2 What Scotland is like now
- Scotland's current energy sector has a number of strengths; we have huge natural advantages for renewable, low carbon and oil & gas development. These strengths and achievements are discussed in this chapter
- Despite these significant strengths there are also a number of challenges and limitations facing the Scottish energy sector that would be better addressed if Scotland were to have greater responsibility over energy policy
Box 1: Key Energy Facts
Scotland's Energy Sector
"Direct" employment in the energy sector (excluding renewables) rose 10% between 2006 and 2007 to 40,700, which represents 23% of the GB energy sector total. It should be noted that this estimate represents only a fraction of total employment generated by the sector in Scotland, which is over 200,000 Scotland exported around 17% of its electricity on average each year between 2000-2007 Scotland has two coal-fired power stations, Longannet and Cockenzie. Together, the two stations provide approximately 33% of Scotland's gross electricity consumption in 2007
It is estimated that there are at least 4,000 - 6,000 renewables jobs in Scotland, with potential for tens of thousands of new jobs to be created over the next decade The Climate Change (Scotland) Act 2009 commits Scotland to an 80 per cent reduction in emissions by 2050 The Scottish Government aims to provide at least 50 per cent of Scottish electricity consumption from renewables by 2020 Scotland now has more than three Gigawatts ( GW) of installed renewables capacity, enough to power 1.5 million homes with clean, green energy. Adding in all the potential energy from approved renewable projects to those already operating brings the total to over 6 GW - this is well in excess of our target of 31% by 2011 An estimated 21.5 GW of commercial wave and tidal capacity could be harnessed from the waters around Scotland. In addition, in February 2009 The Crown Estate awarded 10 "exclusivity agreements" to 10 offshore wind sites in Scottish Territorial Waters, with the potential to generate 6.4 GW of electricity
North Sea Oil & Gas
North Sea oil was discovered in 1967 with first production in 1975. The North Sea contains Western Europe's largest oil and natural gas reserves Aberdeen is the world's second largest energy hub, behind only Houston. It has been estimated that the oil and gas industry accounts for around 120,000 direct and indirect jobs in Scotland from activity in the UK Continental Shelf, with a further 75,000 being supported through induced and export activity as a result of the industry To date, the UK has produced just over 40 billion barrels of oil equivalent
Carbon Capture & Storage
Research indicates that CCS has the potential to reduce CO 2 emissions by up to 90% from conventional fossil fuel power stations In its recent proposals on Energy and Climate Change, announced in January 2008, the European Commission stated that it expects CCS to be commercially feasible in 10-15 years The Scottish CO 2 Storage Study, launched on 1 May 2009, highlighted the offshore potential of North Sea Scottish sector to store emissions for next 200 years. The European Commission was very interested in the studies findings for developing a CO 2 transport network in the North Sea
2.1. Energy is vital to keeping Scotland's businesses, hospitals and schools running; heating our homes; and transporting goods and people. Producing energy from non-carbon emitting sources and reducing emissions from energy generation are central to our climate change commitments. The energy sector is vital to Scotland's economy, both in terms of current production, supply and consumption and also through the future opportunities that will arise from Scotland's comparative advantages in respect of the transformation in energy technology and systems that is required to meet the world wide climate change and energy security challenges.
2.2. The challenges of meeting future demand for energy, together with the imperative of decarbonising energy supply and ensuring security of supply which is also affordable for consumers, also bring about significant opportunities. Energy is a sector in which Scotland has considerable comparative advantages.
2.3. Energy is a key sector in the Government Economic Strategy ( GES) for Scotland, with sustainable energy development contributing to commitments to reduce carbon emissions and to promote sustainable economic growth. There are clear growth opportunities from improving the environment and moving towards a low carbon economy. For example, Scotland has a comparative advantage in alternative energy technologies, and, with a quarter of Europe's wind potential and vast renewable reserves, Scotland can be an international leader in this critical sector.
2.4. The overarching objective of key sector status is to focus strategic work in Government and across the public sector on a number of priority energy policy areas to help drive sustainable economic growth. The intention has been to co-ordinate and drive delivery of key strands of energy policy, mapping current and planned activity, to allocate clear responsibilities for delivery and to achieve closer linkages to other key energy related issues, such as climate change and fuel poverty. The Scottish Government has set out a number of targets in relation to energy. The Climate Change (Scotland) Act has introduced a statutory target to reduce greenhouse gas emissions in Scotland by 42% per cent by 2020, subject to further advice from the UK Climate Change Committee. The energy sector will obviously play an important role in progress towards that target.
2.5. The Scottish Government supports this with a commitment that 50 per cent of Scottish electricity gross consumption will come from renewable sources by 2020, with 31 per cent by 2011. The Scottish Government has also proposed that 20 per cent of all energy use (not just electricity) come from renewable sources by 2020, in line with EU wide targets, and above the UK target of 15 per cent. It also intends to work towards the decarbonisation of the electricity generation sector by 2030. The Climate Change (Scotland) Act also required the Scottish Government to produce an Energy Efficiency Action Plan 1 and set energy efficiency targets which are to be reported against annually.
2.6. It is important to see energy in its entirety as a key sector of the sustainable economic growth of the Scottish economy over the next 30 years and beyond. Energy is an area where Scotland has a strong competitive advantage, unique natural and geographic opportunities in wind and wave and tidal generation, and established expertise and world leading technology and skills developed through our oil and gas and power generation industries. Scotland is estimated to have 25 per cent of Europe's offshore wind resource, 10 per cent of Europe's wave resource and 25 per cent of its tidal resource.
2.7. Many of the skills and experience that have played a vital role in developing the North Sea are skills that can continue. The oil and gas supply industry based in Aberdeen has in recent years developed a world-wide reach, oil and gas related exports from Scotland are growing fast, and are currently worth around £5bn. These skills will ensure continued activity in the North Sea; and many of those skills will also be transferable and can put Scotland at the forefront of low carbon technology such as renewable energy systems and carbon abatement more generally. There are also real opportunities in respect of modernising energy systems in communities and energy efficiency where Scotland can develop a leading role internationally if concerted effort begins now.
2.8. We want to maximise the opportunities arising from this advantage and develop a sustainable mix of traditional and existing and new renewable energy generation. Aligned to this are the immense economic opportunities and climate change benefits in renewable energy and energy efficiency.
2.9. While nuclear energy will continue to play a part in meeting demand for electricity for the lifetime of the current nuclear power stations, the Scottish Government is also very clear that Scotland neither needs nor wants new nuclear power generating capability in Scotland, and no replacement nuclear power capability will be developed in Scotland. Scotland has already made real progress in meeting renewable targets and has established itself as the renewable investment location of choice in the UK. Scotland is also ideally placed to be at the forefront of the development of carbon capture technology given the need to upgrade our thermal plants, along with our close proximity to storage locations in the northern North Sea. We are committed to developing an electricity supply which is based upon an increasing share of renewable sources which is supported by low-carbon and clean thermal sources. We are committed to working towards the de-carbonisation of the grid by 2030, in line with the advice of the UK Committee on Climate Change 2.
Key Strengths & Achievements
2.10. Scotland is an energy rich nation, internationally recognised as having vast resources, historically in terms of oil and gas and increasingly developing the opportunity within renewable energy. We already export around 15 to 20 per cent of the electricity generated annually in Scotland to the rest of the United Kingdom.
2.11. Energy already supports a considerable number of jobs in the Scottish Economy and makes a significant contribution towards economic output. For example, it has been estimated that the oil and gas industry accounts for around 120,000 jobs in Scotland from activity in the UK Continental Shelf, with a further 75,000 being supported through induced and export activity as a result of the industry. The skills, knowledge and expertise embedded within this sector, and the establishment of Aberdeen as Europe's energy hub, means that with the right incentives important opportunities will remain throughout this century.
2.12. The renewable energy sector is also increasingly important to our economy. Recent estimates suggest that the sector currently supports 4,000-6,000 jobs in Scotland and has the potential to create tens of thousands of new jobs over the next decade.
2.13. The oil and gas sector has played a vital role in the economic and social story of Scotland over the last few decades with approximately 40 billion barrels of oil equivalent (boe) having been extracted from the UK Continental Shelf to date. It has also made a substantial contribution to the UK public finances with over £269 billion in tax receipts to the UK Exchequer (2008 prices) since 1976-77. In addition the skills and expertise developed in Scotland also bring about considerable economic benefits from export sales. International sales from the oil and gas supply chain now amount to around £5 bn annually. Although it is a mature province, significant opportunities still remain; the UK Department for Energy and Climate ( DECC) estimate for remaining reserves ranges from 11 bn boe (low case) to 20.9 bn boe (central case) and 37 bn boe (high case). Oil and Gas UK estimate remaining reserves at between 15.5 bn to 25 bn boe 3.
2.14. The natural advantage given to us by the North Sea from oil and gas can be maintained and secured for the long term by the natural advantage which the North Sea also offers for the storage of carbon dioxide as part of the carbon capture and storage process. Scotland's CO 2 storage research study in 2009 4 estimated that Scotland has significant carbon storage potential. The North Sea has the potential to store over 200 years of Scotland's emissions and preliminary studies suggest that Scotland's offshore CO 2 storage capacity is comparable with that of offshore Norway, and greater than the Netherlands, Denmark and Germany combined. This could potentially generate revenue from storage of several billion pounds per annum.
Figure 1: Oil and Gas Supply Chain. International and Domestic Market Sales 1999 - 2007
Source: Scottish Council for Development and Industry
2.15. Scotland has outstanding natural advantages for renewable electricity generation, with huge development potential. We have an estimated 60 GW of renewable energy resources 5 - equivalent to three-quarters of the UK's installed generating capacity.
- Onshore wind - 11.5 GW
- Tidal - 7.5 GW
- Wave - 14 GW
- Offshore wind - 25 GW
2.16. The Electricity Networks Strategy Group assumes 11.4 GW of installed capacity renewable energy in Scotland by 2020 (over 60% of domestic consumption) 6. In addition, around 4-6 GW would be exported to England by sub sea cables. By 2030 as the full potential of offshore wind and marine and tidal technology is realised, there could be as much as 25 GW of installed renewable energy capacity, allowing substantial exports to England and the Continent through proposed North Sea grid connections. Rather than an "Energy Gap" as some would suggest, there is a substantial "Energy Opportunity" for Scotland.
2.17. In February 2009 The Crown Estate awarded 10 "exclusivity agreements" to 10 offshore wind sites in Scottish Territorial Waters. These sites have the potential to generate 6.4 GW of electricity. This alone could be worth between £15 - £20 billion to the Scottish economy, securing high value skilled jobs and contributing to Scotland's sustainable economic growth.
2.18. The industry-led Marine Energy Group's Roadmap 7 for the marine renewables sector was published in August 2009. This study charts a course for wave and tidal power around Scotland. This report estimates that if the ambition of 1 GW is achieved by 2020 this will result in 2,600 direct jobs being sustained in Scotland by 2020, with associated investment of £1.3 billion in marine renewables being retained. Related employment could potentially rise to more than 12,000 across the wider economy in Scotland if indirect and induced jobs are taken into account.
2.19. In 2007, the latest year for which figures are available, electricity generated from renewable resources equated to 20.1 per cent of Scottish gross electricity consumption, compared with 16.9 per cent in 2006. With over 6 GW of renewables capacity currently installed, consented or under construction, Scotland is well placed to exceed the 2011 target for 31 per cent of gross consumption from renewable resources.
2.20. Our £13 million Wave and Tidal Energy Support ( WATES) Scheme is supporting 8 innovative projects, with the aim of taking marine energy technology from the R&D stage deployment in Scottish seas. These projects are being deployed and tested in the unique facilities at the European Marine Energy Centre ( EMEC) in Orkney. This will help to maintain Scotland's global lead in developing and supporting the marine energy sector.
2.21. The Scottish Government's £10 million Saltire Prize is one of the biggest international Government innovation prizes in history. It represents Scotland's energy challenge to the World - a challenge to the brightest and best minds worldwide to unleash their talents and push the frontiers of innovation in green marine energy. The Scottish Government appreciates that incentive prizes are a unique and powerful tool. The recent renaissance of prizes is largely due to a new appreciation for the multiple ways in which they can produce change: not only by identifying new levels of excellence and by encouraging specific innovations, but also by changing wider perceptions, improving the performance of communities of problem-solvers, building the skills of individuals, and mobilising new talent or capital.
2.22. Another significant strength is our recognised expertise in research and innovation. Through our active scientific, research and development and engineering communities. Scotland is already highly regarded in terms of research and engineering expertise. The Energy Technology Partnership of our leading energy researchers across Scotland's universities is driving forward new research collaborations and commercialisation opportunities. There is a real opportunity for Scotland to establish itself as the investment destination of choice for sustainable low-carbon energy. The recent opening of the Scottish European Green Energy Centre ( SEGEC) which is based in Aberdeen is a visible demonstration of our potential to play a leading role in a European context.
2.23. SEGEC will act as a catalyst and focal point for the development of the sector in a European context, providing additional resources and value added services which complement those of existing organisations, and will work closely with the Energy Technology Partnership in particular. Its strategic aims are:
- Supporting sustainable economic growth and sustainable energy targets;
- Fostering good practice in the development and deployment of green energy; and
- Promoting the internationalisation of green energy research.
2.24. It is also becoming widely recognised that energy efficiency must become a top priority, complementing Scotland's other energy-related strengths and working across areas such as housing, transport and business to help the Government achieve its purpose to focus government and public services on creating a more successful country, with opportunities for all of Scotland to flourish, through increasing sustainable economic growth.
2.25. Energy efficiency will help play an important role in achieving economic, climate change and fuel poverty outcomes and objectives, and the Scottish Government intends, through its Energy Efficiency Action Plan 8, to give it greater emphasis across all its work. This accords with the Scottish Parliament's Economy, Energy and Tourism Committee's view that it: 'wants to see a radical shift in policy towards energy efficiency and for substantial investment of resources in initiatives which focus on maximising the efficiency of supply and consumption of energy. These steps should be first in the hierarchy of priorities within a Scottish energy policy.' 9
Figure 2: UK Continental Shelf & Scottish Boundary 10
Source: Scottish Government Marine Directorate
The Scottish Government currently has some powers and responsibilities in Energy Efficiency. Examples of where we can already demonstrate progress include:
2.26. An independent review of energy efficiency found that the landscape for delivering advice was in need of simplification 11. In response, the Scottish Government established the Energy Saving Scotland advice network, providing a 'one-stop-shop' for advice on a range of issues, including energy efficiency, micro generation, personal transport and fuel poverty through the Energy Assistance Package 12 .The network will receive around £4 million from the Scottish Government for advice provision in 2009/10, and plays a key role in helping to increase Scotland's share of CERT investment. It uses the single Energy Saving Scotland brand which helps to develop long-term relationships with consumers.
2.27. We have also more closely co-ordinated our fuel poverty and energy efficiency programmes through the recent launching of our new four-stage Energy Assistance Package. As recommended by the Fuel Poverty Forum, a cross-sectoral group of stakeholders, this will help more households overall, and focus enhanced measures on the least energy efficient homes, lived in by the most fuel poor households. The current expectation is that 75,000 households will access the package in 2009/10, with around 50,000 referred on for benefit and tariff checks at Stage 2; 30,000 referred on for cavity and loft insulation through CERT at Stage 3; and 10,000 referred on for more enhanced energy efficiency measures at Stage 4. Stage 4 will focus on those in private sector homes who are most affected by fuel poverty and have the most energy inefficient homes 13. These are not only expensive to heat, but would have a higher carbon footprint if the householder could afford to pay the bills. Delivery will be assessed in Spring 2010, as uptake of schemes is always highest in winter.
2.28. The area-based Home Insulation Scheme ( HIS) is being supported with £15 million funding from Scottish Government funds, with matching funds being sought from other sources, including energy companies, local authorities, housing associations and private householders. The scheme aims to improve the energy efficiency of houses through an intensive area-based approach to promoting and installing insulation and other energy saving measures in homes within a defined area. This area-based approach has been found to be effective in other schemes.
2.29. Up to 100,000 households will be offered advice and assistance on energy efficiency in the first phase, with many going on to receive the energy efficiency measures on offer, mostly loft and cavity wall insulation. The scheme will be managed by the Energy Saving Trust. In the first year it will operate in parts of 10 local authority areas representing a mix of geographic locations across Scotland, selected on the basis of bids invited from local authorities. These were assessed on the basis of criteria agreed with COSLA, including factors such as levels of fuel poverty and potential for emission reductions and uptake of measures 14.
2.30. The Energy Efficiency Design Awards aim to support novel design, materials, methods, technologies, approaches or intervention packages to improve the energy efficiency of hard-to-treat housing, focusing on projects with potential for replication. Seventeen applications covering a wide range of project types, technical solutions and geographies were received this year. They covered traditional tenements, tower blocks, purpose-built sheltered housing, converted historic buildings, four-in-a-block, single properties, flats, semi-detached and terraced housing. The wide-ranging technical solutions offered included solid wall insulation, renewables, CHP, and more novel solutions such as insulating paint. Only projects meeting a 40% CO 2 saving threshold were considered by the judging panel.
2.31. This is a track record in energy efficiency which shows the creativity and flexibility which the Scottish Government, along with partners and stakeholders, has demonstrated in the area of energy efficiency where it has some powers. This demonstrates that if Scotland were to gain additional powers in other aspects of energy policy, then we can demonstrate that we can develop further policies and approaches which reflect more specifically the needs of Scotland.
While the energy sector is already an important part of the Scottish economy, there are key gaps and future challenges which need to be addressed to ensure that Scotland can capture effectively the full benefits of the new opportunities in the energy (and the wider climate change) sector. The key challenges are:
2.32. The global challenge presented by climate change, as a result of greenhouse gas emissions, threatens the stability of the world's climate, economy, population and geography. Energy generation and use is a major contributor to carbon dioxide emissions. The demand for energy is also set to increase as is competition for access to fossil fuel reserves, which are increasingly held in less stable parts of the world. For Scotland, this presents the challenge of decarbonising the energy supply, improving our energy efficiency and ensuring security of supply for domestic markets.
2.33. Increasing the share of renewable electricity does pose a number of challenges with regard to developing models to adapt to the potential greater variability in supply and the different energy mixes of the future. A world leading approach to dealing with this issue is taking place in Scotland, such as at Strathclyde University and the work of the Energy Technology Partnership.
2.34. The challenge of changing the way we use energy and improving energy efficiency in Scottish homes and businesses is a significant one, but one which will be vital if Scotland is to reduce its carbon emissions and reduce fuel poverty. The Scottish Government therefore wishes to take steps to promote energy productivity activity across all sectors, reducing energy demand and so reduce the need for increases in supply capacity, and enhancing security of energy supply. This should in turn help to reduce total energy costs for households, business and the public purse, or in the case of rising energy prices, offsetting the impact of these. In addition this should also boost business energy productivity and support the energy efficiency sector.
2.35. Scotland has world leading energy research capacity, but there is a need for greater commercialisation; most of the technology in current renewable development is owned out-with Scotland. A key priority has to be to ensure that Scotland can capitalise on its skills, particularly in marine and offshore renewables, in clean coal technology and carbon capture and storage and in power systems and grid technologies.
2.36. Grid access is crucial to providing confidence to investors about new renewable developments, but current access arrangements result in delays in connection time. There are also major challenges on grid charging and system balancing, where the current Electricity Transmission Charging Regime, proposals for targeting constraints costs on Scottish generators, works against the development of clean, renewable energy in Scotland and unfairly penalises Scottish energy companies. While the current long term vision for transmission grid reinforcement in Scotland and the UK as a whole is moving in the right direction to support the ambitions of this strategy, current regulatory arrangements are putting significant barriers in the way of progress towards UK and EU 2020 targets.
2.37. More mature fields present some challenges for the oil and gas sector, with the costs of decommissioning coming to the fore in the coming years. Volatile prices and a complex tax regime are also a major challenge to the industry.
2.38. Scotland has already streamlined its planning system through the 2006 Planning (Scotland) Act and has made major advances in promoting infrastructure investments through the National Planning Frameworks. Scottish Ministers have already announced a series of changes that can be done within existing legislation and is looking at further such measures. However the challenge of greater legislative control for Scotland remains and could be a major constraint to delivering Scotland's renewable and wider energy ambitions without greater devolution of the primary legislation.
Summary & Outline of the Report
2.39. Currently, the Scottish Government has certain responsibilities in relation to energy. These include the promotion of renewable energy and energy efficiency. Through the planning system, the Scottish Government can also influence decisions relating to investment and the energy mix.
2.40. However, these responsibilities are limited and our influence in a number of areas is somewhat constrained. We are currently restricted in the regulation of energy and energy efficiency markets, taxation of the oil and gas sector and the promotion of Scottish interests at EU level. Despite our strengths and successes, the current constitutional settlement does place limitations on what we can achieve.
2.41. Chapter 4 of this paper will provide some examples of where not having additional responsibilities means we are unable to achieve what we would like to achieve as well as setting out some positive proposals and ideas on how the gaining of additional responsibilities would allow us to more closely align policy objectives with Scottish interests.
2.42. The Scottish Government is therefore keen to examine how the existing devolution model might be enhanced including the transfer of a range of responsibilities currently vested in the UK government - and believes doing so would provide real benefits for the energy sector in Scotland.
2.43. This report outlines some of the main options available to Scotland within the context of energy:
- by incorporating the minor adjustments recommended in this area by the Commission on Scottish Devolution;
- through the opportunities which could be available to Scotland under a highly decentralised model ('devolution max'), still within the United Kingdom, but with increasing rights and responsibilities falling to the Scottish Parliament and Government; and,
- under independence.
2.44. The Commission on Scottish Devolution (the 'Calman Commission') put forward limited recommendations on energy in their final report. The Scottish Government view is that the Commission has failed to fully recognise or address the opportunities and challenges that face the energy sector in Scotland. It has therefore missed a major opportunity to align policies with the distinctive needs and ambitions of Scotland.
2.45. The concept of "devolution max" was defined in "Fiscal Autonomy in Scotland: The case for change and options for reform" as full fiscal autonomy within the UK, making the Scottish Parliament and Scottish Government responsible for raising, collecting and administering all (or the vast majority of) revenues in Scotland and the vast majority of spending for Scotland. Alongside transfer of full fiscal responsibilities, it is envisaged that with 'devolution max' there would be substantial policy devolution across all areas.
2.46. The Scottish Government envisages that under 'devolution max', the vast majority of issues relating to energy policy would be devolved to Scotland, including responsibility for oil and gas taxation. Indeed in principle, energy is slightly different from other areas as it would be possible to have a highly devolved energy framework which mirrored that under independence. However, even with this maximum form of devolution there would still remain a number of important differences that would constrain Scotland's ability to establish a unique framework that best addressed the challenges and opportunities that faces the energy sector in Scotland.
2.47. In particular this paper emphasises the importance of Europe and engagement with the EU, although they may still be differences under the two scenarios in terms of the ability to develop and fiscal policy. Scotland currently has no authority at European level and must engage in Europe through a UK filter. Under devolution max, Scotland's interests would continue to be represented in the main by the UK government in their position as a Member State. Under independence, however, Scotland would be a Member State in its own right.
2.48. In addition, the experiences of other countries with highly devolved frameworks suggests that certain factors would continue to constrain policy:
- Intra-national rules and guidelines;
- Rules/agreements with UK government, which could continue to occur under the devolution max position;
2.49. One of the most prominent limitations of the current system is that policy choices for the energy sector cannot be linked in with other elements of Scottish policy, for example, it is difficult to unite energy policy with social objectives, green taxes (and wider environmental issues) and competition. It is likely that under devolution max, key aspects of economic policy would also remain reserved, for example, financial regulation, employment and competition law would remain centralised at the UK level. Therefore it might be that under devolution we could control some aspects of policy, such as taxation, but that we were unable to control all aspects of energy policy in its widest sense.
2.50. It is also important to note that under devolution max, it would be the UK government which decided upon the responsibilities to grant to Scotland and the constraints and limitations (if any) which would set out. Clearly under independence, Scotland would have the complete freedom to pursue policies in the best interests of Scotland and to opt out of UK-wide policies, where the best interests of Scotland took a different path.
2.51. Only independence provides Scotland with a full voice in Europe and the capacity to make policy choices which took forward and met the ambitions of the energy sector in Scotland. Independence would allow the maximum degree of policy discretion and accountability over energy policies. It is the arrangement chosen by similar energy rich nations around the world and we believe independence is the only option which will enable Scotland to meet its full energy potential.