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The UK could add enough renewable energy to power a million homes by channeling water from the Scottish Highlands, although two large-scale projects to do so will be bogged down in government red tape until at least 2024.
Drax Group Plc and SSE Plc need approval for their revenue-sharing model before building hydropower plants that would turn local lakes into giant storage batteries, able to supply the grid when consumption surges. The stations could generate up to two gigawatts of clean power to meet demand as the UK electrifies its economy.
The companies have proposed spending a combined £2 billion ($2.4 billion) and submitted financing applications to the Department for Business, Energy and Industrial Strategy. The government wants to take a decision by 2024, the spokesperson said. Given that construction could take six years, the additional capacity won’t be online until at least 2030.
“We’ve got an energy crisis here, and we need to get a crack at these things,” said Alex Campbell, head of research and policy at the International Hydropower Association, an industry group. “This is an opportunity to show that the UK can think seriously about these long-term, difficult challenges.”
The model at issue is called cap and floor. It guarantees a minimum annual income, even if taxpayers have to contribute, and sets a maximum limit on what can be earned before profits are shared with the government treasury.
The mechanism gives confidence to investors by assuring them that they will see a return for construction financing.
“It protects clients and gives us relief,” said Ian Kinnard, Drax’s Scottish asset director. “We need support to de-risk it for our investors.”
The Selby, Britain-based company wants to double the capacity of its existing station in a dynamite-blasted cave at Ben Cruchan, a mountain overlooking a 90-metre-deep lake. Drax will spend £500 million and take six years to make Crunch 2. The present plant was opened in 1965.
SSE could spend up to £1.5 billion on its larger Coire Glas project, which is 137 kilometers north of Cruchan. It was approved by the Scottish Government after the producer took steps such as tagging local golden eagles to study the potential impact on their behaviour.
A Scottish Government spokesman said Scotland has continued to call for the UK to adopt a financing mechanism that would encourage hydropower.
Given the volatility in energy markets and the unpredictability of demand, it will be challenging for the government to set revenue targets. Once in place, companies earn profits even when plants are offline or only sporadically used.
“It puts all the risk on the taxpayer,” said Emma Woodward, project leader at Aurora Energy Research Ltd. That’s a very compelling business case for investors.
Russia’s decision to freeze natural gas exports is hitting Britain’s economy. Inflation hit a 41-year high and Chancellor of the Exchequer Jeremy Hunt said the nation was already in recession. The government is spending billions of pounds to help Britons cope with rising energy bills.
That should be motivation enough to increase renewable generation and mirror the energy flexibility of hydro powerhouses Norway and Austria. UK power demand is set to grow by 50 percent by 2035, according to McKinsey & Company.
Updated: November 27, 2022, 4:30 AM
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