Balgy Gap Shows Something is Missing from Scotland’s Energy System

The privatisation of Scotland's power has proved a failure

Driving along the A896 in the Balgy Gap - no power lines, photo Rob Bruce

I am going to start by telling you a wee story that I think sheds a light on a wider issues with Scotland’s energy system.

Yesterday, we drove around the “Balgy Gap”. This is ten kilometres of road in the northwest Highlands which has no access to mains electricity. The road is in good shape - it is on the NC500 and is busy in the summer. It was built in the 1960s to join the grand Torridon Hotel - once featured on the Amazing Hotels series - to the pretty village of Shieldaig. But the provision of mains electricity never caught up.

There is a transmission line that runs along the row of white-painted cottages that make up Sheildaig’s main street, ending in a pole at the last house. This carries a spar from the Isle of Skye, which also supplies the Applecross peninsula.

Then for 10 km, there are no transmission lines. At Balgy, a spar comes across from Dingwall. Linking them would make the resulting loop - which covers a lot of land - more resilient. In a loop, the power can go both ways if there is an outage. But despite years of lobbying, there is no plan to connect these two dead ends.

In the gap, there are not as many houses as there would be if it had power, of course. But there are two fish farms, an EE telephone mast, half a dozen homes, and some holiday cottages, including a very smart one that sleeps 10 and rents for £3,500 a week in the summer

Ben Damph Lodge

These places are powered by diesel generators, sometimes with the addition of solar panels or a small wind turbine. If you stand on the roadside above the MOWI fish farm, you can hear the steady thrum of the powerful genny. You can regularly see vans bringing in tanks of diesel or new generator

A diesel generator at the fish farm

Surely this is bizarre? Is there another place in Western Europe where you would find a stretch of a national highway dotted with homes and businesses, all with no access to mains power, left to rely on diesel generators? Maybe there is one somewhere (let me know) - but I would be pretty surprised. So much for Scotland’s aspiration to net zero leadership!

The inhabitants of the area have approached the company that owns the energy network in the area, SSE, and asked for mains power. They were told that the community would have to stump up around £1 million to get it.

It is not the responsibility of SSE to pay for connecting them of course. As a private company, it has to prioritise the interests of its shareholders and customers. What would they get out of the deal? I contacted SSE, which is itself owned by institutional investors, the largest of which is BlackRock. They argued that the UK energy regulator Ofgem would never allow them to pay for the connection. (Ofgem regionalises the building of infrastructure- though not the tariff for energy. And because northern Scotland already pays the highest standing charges in the UK, it’s reluctant to mandate more to be built at consumers cost.) (1)

This illustrates the central problem - Scotland doesn’t have a publicly owned energy provider, whose central mission is to ensure affordable power for citizens and businesses.

Other countries do - take Iceland for example. Landsvirkjun provides Iceland’s homes and businesses with affordable power - and it also returns a sizeable chunk of profit to the government every year.

Scotland produces a lot of cheap renewable power too

Scotland, like Iceland, is amply supplied with renewable potential. Renewable energy is relatively cheap to make. Scotland produces a lot of it - current capacity is 15 Gigawatts a year to be precise. That is a bit less than Iceland (18GW) and a lot less than Sweden (38GW). But it is not bad - more than Denmark (14GW).

So how come Scots have to pay so much for power?

Scottish businesses’ energy bills are the highest in the world. Not among the highest - the highest.

And domestic customers, who at least have their tariff capped, are paying the highest prices in Europe. (Scots pay more than the English - standing charges are higher in Scotland, it is colder and rural areas can’t access the gas network which is priced more cheaply than electricity for heating.)

Fuel poverty has reached unprecedented levels in the Highlands and Islands - it is 75% in Shetland, where fuel bills are double the UK average.

So why is Scotland producing a lot of cheap power but the people and businesses are not seeing the benefit?

Market economics dictate what renewable companies charge for power

People often scratch their heads over why the price of renewable electricity is tied to gas in the UK - as far as I can understand it, this is because that is what energy companies can charge for it. They obviously can’t charge more than the price of gas - but any student of free market economics would understand why they don’t sell it to the UK’s Energy Systems Operator for less. It would not be doing the best for their shareholders.

Renewable companies get paid well for turning off power when the grid can’t take it

It doesn't go unnoticed by people in Scotland’s windy Highlands and Islands that a great deal of public money - more than £200 million so far this year - is spent on paying energy companies to turn off the turbines.

That is because the privatised national grid is still configured around coal-fired power stations in the north of England that no longer exist and it can’t easily accept a lot of power from the north of Scotland. That disparity is increasing. There is some belated investment in pylons and undersea cables on the horizon - but it won’t fix the issue.

However, the UK’s energy regulators, based in London, would prefer potential power from Scotland to go to waste rather than force the producers to charge a lower price for it locally - by offering a separate Shetland tariff, or even a Scottish tariff.

Renewable producers like SSE also prefer the status quo. They get a high price for turning the power off and it is easy.

Other countries make renewable energy cheaper where it is created

That is not what happens in other countries like Sweden which have adopted zonal or localised pricing. Sweden has made energy in the north of the country cheaper in order to attract business there. The FT reported recently:

“Blessed with copious green energy from its extensive network of hydropower, the far north of the Scandinavian country has experienced nothing short of a green rush. Thousands of people have flocked to this often snow-covered region that straddles the Arctic Circle to work for companies using the surplus power, such as battery maker Northvolt and H2 Green Steel, set up by Mix and business partner Carl-Erik Lagercrantz. “It is a Klondike situation, where the gold is green electricity,” says one executive working there.”

Why did Scotland privatise its power in the first place?

Energy provision and regulation is not devolved to Holyrood but is in the control of Westminster. Scotland was forced to privatise its energy production and infrastructure by Conservative governments that it didn’t vote for in the 80s and 90s.

It started with British Gas in 1986 - there was a series of award-winning ‘Tell Sid’ ads on TV that convinced many ordinary people to buy shares (If you don’t remember them, you can watch one here).

The argument by the Conservative government at the time was that privatising energy would increase competition and lower prices. But the share-owning democracy where Sid and his pals would jointly own the Monopoly cards of utilities proved to be a false prospectus.

The UK’s gas grid, for example, is now almost entirely owned and controlled by Macquarie - also known as the ‘Vampire Kangaroo’ because of its habit of using billpayers’ cash to finance increasing amounts of debt before selling on the asset - just like what happened to Thames Water. Macquarie takes ownership of the last bite of the UK’s gas transmission grid next quarter.

Three decades on, energy privatisation has not delivered.

Privatisation of power has not delivered what was promised for it - just the opposite. It is really hurting people - the energy bills Scots homes and businesses are being charged are way out of line with what other countries of similar size and resources are paying.

And what is more - there is an opportunity cost. Scotland should be at the forefront of the energy transition, doing as well as Sweden. But instead, like the Balgy Gap, it is underpowered.

A wind turbine in the Balgy Gap, photo by Rob Bruce

(1)This is the statement I got from SSE: “As the licence holder which maintains the north of Scotland’s Electricity Distribution Network, Scottish and Southern Networks (SSEN) Distribution is a regulated business. The funding SSEN receives from billpayers to invest in the network must be justified to the regulator Ofgem.

“The rules for homes and businesses wishing to connect to the network are set out to ensure fairness for all customers. They state that the cost of new connections to the nearest point in the network is to be borne by those making the request to connect. This policy is standard across Great Britain.

“In line with our licence obligations, we would welcome any applications, either individually or collectively, to connect to our network.

“We recognise that in some cases applicants may find the costs of these prohibitive. In this event we’d encourage them to explore other funding routes.”

Balgy Bridge was opened in 1963 - mains power has not caught up