I am tabling this statement to inform Members of the outcome of the statutory review of the hydro benefit replacement scheme and the common tariff obligation, which help protect consumers in the north of Scotland from inherently high costs of electricity distribution in this region.
Electricity network charges are paid primarily by suppliers and then passed on to consumers. These charges are split into those for the high voltage transmission network, and the low voltage distribution network. It costs significantly more to operate and maintain the electricity distribution network in the north of Scotland than elsewhere, due to its large and sparsely populated terrain. Under the principle of cost reflectivity, this means consumers in this area face higher distribution network charges.
The hydro benefit replacement scheme was established under the Energy Act 2004 and provides an annual cross-subsidy—£112 million in 2024-25—which will reduce electricity distribution charges for consumers in the region by around £70 per household in 2025-26. It is funded by electricity suppliers across Great Britain, and hence ultimately by consumers, at an annual average cost of between £1 and £1.50 per household.
The common tariff obligation places a requirement on suppliers’ charging arrangements in the north of Scotland to ensure domestic consumers are not charged different prices based on their location within the region. There is no direct monetary amount attached to the common tariff obligation.
There is a statutory requirement to review the hydro benefit replacement scheme every three years. There has been a long-standing ministerial commitment to review the common tariff obligation alongside the hydro benefit replacement scheme.
The Government have reviewed these schemes through engagement with our delivery partners in Scottish and Southern Electricity Networks and Ofgem, combined with analysis of distribution charges and the assistance amount. The north of Scotland continues to have significantly higher charges compared to the rest of GB and therefore it remains appropriate for assistance to be targeted. The review concluded that the current design continues to strike the right balance between protecting consumers in the north of Scotland and maintaining the benefits of cost-reflective charging, which promotes efficient use of the network and minimises overall system costs. As such, the schemes will be retained in their current form.
The Government’s recent decision on reformed national pricing has no impact on the outcome of this review.
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