Renewable generators ask Ofgem to cut electricity transportation charges

Renewable energy companies have urged the industry watchdog Ofgem to cut the charges they have to pay for transporting the electricity they generate over long distances, from remote windfarms to consumers.

They say the charge they say put them at a disadvantage compared with fossil fuel generators.

Transmission charges make up 5% of consumer electricity bills, but the charges to each generator - amounting to about £300m a year - vary widely. Operators are charged on a formula based on how far their electricity has to be transported, in part because high-voltage wires lose some of the energy on the way, with a cost to the National Grid.

But renewable companies argue that this system was brought in before many wind farms were built, and was designed to encourage generators to site fossil fuel power stations within reasonable distances of towns and cities. This option is not generally available to windfarms, which are often better sited on hills and offshore.

Jim Smith, managing director of renewables at Scottish and Southern Energy, said: "The current transmission charging structure is a product of another age and another set of problems. Renewable generators are being penalised both for the location of their plants, despite often having little other option, and in the way in which they generated. This is outdated and unfair, and is stifling investment in the renewables industry. Further delay [on reforms] is not only unnecessary, it is harmful."

Any change to the system would also have to take into account the fact that windfarms generate power intermittently, which must be compensated for on the grid.

The Gas and Electricity Markets Authority, run by the regulator Ofgem, will meet on Thursday to discuss eight favoured options put forward by National Grid for reforming the way the charges are calculated. The options have been narrowed from a menu of 28, brought forward as the result of a review that has now run for more than two years, called Project TransmiT. The changes were originally set to come in from April 2012, but are now overdue.

However, an Ofgem spokeswoman told the Guardian that there might not be a decision from Thursday's meeting, and that before any action could be taken an eight-week consultation must be opened. She said the watchdog had not set any deadline for action.

Renewables companies want reforms to take effect from next April, which National Grid has said would be possible, but the timetable is now growing short. They believe that the benefits from reforms could run to millions or tens of millions a year to them, which could be reinvested in clean energy, though the percentage of consumer bills going to transmission costs would remain fixed.

Scottish and Southern Energy has led a group in writing to Ofgem to call for a swift decision. They wrote: "In a world where [companies] have little choice on where they can locate, as renewables need to be in remote natural locations, and other technologies have only a few siting options, a very punitive locational signal no longer seems fit for purpose. Renewables have been further penalised by the fact that charges are currently levied on the basis of a generator's maximum potential use of the system, not their actual use."

Smith said reforms could help to make otherwise marginal windfarms economically viable. He called for a greater sense of urgency: "This has now been under discussion for nearly three years and has been subject to numerous delays. It is now time for swift action to prevent further investment uncertainty. A settled new regime will give confidence to new investors who have been watching this process for some time."