From April 2005 the Office of Gas and Electricity Markets (Ofgem) in the UK has put in place its British Electricity Trading and Transmission Arrangements (BETTA). The following article was written during the consultation period leading up to the implementation of BETTA.

It is an immutable physical fact of transmitting power by wire over long distances that costs rise and heat losses increase the further away you are from your customers. With 56% of existing UK generating capacity lying above a line between the Wash and the Severn, but 53% of the demand sitting below that line, Ofgem wants a pricing regime that encourages new generating plant to be built closer to where the main demand is.

But that ambition – in itself a thoroughly green approach to shaping future investment intentions –

risks conflict with the government’s determination to dramatically accelerate the share of UK electricity generation accounted for by renewable sources like wind and wave power.

The so-called locational pricing principle means generators furthest away from the main markets pay the biggest user charges, while those closest to the main centres of demand will, in some cases, attract a subsidy. So some of the generators paying the highest transmission charges will be the wind farms in the north of Scotland.

Ofgem [the price regulator] points out that a whole series of other charges – covering access to the transmission system, line losses and access to the interconnector – are all being abolished when BETTA comes into effect. Ofgem insists the net effect of even the current, unapproved, NGC pricing proposals on Scottish generators will be broadly neutral.

Discussion points
1 What are the cost-based arguments to support charging a higher price for carrying electricity longer distances?
2 What are the non-cost consequences of the decision to apply the ‘locational pricing’ principle?