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Wind farm industry in jeopardy due to financial demands of National Grid

National Grid said that it was only trying to cover the costs wind farms impose on it. “A developer could drop out at any time, even if we have spent £50m on an upgrade, and leave us high and dry,” said Nigel Williams, National Grid’s customer agreements manager.

Wind farm developers in Scotland are having to cancel future projects because National Grid is demanding millions of pounds in guarantees for electricity grid upgrades, while capacity is so limited that the queue for grid connections is now 10 years long.


National Grid last year took control of the Scottish grid from ScottishPower and Scottish & Southern Energy and is a publicly quoted company operating under licence from regulator Ofgem.

Its connection contracts demand that wind farm owners take on final sums liability, which means providing a credit note for millions of pounds before they can even join the queue for a connection. In some cases, the demands almost equal the total cost of the wind farm project.

“We will have to decide soon if we get on the ladder at all, because the amount you have to make available rises every year and if you pull out you could lose your money,” said Michael Huntingford, owner of Farm Energy, a six-turbine developer on the Isle of Lewis.

If Huntingford does not sign up, he cannot continue the project, which has been in development for 10 years. To register, he must make 13 million available to National Grid in a bank-credit note, based on a grid connection in 2013 on a project that... more [truncated due to possible copyright]  

Wind farm developers in Scotland are having to cancel future projects because National Grid is demanding millions of pounds in guarantees for electricity grid upgrades, while capacity is so limited that the queue for grid connections is now 10 years long.


National Grid last year took control of the Scottish grid from ScottishPower and Scottish & Southern Energy and is a publicly quoted company operating under licence from regulator Ofgem.

Its connection contracts demand that wind farm owners take on final sums liability, which means providing a credit note for millions of pounds before they can even join the queue for a connection. In some cases, the demands almost equal the total cost of the wind farm project.

“We will have to decide soon if we get on the ladder at all, because the amount you have to make available rises every year and if you pull out you could lose your money,” said Michael Huntingford, owner of Farm Energy, a six-turbine developer on the Isle of Lewis.

If Huntingford does not sign up, he cannot continue the project, which has been in development for 10 years. To register, he must make £13 million available to National Grid in a bank-credit note, based on a grid connection in 2013 on a project that will cost only £15m. He said he had “no chance at all” of raising the money.

Even relatively large developers, such as Airtricity which has spent £65m on wind farms in Scotland, are concerned. “This is a significant business issue for us,” said Alan Baker, chief executive of Airtricity in Scotland. “This is a cost we have to think about. It is a cost we can take on one development in the north of Scotland, but it could change how we look at future developments there. There is a cap on how much liability we could take on.”

National Grid said that it was only trying to cover the costs wind farms impose on it. “A developer could drop out at any time, even if we have spent £50m on an upgrade, and leave us high and dry,” said Nigel Williams, National Grid’s customer agreements manager.

“Final sums liability is about asking people to put up security so that we, and the electricity consumer, are not burdened with the cost of a stranded asset, one that won’t be used,” he added.

The length of the wait for a grid connection means that developers risk losing millions of pounds if they apply for a grid slot before planning permission is granted then subsequently fail to secure authorisation. If they wait until they have planning permission before applying for a grid slot, the long queue means that the slot could be useless. Planning permission only lasts for five years, but the slots being offered are currently 10 years down the line.

“My connection in 2013 is too far away. Planning permission only lasts for five years, so it will have lapsed in 2010 on this project and I don’t think I will get planning permission for this a second time,” said Huntingford.

“This additional burden of letters of credit will become an insurmountable hurdle,” said Steve Pottinger, a director of two Caithness family projects, Bailey wind farm and Spittal wind farm. “You have to provide a letter of credit on costs that change every six months. Every six months you need more and more security. Then if somebody else in your area drops out, the cost rises again. The cost is passed to the other people in the area. It is a completely crazy system. The figures ratchet up to numbers no small company can sustain.”

Even ScottishPower, which only has to sign a contract for the liability rather than make cash available, believes change is necessary. “We don’t argue against the principle, but would like the system to reflect the planning status of projects, moving projects with planning permission up the queue,” said a spokesman.

The Department of Trade and Industry (DTI) said it has asked National Grid to look at the problem. “[The] approach does not take into account the relative viability of individual proposals, nor offer any certainty to developers in terms of the potential financial liabilities they may face,” said a DTI statement.

“DTI has been involved in discussions with National Grid, Ofgem and wind farm developers on ideas for resolving these issues. A number of ideas have been put to National Grid which they have taken away to consider.”

Ofgem, too, said that it has asked National Grid to examine queuing issues and that its own price-control review, due to be completed this year to cover 2007-2012, could provide a solution.

Williams said that problems were caused by the level of demand. “We have never had anything like it before. Scotland has 10GW of capacity and we are dealing with is an extra 16GW of connections, or 200-250 requests.”

Source: http://www.sundayherald.com...

JAN 22 2006
https://www.windaction.org/posts/1033-wind-farm-industry-in-jeopardy-due-to-financial-demands-of-national-grid
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