Earba developer backs demands for change in law as rates threaten £10bn of new Scottish energy investment
The developer of one of the UK’s major new pumped storage hydro (PSH) projects has backed demands by small hydro operators for Scottish ministers to change the law, warning that their scheme could otherwise face a punitive annual rates bill of up to £75 million.
The Managing Director of Gilkes Energy, which is developing the Earba pumped storage hydro project in the Scottish Highlands, says current calculations indicate its rateable value could amount to around 30% of revenues, potentially resulting in an annual business rates bill of approximately £75 million.
Earba, being developed near Newtonmore, is one of three PSH projects selected by Ofgem as eligible for the UK Government’s new Long Duration Electricity Storage (LDES) cap and floor scheme, designed to unlock investment in large-scale energy storage considered critical to Britain’s future electricity system.
Earba will be the largest PSH scheme in the UK in terms of energy stored, powering over 1,400,000 UK households per year.
Together, the Earba project, Statera Energy’s Kemp project and SSE’s Coire Glas represent 3.8GW of new generating capacity and around £10 billion of potential investment in Scotland.
The rates warning follows demands from Alba Energy and the British Hydropower Association for the Scottish Government to resolve a thirteen-year dispute over the business rates treatment of hydro schemes by making a minor clarification to Scotland’s Plant and Machinery regulations.
The industry now warns that the issue extends far beyond the hundreds of existing small hydro schemes affected by the dispute and could become a major barrier to delivering the next generation of pumped storage hydro.
Carl Crompton, Managing Director of Gilkes Energy, said: “The numbers are genuinely alarming. Our current calculations suggest that Earba could face rateable values equivalent to around 30% of revenue, resulting in an annual business rates bill of around £75 million.
“These are projects involving billions of pounds of investment, encouraged by the UK Government because they are essential to the future energy system. It makes no sense to create a flagship mechanism designed to unlock that investment while a business rates regime in Scotland risks making the same projects commercially unviable.
“Of course, we expect the project to pay business rates. What we are asking for is a fair and proportionate calculation, more closely aligned with the treatment of equivalent technologies such as onshore wind and solar PV.”
“We have raised business rates directly with the UK Government as a major barrier to project delivery, and I strongly support calls for the Scottish Government to find a political solution before this becomes an even bigger problem.”
Pumped storage hydro works by pumping water to an upper reservoir when renewable electricity is in surplus and releasing it through turbines when the grid needs power. It can store enormous quantities of electricity for long periods, helping balance increasing levels of intermittent wind and solar generation.
The UK Government has committed to supporting 5-10GW of long-duration energy storage, with pumped storage hydro expected to provide a significant proportion of that capacity. The new generation of projects would represent Britain’s largest expansion of hydropower for six decades, with all of the new Ofgem-selected projects currently concentrated in Scotland.
The business rates problem stems from the treatment of a key component common to both traditional and pumped storage hydro: the penstock, the pressure-creating component of a hydro scheme’s generating machinery.
Following a thirteen-year legal battle involving Scotland’s existing small hydro sector, the lands court – the Upper Tribunal – ruled that although a penstock is specifically exempted from valuation under one section of Scotland’s Plant and Machinery regulations, it can become rateable again under separate provisions covering pipelines and conduits.
Alba Energy and the British Hydropower Association are asking Scottish Ministers to clarify the legislation so that penstocks are treated consistently throughout the regulations. They argue that the change could resolve more than 250 outstanding appeals from existing hydro schemes while also providing certainty for billions of pounds of future investment.
Kate Gilmartin, Chief Executive of the British Hydropower Association (BHA), said: “This demonstrates why the issue can no longer be regarded simply as a dispute involving existing small hydro operators. The same uncertainty now hangs over some of the biggest energy infrastructure investments Scotland will see for decades.
“Pumped storage hydro is central to delivering a secure, renewables-based electricity system. We cannot expect investors to commit billions of pounds while simultaneously asking them to accept an unpredictable and potentially enormous business rates liability.
“There is a relatively straightforward solution available to Scottish Ministers. Resolving this now would protect existing hydro and send a powerful signal that Scotland genuinely welcomes the investment needed for its next generation of energy infrastructure.”
Alexander Linklater, Executive Director of Alba Energy which represents hundreds of Scottish small hydro schemes, said: “The Scottish Government has a historic opportunity to realise the potential of Scotland’s natural resources. With a mere tick of a box, ministers could correct an anomaly in the rating system and provide the certainty needed to unlock the most momentous period of hydropower construction in Scotland since Tom Johnston’s great post-war hydro programme.”
Alba Energy and the BHA have asked Hannah Mary Goodlad MSP, Minister for Public Finance, to consider a political solution to the dispute, arguing that a small clarification of the legislation could avoid further litigation, protect existing schemes and remove uncertainty facing future pumped storage investment.