Scotland’s Hydro Power Squeezed Out as Wind and Solar Win

Scotland’s hydro power wired up the Highlands long before the national grid reached them, and now a 5-megawatt scheme near Gairloch sits half-built because its developer cannot pin down a price for the electricity it would sell. Foster Turner Hydro, the firm behind the Gaineamhach project, has held off finishing construction for more than a year, blaming an auction system that forces small hydro to bid against cheaper wind and solar.

The complaint lands at an awkward moment. The UK is racing toward its Clean Power 2030 target by buying the lowest-cost renewable electricity it can, and the hydro industry says that single focus on price is sidelining the one homegrown source that keeps running through a Scottish winter. The next auction opens in July.

Why a Highland Hydro Scheme Downed Tools

The Gaineamhach scheme sits on moorland near Gairloch in the north west Highlands, drawing on three water bodies including Loch Gaineamhach. On paper it is the sort of project the energy transition is supposed to want: clean, local, and the kind of small-scale build the Scottish government’s small-scale renewables policy says it backs. Crews finished a seven kilometre access track across the moor, then stopped.

What halted them was money, or the lack of certainty about it. Without a guaranteed price for the power, the financing does not close.

Because we don’t have price certainty, we’ve been unable to finish construction so we’ve downed tools now for over a year.

That is Toni Ramage, projects director at Foster Turner Hydro. The stalled scheme would deliver:

• Up to 4,500 local homes supplied with clean electricity
• A capacity of 5 megawatts, drawing on three linked water bodies
• A grid connection targeted for around 2028/29

For now the turbines exist only on a plan, and the new track runs to a building site that has gone quiet.

How the Auction Math Squeezes Small Hydro

The mechanism at the centre of this is the Contract for Difference (CfD, the UK’s main subsidy scheme for low-carbon power). It runs as a closed auction in which developers bid for the right to sell their electricity at a fixed, guaranteed price. Win a contract and you have the price certainty a lender needs. Miss out and a project like Gaineamhach has no bankable route to market.

What a Contract for Difference Buys

The CfD has been the main engine of the shift to renewables, and other countries are now copying it. The guaranteed price protects a generator when wholesale prices fall and claws money back when they spike, which is why it underwrites so much wind and solar. The catch for hydro is that the auction rewards whoever can promise power most cheaply. Wind and solar are cheaper to build per unit of output, so they tend to set the winning bids.

Where Hydro Falls in the Pots

Bids are split into separate pots, and that is where the squeeze bites. Wave and tidal power sit in a ring-fenced pot with money reserved only for them. Small-scale hydro does not. It has to bid from the same pot as onshore wind and solar, the two cheapest technologies in the auction. The pot structure from the most recent round shows the gap:

Even that ring-fenced £15 million in Pot 2 now has to stretch across six competing emerging technologies, so the protected pot is thin to begin with. The full notices for each pot are published in the government’s Contracts for Difference allocation round documents. Hydro gets no such reserved slot, and developers want one.

The Case for a Winter Generator

The industry’s argument is about more than fairness in an auction. Small-scale hydro produces a fairly steady stream of electricity, in contrast to the on-and-off nature of wind and solar. That makes it useful for grid stability, the second-by-second job of keeping supply and demand in balance.

It also runs when the others struggle. The British Hydropower Association’s case for hydro (BHA, the trade body for the sector) calls it a winter generator, able to top up the grid when short December days leave solar panels working well below capacity. Kate Gilmartin, the BHA’s chief executive, says the technologies should be treated as complementary rather than rivals.

Solar is cheap and that’s great and we need lots of that, but we also need winter generation and the stability of hydro power.

The BHA has gone further in its policy asks, pushing for a dedicated hydro pot priced around £160 per megawatt-hour to bring forward up to a gigawatt of reliable winter generation. Its complaint is blunt: there is nothing in current policy that brings forward renewable generation below the five-megawatt mark, the band where most community and small-scale schemes sit.

What Scotland Built After the War

None of this is new ground for Scotland. The country pioneered cheap hydro-electricity, and the technology brought power to rural communities at remarkable speed after the Second World War. Glens were flooded to feed the turbines, and the engineering of that era still carries load today.

• 1951 Sloy power station on Loch Lomond, the largest in the network, is completed and remains operational
• 1955 the North of Scotland Hydro Electric Board has connected half of all rural farms and crofts
• About 1,800 hydro schemes now operate across the UK
• Roughly 80% of them sit in Scotland, according to the BHA

One scheme on nearby Loch Garbhaig has been generating for a decade. That inheritance is part of why the Gaineamhach halt stings: the skills, the sites and the public memory of hydro are all there, sitting idle behind an auction rule.

The North Pays More to Connect

Price uncertainty is only one of the pressures on generators in the north of Scotland. They also face some of the UK’s highest transmission charges, the fees levied to carry electricity from where it is made to where it is used. The further a project sits from the big demand centres in England, the more it pays, which penalises exactly the remote, windy and water-rich corners where Scotland’s renewables make most sense.

Those charges are already chasing bigger projects out of the pipeline. Earlier this year the developer behind the West of Orkney wind farm effectively shelved plans for a 125-turbine offshore scheme, pointing to transmission costs that made it unviable against rivals further south. Small hydro operators run on tight margins to begin with, so the same charges land harder on a five-megawatt scheme than on a national utility.

Stack the two problems together and the picture for a project like Gaineamhach is plain. It cannot reliably win a CfD against cheaper wind and solar, and if it did connect, it would pay a premium just to move the power.

Where the Next Auction Leaves Hydro

The next chance comes soon. Allocation Round 8 opens this summer, with the application window set to run from 20 July to 7 August. The UK government says the funding structure for that round will be confirmed before bidding begins.

The Department for Energy Security and Net Zero (DESNZ) says any project winning a Contract for Difference has to show value for billpayers, and it frames hydro carefully. A spokesperson said the department welcomes the supportive role hydro power could play in its clean power mission as a small-scale technology, and pointed to a new pricing mechanism for long-duration electricity storage that covers pumped-storage hydro. That mechanism does nothing for run-of-river schemes like Gaineamhach. The push to renewables, including hydro, is the government’s longer-term plan to cut bills under its Clean Power 2030 action plan, and conflict in the Middle East driving up oil and gas prices has only sharpened the argument for homegrown supply.

The Scottish government says it supports hydropower and is open to discussing the sector’s needs. That leaves the decision with Westminster and the auction rules it sets next month. Small-scale hydro will go into AR8 in the same pot as wind and solar, unless the structure changes before bids open.