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Low Carbon Scotland: Meeting our Emissions Reduction Targets 2013-2027 - The Draft Second Report on Proposals and Policies

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4. Energy

The way we produce and use energy is central to tackling climate change and creating a low carbon economy.

4.1 Our ambitions for decarbonising Scotland's energy supply

4.1.1 Our aim is to achieve secure, affordable and low carbon energy supplies for the long term by both reducing our demand for energy and decarbonising the means by which that energy is produced. We will also develop our role as a supplier of low carbon energy to our neighbours.

4.1.2 The first Report on Policies and Proposals (RPP1) indicated that Scotland aims to reduce the demand for energy and decarbonise its energy supply in order to provide secure and low carbon energy supply for the long term. It outlined that dramatic progress had already been made in harnessing Scotland's vast potential for renewable electricity generation. The case for change remains as strong as ever, and the progress being made has continued over the last two years.

4.1.3 Our 2020 energy targets set out our aim to make significant progress toward decarbonisation by 2020 (in line with those of the EU):

  • meet at least 30% overall energy demand from renewables by 2020;
  • reduce total final energy demand in Scotland by 12% by 2020, covering all fuels and sectors;
  • source 11% of heat demand and 10% of transport fuels from renewables by 2020;
  • delivering the equivalent of at least 100% of gross electricity consumption from renewables by 2020 with an interim target of the equivalent of 50% of gross electricity consumption from renewables by 2015;
  • enable local and community ownership of at least 500MW of renewable energy by 2020;
  • demonstrate carbon capture and storage (CCS) at commercial scale in Scotland by 2020 with full retrofit across conventional power stations thereafter by 2025-30; and
  • seek transmission system upgrades and increased interconnection capable of supporting the projected growth in renewable capacity.

4.1.1 Emissions from energy cut across several sectors of the Scottish economy, i.e. transport fuels, space heating and industrial processes, not just the energy supply sector itself. In this section we focus primarily on decarbonising Scotland's electricity supply. Other sources of energy are covered elsewhere, e.g., domestic heat demand and supply is discussed in Chapter 5: Homes and Communities.

4.2 Our ambitions for decarbonising Scotland's electricity supply

4.2.1 Our policy on electricity generation was set out in the draft Electricity Generation Policy Statement (EGPS), published in March 2012.[82] The Statement said that Scotland's generation mix should deliver:

  • a secure source of electricity supply;
  • at an affordable cost to consumers;
  • which can be largely decarbonised by 2030; and
  • which achieves the greatest possible economic benefit and competitive advantage for Scotland including opportunities for community ownership and community benefits.

4.2.2 Renewable energy is that which comes from natural resources such as sunlight, rain, wind, tides and waves. They are renewable because they are naturally replenished. Deploying renewables in Scotland will enhance security of supply, minimise consumer exposure to volatile and rising fossil fuel prices and deliver obvious economic benefits to Scotland. Use of renewables will also lead to decarbonisation of the supply to the electricity grid and provide greater scope for the deployment of electrified heating and transportation systems in the future.

4.2.3 Our ambitions for renewables and the delivery of clean electricity in Scotland go beyond our current 2020 targets. We have therefore set a 2030 decarbonisation target, in line with the Committee on Climate Change's recommendations for the UK Government. This target is non-statutory, but will be used to guide our overall policy approach and will set the context for planning decisions under Section 36 of the Electricity Act going forward.

4.2.4 The decarbonisation target will be to achieve 50 gCO2/kWh of electricity generation in Scotland. We are confident that we will be able to achieve it, and our central scenario of future electricity generation means that we will be able to meet the target well ahead of 2030. The CCC has provided advice to us on the downward path of emissions from the electricity industry from 2010 through to 2030.[83] It is likely that we will be able to meet the downward path in the longer term and make progress in the early years, especially before the closure of coal generation stations due in the years ahead and the further build-up of renewable supply.

4.2.5 The decisions which will be made over the next few years will determine whether we will be able to achieve our ambition. The majority of electricity used in Scotland in 2010 was generated by plant which had been commissioned around 20 years earlier, and a sizeable minority by plants over 30 years old. So it will be in the future that long-lived generation assets will determine our future fuel mix.

Progress towards decarbonisation of electricity supply

Our aim is to ensure that we have a largely decarbonised electricity system by 2030. Our 2030 decarbonisation target will be to achieve a carbon intensity of 50 gCO2/kWh of electricity generation in Scotland.

The Climate Change (Scotland) Act requires a report to the Scottish Parliament on the Carbon Intensity of the Electricity Supply System in Scotland. The Carbon Intensity of the grid (including estimates of emissions from backup and balancing services) was officially reported[84] to be 347 gCO2/kWh in 2010 but is estimated to have fallen to 291 gCO2/kWh in 2011 using the same methodology. We propose to use the same indicator to measure progress toward our decarbonisation target. This target therefore represents an 83% reduction in carbon intensity between 2011 and 2030..

4.2.1 We need to remain flexible on how best to deliver our target in the light of progress in the world climate change talks, integration of the EU energy market, developments in grid technology and storage, progress in cost reduction of renewables and CCS, and progress in energy efficiency and demand side management.

4.2.2 At this stage, the Scottish Government, like the rest of the UK and our EU neighbours, has not set electricity targets beyond 2020 in terms of specific fuel mixes. The UK Government has committed to amending the current Draft Energy Bill to take powers to set a decarbonisation target range for 2030 in secondary legislation. A decision to exercise this power will be taken once the CCC has provided advice in 2016 on the 5th Carbon Budget which covers the corresponding period.

4.3 Where we are now

4.3.1 Scotland accounts for only around 9% of the UK's total energy consumption, but is rich in energy resources and produces a diversity of energy supply. The energy supply sector covers the production of energy, and in particular the generation of electricity, either in power stations or in large industrial process (like refining). Energy supply in Scotland produced 20.7 MtCO2e of greenhouse gas emissions in 2010, which equated to 37% of Scotland's total in 2010[85].

Sankey Diagram showing By Source and End User GHG emissions transfers for Scotland in 2010 (Mt CO2e)[86]

Sankey Diagram showing By Source and End User GHG emissions transfers for Scotland in 2010 (Mt CO2e)

The pink line from Energy Supply to End User represents emissions from energy supply in the production of fuels for international aviation and shipping. Exports equates to emissions from international aviation and shipping

4.3.2 Emissions in the energy supply sector are dominated by installations within the EU ETS, with 96% of emissions in energy supply covered by these EU wide arrangements. As noted earlier in this document (section 2.7), this sector and the other emissions-intensive industries in the ETS are referred to as the traded sector.

4.3.3 Energy supply includes emissions from power generation, refineries, coalmines, solid fuel transformation, oil and gas extraction and processing, and other energy industries. Emissions from the energy supply sector (power stations, refineries, oil and gas production, and coal mining) were 20.7 MtCO2e in 2010, or 39% of total Scottish greenhouse emissions. Overall, there has been a slight downward trend in energy supply emissions since the 1990s. This reflects the long lived nature of the coal generation assets, and their greater use toward the end of their working lives due an increased ability to export power to England and Wales.

4.3.4 The main source of emissions in Scotland within this sector is electricity generation at power stations, which accounts for 76.4% of energy supply emissions in 2010 (15.8 MtCO2e); refinery emissions account for a further 10.4% (2.2 MtCO2e) of the Energy Supply sector emissions in 2010.

4.3.5 RPP1 outlined that the Net Scottish Emissions Account (NSEA) will track the trajectory of EU ETS emissions rather than Scottish territorial emissions from power generation. This means that a large proportion of Scotland's emissions are assumed to fall on a pre-determined trajectory, irrespective of actual emissions. In RPP1, therefore, electricity generation policies were considered as 'enabling policies', which, although not affecting the NSEA, were vital for the achievement of Scotland's long term goals. The decarbonisation of the electricity sector is also a vital component of decarbonising other parts of the Scottish economy such as transport, which will become increasingly reliant on electricity.

4.3.6 In this draft RPP2, we outline the progress towards our 2020 targets, and the role that the ETS will play in reducing emissions. Beyond 2020, there is scope for significant further reductions in emissions, but there is significant uncertainty over long term policies at UK and EU level. As stated in section 2.7, from 2021 to 2027 the traded sector is presented as 'net emissions' resulting from estimates of future actual electricity generation emissions in Scotland and from the CCC target advice that identifies abatement from non-electricity generation traded industry.

4.3.7 Our estimates of electricity emissions beyond 2020 is realistic but ultimately projections of future emissions from the electricity generation sector are highly uncertain. A number of complex and competing factors govern generators' hourly dispatch decisions, including relative fossil fuel prices, demand, system constraints and wind speed. Future investment decisions relating to the building, extension and closure of generating plant are also subject to this uncertainty.

4.3.8 The chart below presents emissions from a generation scenario to 2027, making credible assumptions about thermal plant build and closure dates, average annual running times and the deployment of carbon capture & storage at demonstration and/or at scale. This scenario is designed to give an indication of emissions from the sector by varying the amount of coal, gas and CCS on the system. The chart below represents the thermal generation capacity we expect to be installed under our central scenario.

Chart 4.1: Trajectory of Electricity emissions under RPP2

Chart 4.1: Trajectory of Electricity emissions under RPP2

4.3.9 Overall our assessment is that by 2020, emissions from Scotland's electricity sector will be substantially lower than today and be broadly in line with the pathway of emissions under the ETS 30% scenario.

Our scenario beyond 2020

The chart below sets out the total installed coal and gas capacity of each scenario. The use of unabated gas plant capacity is, in part, to provide peaking plant services; this reflects the fact that the economics of CCS are unlikely to support peaking plant generation in the first instance.

Our Scenarion Beyond 2020

  • To 2020: the scenario assumes that Cockenzie coal fired power station closes in 2013, with Longannet coal fired station closing in 2020, consistent with industry information and the requirements of EU Directives. Peterhead gas fired power station continues to generate. 2 GW of gas capacity is assumed to come online in 2020, to coincide with the closure of Longannet. It is assumed that 500MW of CCS demonstration plant is operational by 2020.
  • To 2025: a further 500MW of CCS is added in 2024/25 building on the experience of the earlier CCS demonstrators. To 2027: by 2027, a further 600 MW of gas plant adopts CCS, resulting in a total of 1600 MW of CCS gas plant by 2027, with a further 1,600 MW unabated.
  • Using the emissions and an aggregate generation figure (consistent with that adopted for the Draft Electricity Generation Policy Statement) would suggest a 2030 carbon intensity figure below the CCC recommended 50 gCO2/kWh.
  • With our greater ambition for renewables, especially offshore beyond 2020 and a possible on going role for existing nuclear generation, it is plausible that this figure could be even lower with any exported generation also helping the UK Government deliver on its own climate change ambitions and/or with increased domestic demand for electricity for use in transport and heat sectors.

4.3.10 Where the supporting narrative refers to specific plant, this is intended to provide context to the assumptions. The analysis here does not indicate any preference for particular plant, and the equivalent levels of gas, coal and CCS capacity could be delivered by a number of different combinations of generating plant.

4.3.11 The generation scenario above will benefit from the future role for (non-pumped) electricity storage at scale and increased interconnection. While still in their infancy, there are numerous electricity storage solutions currently under development across the globe. Synergies between storage and intermittent renewables can significantly reduce the need for flexible, typically unabated fossil fuel, generation capacity leading to savings for consumers as well as emissions reductions. We are working with the Institute of Mechanical Engineers in Scotland to critically assess the viability and efficacy of these storage options including their potential application across Scotland. Successful delivery of storage solutions in Scotland will help us achieve the targets, and could lead to lower levels of emissions than those set out here.

4.3.12 The analysis presented here is broadly consistent with that adopted for the draft EGPS, which includes a need for a minimum of 2.5GW of upgraded thermal capacity, with any minor variations reflecting the many uncertainties associated with the future generation mix.

4.3.13 The analysis is also being enhanced. We are investing to improve our modelling capability. A major investment in the creation of a Scottish specific dynamic dispatch model will allow for more accurate modelling of this nature in the future and will significantly enhance our analytical capacity. We anticipate the model to be in operation by summer 2013.

4.4 Decarbonisation policies - our approach

4.4.1 As described elsewhere in this chapter, decarbonisation will be achieved through a range of polices. The policies and proposals identified in this report alongside the Draft EGPS would suggest that the carbon intensity of the grid in Scotland will fall at least in line with the levels outlined by the Committee on Climate Change (CCC).

4.4.2 Our aim is to achieve decarbonisation of Scotland's electricity supply by 2030, consistent with the recommendations of the CCC. The 2030 decarbonisation target will be to achieve a grid-average of 50gCO2/kWh of electricity generation in Scotland down from an estimated 291gCO2/kWh in 2011.

Scotlands Targets for Renewable Electricity

We are aiming for an output equivalent to 100% of Scotland's demand for electricity to be met from renewables by 2020. But this does not mean that Scotland will be 100% dependent on renewables generation; renewables will form a vital part of a wider electricity mix, supported by continuing need for a minimum of 2.5GW of upgraded clean thermal baseload. The electricity generation mix that we see as likely and necessary for Scotland is set out in our revised Draft Electricity Generation Policy Statement.

4.4.3 Alongside a substantial further growth in renewables, Scotland will maintain and build new power stations run on traditional fossil fuels. This thermal generation will form our baseload generation capacity and flexible element of our energy supplies. Our aim is that Scotland's thermal generation will be decarbonised over time through the increased application of CCS. CCS has the potential to substantially reduce emissions from fossil fuel power stations and will be a vital element of a decarbonised power sector by 2030 (see section 4.7 for more on CCS).

4.4.4 The deployment of renewable electricity and CCS in Scotland will not only help to enhance security of supply, minimise consumer exposure to volatile and rising fossil fuel prices and deliver obvious economic benefits to Scotland but will also lead to decarbonisation of Scotland's electricity supply and provide greater scope for the deployment of electrified heating and transportation systems.

4.4.5 Within the context of an integrated GB market for electricity, Scotland has its own policies and support measures aimed at influencing electricity demand and supply. Our policies, set out in our Draft EGPS, Renewables Routemap, Offshore Wind Routemap, Carbon Capture and Storage Roadmap and the Energy Efficiency Action Plan (EEAP), will deliver substantial reductions in emissions and a substantial increase in low carbon electricity exports from Scotland by 2020, while maintaining security of supply within Scotland.

4.4.6 Those exports will increase substantially in the 2020s as Scottish-based renewable energy and low carbon electricity generators secure their position as the most competitive producers of low carbon electricity in an increasingly integrated European market.

4.4.7 The Draft EGPS examined the way in which Scotland generates electricity and considers the changes required to meet our targets. It looks at the sources from which that electricity is produced, the amount of electricity which we use to meet our own needs, and the technological and infrastructural advances and requirements which Scotland will require over the coming decade and beyond.

Draft Electricity Generation Policy Statement

The Statement was published in March 2012 for consultation along with an accompanying Environmental Statement. A final version will be published in 2013. Our aim is to achieve a secure, affordable and sustainable supply of electricity, including:

  • Energy demand reduction - detailed in our Energy Efficiency Action Plan, towards our target of a 12% reduction in total final energy consumption by 2020;
  • Renewable energy sources - our Renewables Routemap outlines the importance of renewable sources, including our targets that 50% of Scotland's gross electricity consumption be provided by renewables by 2015 and 100% by 2020, and our target for at least 500 MW of renewable energy (electricity and heat) to be in local and community ownership by 2020;
  • Carbon Capture and Storage (CCS) - our policy is that renewable generation should operate alongside upgraded and more efficient thermal stations, and that there should be a particularly strong role for CCS, where Scotland has the natural advantages and resources which could enable it to become a world leader, with the central North Sea thought to be capable of storing as much as 100 MtCO2e per year up to 2030 and 500 MtCO2e per year beyond 2030.
  • Nuclear - we are opposed to any new build of nuclear power stations in Scotland. The existing stations will be phased out in Scotland over time, with no new nuclear build taking place in Scotland. We have, however, consistently stated that, subject to the relevant safety cases being approved by the Office for Nuclear Regulation, we do not see that this precludes extending the operating life of Scotland's existing nuclear stations to help maintain security of supply over the next decade while the transition to renewables and cleaner thermal generation takes place. As such, we did not oppose the life extension of Hunterston B nuclear Power Station to 2023 announced by EDF Energy in December 2012.
  • Bioenergy - our policy is that biomass should be used in the most efficient and beneficial applications at a scale that is appropriate to make the best use of finite bioenergy supplies, i.e. in heat-only or Combined Heat and Power (CHP) applications and off gas-grid solutions. In this way, biomass can make an appropriate contribution to meeting the Scottish Government's target of 11% of heat demand to be sourced from renewables by 2020.
  • Role of electricity storage - we support the development of electricity storage solutions, which, while financially and technologically challenging, can help address the variability of certain forms of renewable generation.
  • Transmission and distribution - we recognise the need for extensive new onshore and offshore grid development and reinforcement in Scotland and strengthened connections within and across the UK. The Scottish Government works closely with UK Government, Ofgem and Transmission System Owners to plan and deliver the grid upgrades needed to deliver Scotland's future grid. As a result of this work, Ofgem is fast-tracking up to £7bn worth of grid upgrades in Scotland to boost capacity and better connect and transport Scotland's electricity. We also continue to press for a changes to regulatory regime to accelerate deployment of our onshore and offshore resources - in particular an equitable outcome on charging.
  • Interconnection - beyond the GB system and in Europe we are pushing the importance of developing more and better interconnection from Scotland to other parts of the UK, the Nordic countries and Europe. This includes working to deliver cross-border offshore grid connections in the seas between Scotland and Ireland, as set out in the Irish Scottish Links on Energy Study (ISLES). It includes supporting projects of interconnection to Norway and Europe and working with EU partners on developing a North Sea electricity transmission grid.

4.5 Energy demand reduction

4.5.1 Our ability to reduce total final energy demand in Scotland by 12% by 2020 is critical to meeting our other targets in a cost-effective way. Electricity use is likely to rise in the long term as more is used for transport and heat reasons.

4.5.2 Energy efficiency is the simplest and most cost-effective way to reduce emissions whilst seeking to maximise the efficiency of our renewable energy resources. It complements our other energy-related strengths, and applies across housing, business, and transport - each of which are major energy consumers - to help us create a more sustainable Scotland. Energy efficiency measures relevant to particular sectors are detailed in the corresponding sectoral chapters in this document.

4.5.3 We published the Energy Efficiency Action Plan (EEAP) in 2010 and progress reports in 2011 and 2012. The EEAP established a target to reduce total final energy demand in Scotland by 12% by 2020 from a 2005-7 baseline, covering all fuels and sectors. The data for 2010 show that final energy consumption fell by 6.2% against the target baseline although showed an increase of 1.2% compared with 2009. The rise in 2010 was due in part to the economic recovery from the previous year and a particularly cold winter. However, the longer term reduction indicates that Scotland is on track to meet the 2020 final energy reduction target.

4.6 The role of renewable electricity

4.6.1 Our 2020 Routemap for Renewable Energy in Scotland published in 2011 set out the actions needed to achieve these targets. In October 2012 we published an update summarising the progress made over the past year, as well as considering what still needs to be done and the ways in which we are approaching these tasks.

Progress on our renewable electricity generation targets

We are on track to meet our renewable electricity targets. Electricity generation from renewables was at a record high in 2011, and figures published in December 2012 confirmed that we exceeded our interim target for the equivalent of 31% of electricity demand to be generated from renewables by the end of 2011.

4.6.2 With UK DECC statistics showing Scotland met the equivalent of 36.3% of its electricity demand from renewables in 2011, the update sets a new and more ambitious target of the equivalent of 50% of Scotland's electricity demand met from green power by 2015 - an achievable target based on the sector's rapid progress. This target will keep Scotland on the delivery path to meet the equivalent of 100% of Scotland's electricity demand from renewable sources by 2020.

Chart 4.2: electricity generation from renewables

Chart 4.2: electricity generation from renewables

  • Our finalised renewable electricity generation figure for Scotland during 2011 is 13,728 GWh - up 27.6% on 2009, the previous record year for renewables.
  • In 2011, the equivalent of 36.3% of Scotland's electricity needs were met by renewable sources.

The Scottish Government's support for renewable electricity is delivering huge savings in greenhouse gas emissions. The UK Department of Energy and Climate Change estimated that Scottish renewable generation displaced 8.3 MtCO2e across the UK electricity grid in 2011.[87] These savings will increase further in line with our renewables deployment, highlighting the role that renewables can play in combating climate change.

Scotland's seas will play a huge role in this expansion beyond 2020. We are already investigating, through the marine planning process, the potential for additional sites for offshore wind, wave and tidal energy. These could provide the capability to more than double capacity and production from these sources, with at least an extra 10GW of potential supply for domestic use or export.

4.6.3 In terms of validation of this progress, the Scottish Government has welcomed the recent central finding by the Economy, Energy and Tourism Committee that our renewable energy target for electricity generation is achievable, subject to a number of issues being addressed.

4.6.4 Our Renewables Obligation (Scotland)[88] is an obligation on electricity suppliers to source an increasing proportion of electricity from renewable sources, which works alongside the other UK Renewables Obligations

4.6.5 We have a range of funding programmes and initiatives such as the National Renewables Infrastructure Fund, our Community and Renewable Energy Scheme and funds for to support the development of offshore wind and the commercialisation of marine renewables. More details of these can be found in the Funding and Financing section earlier in the document.

Sources of Electricity Generation in Scotland

Carbon capture and storage

Two CCS projects are putting Scotland at the front of CCS development and deployment: the CCGT station at Peterhead; and Summit Powers proposals for the Captain Clean Energy Project to be constructed in Grangemouth Port. Both have been shortlisted for the next stage of the UK Government CCS commercialisation competition[89] which will involve intensive negotiations leading to decisions on which projects to support further through to the Front End Engineering Design (FEED) stage early in 2013.

Peterhead: a 340MW Post-combustion capture retrofitted to part of an existing 1180MW Combined Cycle Gas Turbine power station at Peterhead. Led by Shell and SSE.

Grangemouth-Captain Clean Energy Project: a proposal for a new 570MW, fully abated coal Integrated Gasification Combined Cycle (pre-combustion) project in Grangemouth, with storage in offshore depleted gas fields. This project is led by Summit Power, involving Petrofac (CO2 Deepstore) National Grid and Siemens.

4.7 The role of Carbon Capture and Storage

4.7.1 Our CCS Roadmap, published in 2010, highlights that Scotland has considerable advantages in CO2 storage. Our ambition is for Scotland to lead the UK and EU in the development of CCS, and to maximise our comparative economic advantage through demonstrating this technology. CCS should be economically and technically proven by 2020 and progressively fitted to all coal and gas thermal plants in Scotland by 2030 to ensure full decarbonisation of the electricity supply.

4.7.2 Scotland is well-placed to take a lead on CCS and to capitalise on its position as the EU's largest potential offshore CO2 store. We have knowledge and expertise in our universities and industry, the infrastructure in the North Sea, and the strong leadership in government necessary to make this happen and achieve our ambition of a low carbon energy economy.

4.8 Oil and gas

4.8.1 The oil and gas industry will play an essential role in the development of a low carbon economy in Scotland. At present, direct emissions from the sector do not form part of Scotland's emissions inventory, but the Scottish Government is committed to continued membership of the EU Emissions Trading Scheme (EU ETS) as the best way to ensure the industry recognises and manages the wider carbon costs of their activity.

4.8.2 The oil and gas sector is Scotland's largest by value. Gross Value Added for the Extraction of Oil and Gas in Scotland was around £27.3 billion in 2011. The skills, infrastructure and resources of the sector must therefore become the basis of a successful transition to a low carbon economy. The central long-term task is the cross-sector transfer of skills and infrastructure. Scotland's unparalleled knowledge of deep water engineering, for example, will support the nascent offshore wind and marine renewable energy industry. Analysis by Scottish Enterprise has shown that the use of the oil and gas supply chain has the potential to bring substantial cost efficiencies, reducing the cost of offshore wind installation and operation by 20%. Carbon Capture and Storage technology also rests on the maintenance of key infrastructure in the North Sea, bringing the potential to store immense volumes of carbon undersea.

4.8.3 More widely, the value chain that supports offshore extraction is the same valuable, interlinked set of industries that will ultimately support the commercial exploitation of low carbon goods, products and services. The Scottish Government has implemented a range of measures - most notably, the recent Renewable Energy Investment Fund - to encourage investment in this cross-sectoral transition.

4.9 Grid infrastructure and consents for renewable generation

4.9.1 We are driving forward initiatives to enhance grid interconnections between Scotland and the EU: the Scottish Government is working as part of the North Seas Countries Offshore Grid Initiative, which is focusing on the European priority of developing the Northern Seas Grid Infrastructure; and working with the Irish and Northern Irish Governments to promote grid interconnections for renewable energy in the Irish Sea and Atlantic.

4.9.2 The Scottish Government is committed to innovation and research, aimed at driving the development and deployment of renewable generation, including the Saltire Prize, the Scottish European Green Energy Centre (SEGEC), the European Marine Energy Centre (EMEC); and the revised approach to low carbon innovation set out in the Scottish Government's Low Carbon Economic Strategy.

4.9.3 Our section 36 guidance sets out policy and process for the application to Scottish Ministers for consent of renewable generation, as well as the Scottish Government's role and responsibility for determining applications for improvements to the electricity grid. Individual planning authorities can influence the development of renewables through their responses to Ministers' consultation, and through their own role in development planning and determining development proposals.

4.9.4 In the case of onshore wind, spatial frameworks prepared by planning authorities help to steer wind farms over 20MW (and under if considered appropriate) to the best locations and policy criteria set out in the development plan for deciding applications provides a clear indication of the potential for wind farms of all scales. The Scottish Government has developed on-line renewables planning advice to support planning authorities in preparing spatial frameworks and for considering the development of wind energy in their areas.

4.10 Energy market - powers and regulation

4.10.1 The way in which energy markets and energy generation, transmission and supply are regulated is vital to our decarbonisation plans. This applies to the market incentives for different kinds of renewable energy production, as well as for developing connections to the UK and Europe for the export of energy and ensuring security of Scotland's future energy supply.

4.10.2 Scotland's renewables targets, and their reliance on being able to support, develop and export (across the UK and Europe) energy from a wide range of technologies, require a framework which is stable, and which supports the production of renewable energy in a sensible and sustainable way.

4.10.3 This is why we retain a profound interest in the progress of the UK's Electricity Market Reform (EMR)[90] proposals, and in changes to the relationship between governments and the UK energy regulator Ofgem contained in the UK Energy Bill.

4.10.4 The Energy Bill was introduced to the UK Parliament in November 2012. It contains proposals for fundamental reform of the electricity market, built around four mechanisms:

  • a Carbon Price Floor, which will tax fossil fuel electricity generation in relation to the amount of CO2 emitted, thereby improving the relative economics of low carbon generation;
  • a system of long-term contracts, known as a 'Feed-in-Tariff with Contract-for-Difference' (FiT CfD), designed to provide a high level of certainty on revenue streams for low-carbon generators, thereby encouraging investment in such generation. This would replace the current Renewables Obligation (RO);
  • a Capacity Mechanism which will help ensure security of supply by providing payments to ensure availability of sufficient generation capacity; and
  • an Emissions Performance Standard, which will limit the permitted CO2 emissions from coal power stations.

4.10.5 We welcome the Electricity Market Reforms and UK Energy Bill and intend to work with the grain of the GB energy market now and into the future. But we are clear that the EMR must build on Scotland's strengths and successes and not undermine them in any way. It is in the interests of both Scotland and the UK to protect the strong industry and investor confidence and growth we are delivering across the Scottish Energy Sector, renewables in particular, and in thermal generation and carbon capture and storage technologies[91].

4.10.6 We remain committed to this work and to working with our UK counterparts. Our commitment echoes the wishes of the Scottish Parliament who, on the 13th September 2012, unanimously voted in favour of a motion which including the commitment "that the UK and Scottish Government should work constructively to deliver a strong, thriving, competitive and integrated electricity market".

4.11 Costs and benefits of a low carbon energy mix

4.11.1 A continuing suppy of electricity is essential for our economy and society. It will however require significant investment. As electricity generating assets reach the end of their operational life, they will need to be replaced with a diverse mix of generating technologies. Alternative and innovative methods of generation will replace traditional technologies reliant on carbon intensive fossil fuels. Our aim is to ensure that these costs are as low as possible, and affordable to consumers.

4.11.2 Energy price rises experienced in the previous decade have been largely driven by the rising international price for gas. Ofgem's Project Discovery[92] report points out that the next decade could be characterised by far greater price hikes and volatility if energy supplies are more reliant on fossil fuels than low carbon sources. Policies to decarbonise the electricity generation sector are key to breaking the link between electricity prices and uncertain fossil fuel prices.

4.11.3 Analysis by the independent Committee on Climate Change (CCC)[93] shows that energy bills have increased significantly in recent years, this is mainly due to increases in the international price of gas and investment in electricity/gas networks (contributing 62% and 16% respectively of the increase in household energy bills since 2004). The impacts are smaller for support for low-carbon technologies and support for energy efficiency improvement (less than 10% each of the increase in household bills since 2004).

4.11.4 By 2020, the CCC estimates that support for low carbon power generation will increase energy bills by around £100, while wholesale gas prices would add £130 under DECC's central scenario. Additionally, increasing network costs will add £55, with smart meters and VAT adding around £5 and £20 respectively. This would £1,340 in 2020. However, energy efficiency policies and gas boiler replacement have the potential to reduce bills by £145; resulting in a total domestic energy bill of around £1,195.

4.11.5 DECC has also produced estimates of the impact of energy and climate change policies on average household energy bills in 2020[94]. This analysis shows that by 2020 the average household's energy bill would be 7% lower because of the net effect of the energy and climate change policies that have been established.

The value of investment in a low carbon electricity system

In the longer term, the Scottish Government is confident that investing now in a low carbon future is an economically viable and necessary thing to do. Beyond 2020, low carbon support mechanisms will continue to have a small impact on bills but this will offer greater certainty and reduce exposure to the risks of very high electricity prices under a system dominated by unabated gas generation. The CCC report highlights that if gas prices were to continue to rise, reliance on fossil fuels could mean that the average annual bill in a gas-based system could be as much as £600 higher in 2050 than in a low-carbon system.

4.11.6 Beyond electricity, the CCC's advice on the UK Government's Carbon Budget also highlights the importance of a decarbonised electricity supply in order to deliver challenges in heat and transport to meet our ambitious 2050 climate change targets.

Highlights of progress to date

  • In 2010, final energy consumption was 6.2% lower than the 2005-2007 baseline adopted for the Scottish Government's 12% energy efficiency reduction target, however it increased by 1.2% compared with 2009.
  • Electricity generation from renewables was at a record high of 36.3% in 2011, exceeding the interim target for the equivalent of 31% of electricity demand to be generated from renewables by the end of 2011.
  • Figures published in December 2012 show that output in the first 9 months of the year has already surpassed 2010's annual output and is 15% higher than the same three quarters of 2011's record year.
  • Scottish ministers have consented 54 renewable projects since May 2007 - more than double the number for the previous four years.
  • The £103 million Renewable Energy Investment Fund was opened for business in October 2012 and will leverage further private finance into green energy projects.
  • The £35 million Prototyping for Offshore Wind Energy Renewables Scotland (POWERS) fund will support production of full-scale prototypes of next generation offshore wind turbines.
  • The £18 million Marine Renewables Commercialisation Fund will accelerate the deployment of wave and tidal stream arrays in Scottish waters.
  • Since May 2007, over 800 grants for community renewables, worth over £16 million were allocated under Community and Renewable Energy Scheme (CARES).
  • The CARES Loan Scheme worth £7.75 million has supported 42 community-based energy generation projects since 2011. The recently relaunched scheme will make a further £23.5 million available to communities and rural businesses over the next three years.