community ownership—but if one power is to make a significant contribution to the renewables target, it must move offshore. The projects that I mentioned, some of which have caused much angst in Scotland, now contribute 200 MW. A single offshore project would produce five times as much energy.

Photo of Mr Peter Duncan Mr Peter Duncan Shadow Secretary of State for Scotland, Local and Devolved Government Affairs

The hon. Gentleman is absolutely right about the considerable benefit to be gained by moving offshore. However, the issue is not entirely straightforward. I am reminded of a proposal approved for the Solway firth, adjacent to my constituency. I understand that it is not a long distance offshore, but some of the arguments are pertinent. A proposal was made for an area adjacent to a stretch of coastline that is a site of special scientific interest, one that is significant in the UK and Europe for environmental preservation. Although farmers were precluded from erecting a single turbine to support their own premises, approval was given in a relatively short time for 60 wind turbines to be built some six miles offshore. Such inconsistency does not endear the wider public to the planning process.

I ask the hon. Gentleman if he can reconcile a perceived inconsistency in what he said in his intervention. He said that Scotland had the potential to provide 25 per cent. of Europe's wind energy. He will be pleased to know that I listened to the opening debates in the Scottish Parliament yesterday. Unusually, the Official Report of the Scottish Parliament has not yet reached the website, so I have not been able to clarify the precise wording, but I understand that Nicola Sturgeon suggested that Scotland could be the source of 40 per cent. of Europe's wind energy. As I would not want to engender conflict at such an early stage between the hon. Member for Banff and Buchan and his deputy leader, vice leader or assistant leader, perhaps he would clarify the target figure.

Photo of Alex Salmond Alex Salmond Parliamentary Leader (Westminster), Spokesperson (Constitutional Affairs; Treasury), Leader, Scottish National Party

The figure of 25 per cent. is the available resource. The 40 per cent. figure is what is done with the available resources. For example, Scotland contributes about 90 per cent. of the UK's hydropower at present, but the available resource is only about 60 per cent. It is something that economists get to understand, and I am sure that the hon. Gentleman will catch up.

Photo of Mr Peter Duncan Mr Peter Duncan Shadow Secretary of State for Scotland, Local and Devolved Government Affairs

I look forward to reading the Official Report when it is available to see how closely the wording reflects what the hon. Gentleman said.

Anger is mounting in Scotland as huge numbers of proposals come forward and there has been a step change in public opinion on the issue.

Photo of Alan Reid Alan Reid Opposition Whip (Commons)

The hon. Gentleman will recall that some time ago some of his colleagues in the Scottish Parliament called for a moratorium on all wind farm applications. Is that his party's policy?

Photo of Mr Peter Duncan Mr Peter Duncan Shadow Secretary of State for Scotland, Local and Devolved Government Affairs

I can confirm that we have called for a moratorium on wind development in Scotland until the Scottish Executive can prove to us that that policy is worth pursuing. There is huge concern that we are embarking on a course to have 40 per cent. wind power that will put our stability at risk. I will come to that issue later.

Photo of Alex Salmond Alex Salmond Parliamentary Leader (Westminster), Spokesperson (Constitutional Affairs; Treasury), Leader, Scottish National Party

Does the moratorium include the Beatrice project? My constituents in Peterhead and people in other constituencies are extremely anxious that the Conservative party wants to deprive them of job opportunities.

Photo of Mr Peter Duncan Mr Peter Duncan Shadow Secretary of State for Scotland, Local and Devolved Government Affairs

I assure the hon. Gentleman that we are looking forward anxiously to the Scottish Executive justifying the continued pursuance of wind power. There is a lack of accountable decision-making by the Scottish Executive.

Photo of Mike O'Brien Mike O'Brien Minister of State (Trade), Department of Trade and Industry, Minister of State (Trade), Foreign & Commonwealth Office

I agree with Mr. Salmond that it is important that the Conservative party clarifies its position. It seems clear from what Mr. Duncan said that the Conservative party is prepared to put jobs at risk in Scotland. He needs to clarify the matter.

Photo of Mr Peter Duncan Mr Peter Duncan Shadow Secretary of State for Scotland, Local and Devolved Government Affairs

There is no confusion. Our policy is clear: we need a moratorium until such time as the Scottish Executive can come forward with a rational basis on which to support 40 per cent. of Scotland's power coming from renewable resources.

Long term, there is a change in the balance between nuclear power, which is being decommissioned, and wind power. That is playing Russian roulette with the energy mix. The market is about supply and demand. The security of supply should be one of our primary concerns.

Wind development across Scotland is scarring the landscape and we want the assurance that that can be justified by providing us with long-term, stable power supplies in Scotland.

Photo of Alan Reid Alan Reid Opposition Whip (Commons)

What measures does the hon. Gentleman have to help the 300 employees at the wind turbine factory in Campbeltown who would lose their jobs as a result of his party's policies? What is his message to those employees?

Photo of Mr Peter Duncan Mr Peter Duncan Shadow Secretary of State for Scotland, Local and Devolved Government Affairs

My message is clear: we are looking forward to the Scottish Executive's early justification for pursuing the 40 per cent. target. There will be question marks over the stability and security of supply in Scotland if that target is pursued. The Scottish Executive must produce that reassurance very quickly.

The market needs to supply electricity in a stable as well as a secure manner. In my constituency and in other parts of rural Scotland, there is great concern about unstable network supplies. The current measure of network stability is customer minutes lost, and the figure in my constituency is higher than the Scottish average, but investment in the rural network tends to be assessed on a Scotland-wide basis.

Photo of Alistair Carmichael Alistair Carmichael Shadow Spokesperson (Energy and Climate Change), Liberal Democrat Spokesperson (Energy and Climate Change)

I appreciate what the hon. Gentleman says about wanting a moratorium pending justification of the target, but, as he reminded us, something like 12 per cent. of generation comes from renewables, against a target of 40 per cent. In those circumstances, does he not feel that calling for a total moratorium is somewhat disproportionate?

Photo of Mr Peter Duncan Mr Peter Duncan Shadow Secretary of State for Scotland, Local and Devolved Government Affairs

No. It is reckless and irresponsible to propose a target when the Scottish Executive cannot justify it or provide a reassurance that Scotland's electricity generation will be stable and secure in the future.

To return to network stability, there is an imbalance in the assessment of customer minutes lost across Scotland, but that is not reflected in figures for the investment that is required to provide a secure and stable network in rural Scotland .

To conclude, I agree that the price structure for supplying electricity needs to be fair and that generators should be located in areas where they are most effective and efficient. However, I question whether we need to pursue a policy that envisages a dash for gas and a dashfor wind, but does not provide a place for nuclear, which is a key part of a balanced energy mix.

Photo of Mike O'Brien Mike O'Brien Minister of State (Trade), Department of Trade and Industry, Minister of State (Trade), Foreign & Commonwealth Office 3:12 pm, 8th September 2004

It is a pleasure to reply to the debate. My right hon. Friend the Minister for Energy, E-Commerce and Postal Services is on a visit to China and has, I think, already apologised to Mr. Salmond for not being here, although he has asked me to pass on his regards. In congratulating the hon. Gentleman on securing the debate, let me also congratulate him on his re-election as leader of the Scottish National party, although I should perhaps congratulate the Scottish National party on having elected him since he was obviously the most outstanding of those available. Only months ago, he was perhaps regarded as one of the politically dead, but—like me, to some extent—he is now an example of life occurring after death.

The hon. Gentleman made some strong, cogent arguments, but despite their substance, he overstated them at times and often missed some countervailing arguments about the benefits to the Scottish people. That said, he made some good points, which deserve a clear reply.

Throughout the debate, concern has been expressed about the impact of transmission charging on the Scottish electricity industry. It is right to raise such concerns, because the industry is crucial in Scotland, not only generating electricity, but supplying jobs. However, it is also important, as Mr. Weir said, to consider the benefits for the Scottish consumer. The Government are introducing the new BETTA system to benefit the Scottish consumer. For too long, Scottish consumers have had less choice than their counterparts in England and Wales. As a Government who believe that people should be able to have some element of choice, we think that that is unacceptable.

Overall, the BETTA package will deliver a better deal for the Scottish consumer by creating more competition and bringing down prices. The hon. Member for Angus wanted more information about that, and Ofgem estimates that, because of BETTA, the average domestic customer's bill in Scotland will be about £13 lower than it would be otherwise. The hon. Gentleman rightly referred to fuel poverty in Scotland, and it is a key issue for many families. However, the way in which the new regime operates should allow some of the problems of fuel poverty to begin to be addressed.

Photo of Michael Weir Michael Weir Shadow Spokesperson (Trade and Industry), Shadow Spokesperson (Environment, Food and Rural Affairs), Shadow Spokesperson (Health)

On what basis is that £13 calculated? We have heard today that the generators will face a massive increase in costs as a result of the transmission charges. Where does the Minister think that those costs will go, and what figure is taken into account in his calculations? Does he think that the companies will absorb the costs and reduce profit, or will they be passed on to the consumer? What figure is used in calculating that fall in the bill?

Photo of Mike O'Brien Mike O'Brien Minister of State (Trade), Department of Trade and Industry, Minister of State (Trade), Foreign & Commonwealth Office

As I understand it, the figures are available in the statements that have been made by National Grid and Ofgem. The hon. Gentleman can find them too, but I will be happy to supply him with them.

Photo of Alex Salmond Alex Salmond Parliamentary Leader (Westminster), Spokesperson (Constitutional Affairs; Treasury), Leader, Scottish National Party

Why, we ask ourselves, can we not have the competition and its benefits without the discriminatory transmission charges?

Photo of Mike O'Brien Mike O'Brien Minister of State (Trade), Department of Trade and Industry, Minister of State (Trade), Foreign & Commonwealth Office

Let me deal with the points one by one. My key point was that in putting his argument, which had some substance, the hon. Member for Banff and Buchan ignored the Scottish consumer. He was rightly concerned about the impact on the Scottish generators, as they are important employers, but he ignored the impact on consumers. His colleague the hon. Member for Angus did not, and it is important to look at the balance of the argument. As with everything, there are judgments to be made, and the overall judgment is that what we are doing will benefit the Scottish consumer. The figures that have come out will address some of the concerns about fuel poverty put forward by the hon. Member for Angus.

Photo of Alex Salmond Alex Salmond Parliamentary Leader (Westminster), Spokesperson (Constitutional Affairs; Treasury), Leader, Scottish National Party

My colleague and I operate as a team, which the Government should perhaps try, given the events of the last few days.

Talking of operating as a team, when my hon. Friend and I met Ofgem, I asked representatives three times whether they accorded to the Government's renewable target and three times they refused to answer. Can the Minister tell us whether in his opinion Ofgem operates to the Government's renewable target?

Photo of Mike O'Brien Mike O'Brien Minister of State (Trade), Department of Trade and Industry, Minister of State (Trade), Foreign & Commonwealth Office

I shall come to renewables later. The hon. Gentleman is taking me away from the Scottish consumer—I understand why he is doing that, having ignored the consumer in his opening speech—and towards transmission charges and renewables. I want to deal with each of them in turn, and I shall now move on to transmission charges.

To claim that transmission charges under BETTA will rise for generators and that that will be bad overall for industry in Scotland is to distort the overall picture. There will be some difficult effects in certain areas, but overall the picture should be positive. It is not true that it will be bad for industry, and the hon. Gentleman's characterisation of the increase in transmission pricing is misleading. Let me say why.

The hon. Gentleman said in a press release on 5 September that charges will increase from £5.44 to £20.69, and he has referred to similar figures today. He has conveniently left out the fact that under the existing arrangements generators in the north of Scotland pay charges amounting to between £32 and £37 per kilowatt to sell their electricity into England and Wales. Those figures are based on figures that are publicly available in SHETL and National Grid's transmission charging statements. They are the real comparison for the new transmission charges.

Photo of Mike O'Brien Mike O'Brien Minister of State (Trade), Department of Trade and Industry, Minister of State (Trade), Foreign & Commonwealth Office

I have given way twice, but let me finish my point, and I shall give way to the hon. Gentleman again.

We now have a different comparison from the one that the hon. Gentleman so eloquently made. Scotland is already a net exporter of electricity. Most new renewable projects will expect to export their electricity out of Scotland. It is wrong to claim that a reduction in charges from a potential £37 to £20.50 per kilowatt, which is the highest charge currently proposed—the hon. Gentleman got his figures wrong—is damaging to renewables. It is not.

Photo of Mike O'Brien Mike O'Brien Minister of State (Trade), Department of Trade and Industry, Minister of State (Trade), Foreign & Commonwealth Office

I promised to give way to the hon. Member for Banff and Buchan, but if he will bear with me until I have made my point, he may well want to respond. One example that he keeps giving is the Beatrice project. It is important, but it is at an embryonic stage of development and has some distance to go before transmission charges are even an issue. He is right that if it comes to fruition it will be a major employer. I share his concern about what the Conservatives are doing, and their damaging proposals, but to predict dire consequences at this stage for that project is alarmist and very premature.

Photo of Alex Salmond Alex Salmond Parliamentary Leader (Westminster), Spokesperson (Constitutional Affairs; Treasury), Leader, Scottish National Party

The Minister's colleague, the Energy Minister, was more enthusiastic about Beatrice a week last Thursday, but I have already dealt at some length with the matter that the Minister has raised—the question of interconnector charges. It may not be set out in that way in the Minister's speech, but what he was referring to are the interconnector charges. Even the Energy Minister argues that the effect is neutral between the interconnector charges and the new discriminatory charges. My point is that the change was sold to us as the removal of a major barrier to competition within the system. Even if the Energy Minister is right, and I doubt whether he is, how is it possible to justify removing from the system one barrier to the export of electricity while erecting a new one in this unfair and discriminatory way?

Photo of Mike O'Brien Mike O'Brien Minister of State (Trade), Department of Trade and Industry, Minister of State (Trade), Foreign & Commonwealth Office

The hon. Gentleman seems to be making the point that if the consultation that is now going on produces a particular result, there may be difficult consequences. We say that the process of consultation is still under way. It is right that hon. Members should make their voices heard in that process. I know that many of my colleagues are concerned that Ofgem, the National Grid Company and Ministers should all listen to the points that are being made.

I listened with great care to the hon. Gentleman's points, which he put very well. However, there are too many "ifs" at this point. Let us see where we are at the end of the consultation period. We take the view that we need a system that to some extent reflects the overall charges caused by the costs of transmission. I hope that the outcome of the consultation will be a system that allows that.

Photo of Alistair Carmichael Alistair Carmichael Shadow Spokesperson (Energy and Climate Change), Liberal Democrat Spokesperson (Energy and Climate Change)

I thank the Minister for giving way again; he is generous with his time.

We can argue indefinitely whether £22 is neutral in effect. No one would entertain the idea that the figure of £70 per kilowatt that is expected for access to the grid for projects in Shetland will be neutral. Is the Minister content that that figure should be imposed, with the result, effectively, that Shetland will be excluded from contributing its potential to the market in renewable energy?

Photo of Mike O'Brien Mike O'Brien Minister of State (Trade), Department of Trade and Industry, Minister of State (Trade), Foreign & Commonwealth Office

Let us see where we are at the end of the consultation process and how the costings work out then. The potential contribution of Shetland and the whole of the northern part of Scotland is enormous. We need to ensure that we establish an energy policy that will realise that potential, for the benefit of all the people who use that electricity and power. That is part of the process of working our way through the arguments. We have taken the view that Ofgem should have a certain degree of independence, in order to be able to work through the arguments in a sensible and objective way. We have taken some powers to intervene if necessary. However, we have attempted to put in place a system that can allow all the issues to be considered in a way that is not seen to be at all politically biased and in which, to some extent, the substance of the real arguments is seen to be considered. We must allow that process to proceed.

The hon. Member for Banff and Buchan suggested that we were not enthusiastic about Beatrice and Talisman, so before I leave that issue I reiterate that the Department of Trade and Industry put £3 million into researching the project. The Department has strongly backed the scheme, so let there be no suggestion that £3 million is not greatly supportive—in my book, £3 million of taxpayers' money is considerably supportive.

Furthermore, BETTA provides many benefits for Scottish generation. There will be financially firm access to a Britain-wide market. Another important point is that under BETTA the cost of upgrading the Scottish transmission system will be spread across all British users. Without BETTA, the cost of that work would have to be recovered solely from the users of the Scottish transmission system. We would be talking about hundreds of millions of pounds falling just to Scotland, which would make charges rocket. The hon. Member for Banff and Buchan needs to consider for a moment what the situation would be like for Scottish generators if Scotland were independent, had its own market and was trying to export the majority of the electricity that it produces.

In addition, there would be a single, tangible set of rules under BETTA, replacing the vast variety of different rules we have now. It is better to have a straightforward system, which we are trying to put in place, than the complexities that the hon. Gentleman seems to prefer. Under that system generators would continue to face a number of different charges and the costs of upgrading the transmission system would be recovered solely from the small base of Scottish users, which is not right. That is why we want to put in place a better system. Perhaps the hon. Gentleman's aim is to inflict extra expense and extra bureaucracy on Scottish generators. That would surprise me, because I do not think that that is his aim, but that would be the outcome of the concerns that he has expressed if he does not get the balance right in the argument.

BETTA will also allow Scottish generators to provide services to the national grid, the transmission system operator, especially by providing balancing services. Those contracts can be lucrative and Scottish generators have not been in a position to realise the value from those services before. On a number of fronts, far from being bad for Scottish generators, the creation of the British market in fact provides a range of new and exciting opportunities for Scottish generators and will therefore develop the Scottish electricity industry.

We have heard some statements that I have concerns about, although we do not have time to deal with all of them. For the record, however, I should like to make it clear that the transmission charges are neither set nor capped by the Energy Act 2004. The Government, with Ofgem, consulted on the criteria to govern the transmission charging methodology. We very much support a methodology that is cost-reflective and promotes competition. We also concluded that National Grid should be asked to develop a methodology to meet those criteria. National Grid is still consulting on its methodology, and it would be for Ofgem to decide whether to approve it in the final instance. However, I note the valid point that the hon. Member for Banff and Buchan made about the nature of those proposing the methodology. That is something that we need to consider. I am sure that National Grid would be interested to receive the views of all hon. Members on the issue and I hope that they will be prepared to put those views forward.

Things are not yet finalised. We are still very much in the discussion phase and the Government are still listening to the points that hon. Members from Scotland are raising. We are concerned to ensure that Scotland realises its potential for energy generation and renewables, which we certainly back and want to be a success. Our main interest is to ensure that the Scottish consumer benefits, and when we look at the changes overall, we see that the Scottish consumer will indeed be the major beneficiary.