All-Energy Conference: First Minister's speech - 11 May 2022

The last time I was in this building was, like I’m sure it was for many people here, six months ago, during COP26 – at a time of course this building was UN territory, and Glasgow felt like the centre of the universe. Indeed, as I say Glasgow always feels like the centre of the universe!

Let’s cut to the chase, Glasgow is the centre of the universe! But during the two weeks of COP it wasn’t just Glaswegians that felt that. The entire world shared that view with us.

There’s no doubt six months on that the world has changed dramatically. But the importance of building on the significant progress – yes insufficient, the Glasgow Climate Pact didn’t deliver everything we might have wanted, but it was an outstanding success and building on that cannot be overstated, and that will be one of the themes in my remarks to you today.

Of course since the conclusion of COP the world has changed. More than any of us would have contemplated back in November last year. All of us across the world have been utterly appalled and horrified by Russia’s illegal, unprovoked invasion of Ukraine.

That invasion has of course contributed to high and rising energy prices, which in turn are exacerbating the cost of living crisis that we have already referred to this morning. The invasion is also prompting countries across Europe to accelerate efforts to achieve energy security, and to end reliance on Russian oil and gas.

However – and in some ways I think this is my key message today – even as we do by necessity address the energy impacts the invasion of Ukraine, and even as act to mitigate, as we must, the cost of living crisis, we must also continue to recognise the real urgency of the climate crisis. Indeed I would argue that these are not intention. The more we do address the climate emergency, take the steps necessary to do that, then the more we help ourselves achieve energy security and the more we start to lower costs of energy. All of these things are inter-dependent.

So in my view we must focus not less but more on building a net zero energy system, than we should on securing alternative oil and gas supplies from other sources.

Scotland is doing that, and seeking to up our efforts in doing that. As we highlighted here at COP, we see the move to net zero as an environmental imperative, in so many ways a moral imperative, but also a massive economic opportunity. And two of the key areas that we are focussing on – developing offshore wind and hydrogen, together with decarbonising heat – are also of course key themes for this conference.

For that reason, I’ll cover both of those issues in a bit of detail in my remarks today, starting of course with wind and hydrogen.

Wind power as we know is already the cheapest form of power in our electricity mix –certainly, for example, cheaper than nuclear power.

In fact, Keith (Anderson) gave some compelling evidence on this in the Scottish Parliament a couple of weeks ago – when he said that “The more that we invest as a country in the future of wind…, and in solar, the more we will bring down the cost of energy and the better and stronger we will make the energy source and security.”

That point I made earlier about the inter-dependency of all of these objectives.

Scotland is developing both our onshore and offshore wind capacity. We have set out our intention of installing a further eight to 12 gigawatts of onshore wind capacity.

And of course, as we’ve already heard about this morning, in the last few months we have seen and celebrated significant progress in developing our offshore wind sector. Back in January Crown Estates Scotland announced the results of the Scotwind auction.

They confirmed that the successful bids - covering 17 different offshore wind sites - could yield up to 25GW of energy. To put that into context, 25GW is more than double the current level of installed capacity, for all forms of renewable energy in Scotland. So the opportunity there is massive and we must make sure that we fully realise that.

This is big for the economy as well. The bids from developers came with significant supply chain commitments. They anticipate that they will invest an average of £1.5 billion in Scotland for each project – across the 17 different sites that could lead to more than £25 billion of investment. 

Now that won’t happen by magic. We understand that. An enormous amount of work needs to be done to ensure that we can and do take advantage of that opportunity.

To that end the Scottish Government has created the Scottish Offshore Wind Energy Council.

The Council brings together offshore wind developers and the public sector, so that we can agree together on the actions needed to strengthen our supply chain.

The Council has co-ordinated a Collaborative Framework Charter, which is being published today.

That has been signed by 24 companies, including all of the successful Scotwind bidders. Under the charter, these developers have agreed to collaborate, to create supply chain work within Scotland. So it is significant and it is extremely important.

An early priority for action will be work with Scottish ports. There has already been important progress here – for example the relatively new Scottish National Investment Bank has agreed a £38 million investment for Aberdeen Harbour. So that’s important but we know we need to do more.

If our ports and harbours are confident enough to invest in new facilities for manufacturing and assembly - and also for longer-term operation and maintenance - that in turn will help the whole of the Scottish supply chain.

We also hope, of course, that developing a supply chain for offshore wind will also benefit our onshore wind sector.

However – and this is I believe a really crucial point – to benefit fully from our offshore and onshore wind resources, we need to see action from Ofgem, on the transmission charges that energy generators pay.

The UK’s energy supply has been transformed over the last two decades. As recently as 2012, coal produced almost 40% of the UK’s electricity – in 2020, it was less than 2%. By 2025, it will be zero.

But we have a system of transmission charges that still reflect the age of coal. They were intended to encourage coal and gas-fired power stations to be sited close to our big cities and industrial centres.

That approach is no longer appropriate. And actually worse than that, it is a barrier to investment in areas that have huge renewable resources, but are far away from major population centres. Of course that includes offshore and onshore wind sites in the north of Scotland.

In fact, Ofgem’s own analysis suggests that if the current system continues, by 2040, Scottish renewable and low carbon generators will be the only ones – anywhere in Britain – to be paying the wider transmission network charge. All other providers – including gas generators - will actually be paid credits. That makes no sense whatsoever.

As many commentators recognise, it is simply unsustainable. It would be utterly absurd for transmission charges to encourage gas generation elsewhere in the UK, to the detriment of renewable generation in Scotland.

And so once again, and I’m taking this opportunity today to once again, to appeal to Ofgem to review and change the current charging system. It is a barrier to investment in new energy. It will slow progress towards our climate change targets. There is a real danger that it will prevent our offshore wind sector from reaching its full potential.

That’s something that is increasingly important because offshore wind – as well as being a vital technology in its own right – will also be central to the growth of Scotland’s hydrogen sector.

Through our onshore and offshore wind sectors, and also potentially our marine sector more widely, Scotland has in abundance the renewable energy resources that green hydrogen production requires.

Also - thanks in part to our oil and gas sector – we have a highly skilled energy workforce.

These are the factors that together make us believe that Scotland has the potential to produce and then export the lowest-cost hydrogen in Europe.

Our hydrogen action plan sets out the aim of being able to produce 5GW of hydrogen power by 2030. That’s equivalent to almost 15% of Scotland’s current overall energy demand.

And by 2045, we hope to have the capacity to generate 25GW of hydrogen – well over two thirds of Scotland’s current energy demand.

Hydrogen has a crucial role in decarbonising industry – it will be vital, for example, in ensuring a sustainable future at some of Scotland’s largest industrial clusters. It also has an important role in our transport sector – Aberdeen for example already has a fleet of hydrogen buses, and we will be trialling hydrogen trains.

But it’s also a massive export opportunity. Hydrogen made in Scotland can help other European countries meet their own decarbonisation aims. We have already signed memorandums of understanding – on exporting hydrogen, and also on knowledge exchange - with Hamburg, North-Rhine Westphalia and Denmark.

For all of these reasons, hydrogen has the potential to become a major new industrial sector in Scotland – one that can provide secure long-term employment in different regions in Scotland, and in our ports and harbours.

That’s why we’re investing £100 million over the course of this parliament to support the sector’s growth. And later this year, in September, Edinburgh will host a major hydrogen supply chain conference.

This is of course an industry which in many ways is still fairly young. But it has the potential to grow rapidly. And we believe it can create important environmental benefits, but also huge economic opportunities.

Now, I’ve focussed so far on the first theme of this conference –offshore wind and hydrogen.

But I want to touch briefly now on the second theme – decarbonising heat – because that as all of us know is also crucial. Heating buildings currently accounts for around 20% of Scottish emissions.

So it is impossible to meet our climate change targets – and also to reduce our dependence on imports of gas – without changing how we heat our buildings.

Of course this is an issue very closely linked to the cost of living crisis.

While many of the steps we need to take to decarbonise heat will have an impact over months and years, the cost of living crisis, as I said earlier, requires immediate action. We simply cannot have a situation where more and more families have to choose between heating their homes, and feeding themselves and their children.

Energy companies of course have a role to play. They have not caused this crisis. But I know they understand we want them to do as much as possible.

But energy companies cannot solve this alone. The key response must come from government. For example, we have called on the UK Government to cut VAT on energy bills to zero, and to do more to directly support low income households. We continue to make that case in addition to the action the Scottish Government is taking.

As part of the action we are taking, we are increasing funding for our Warmer Homes Scotland programme. Part of the £1.8 billion that we will invest between now and 2026 to support energy efficiency programmes and speed up the switch to zero carbon heating systems.

The scale of the changes we need to see, means of course we need to lever private capital as well as public investment. As Keith (Anderson) rightly said earlier there is much private capital out there looking for investment.

By the end of the decade, we want at least a million Scottish homes, and about 50,000 non-domestic buildings, to adopt zero carbon heating.

The Scottish National Investment Bank will also have key role to play. And we have established a Green Heat Finance Task Force to will recommend ways to increase investment from the private sector and individuals.   

There’s no doubt that decarbonising heat is one of the toughest elements of meeting our net zero targets. 

It is tough for all governments – and because Scotland has adopted an earlier net-zero target than the rest of the UK, we will undoubtedly be facing up to the challenge earlier than other parts of the UK.  

But for all the difficulties it presents, we must also have an eye on the massive opportunities.

The move in Scotland to decarbonise heating could support more than 16,000 thousand jobs every year - Mitsubishi Electric, for example, announced a significant investment in their Livingston heat pump factory just last year.

It creates warmer, healthier homes; helps to reduce price volatility as a result of gas price increases; and it will help us to meet our climate change targets. It is one of the most important things we can do, must do, to create a just transition to a net-zero Scotland – and I’m really pleased to see this conference giving it the prominence it deserves.

Now just to conclude, looking back to the start of my remarks - I was reflecting on being here six months ago for COP26.

One of the most inspiring events of the many I attended around COP, was a discussion with Cristiana Figueres, the former Executive Secretary of the UN Framework Convention on Climate Change.

She said the 2020s are set to be the most important decade in human history. In one sense, that sounds like typical politician hyperbole, but it is actually, I think, completely true. The decisions we take in the months and years ahead will – quite literally – determine our planet’s climate for generations to come.

That’s why – even as countries around the world consider the very serious energy supply issues caused by the invasion of Ukraine – we must not focus primarily on securing oil and gas from other sources. We must instead intensify our efforts to build a low carbon and eventually net-zero energy system.

Governments must take the lead roles in many of these decisions – and I am determined that the Scottish Government will do everything we can to lead by example.

But actually, every single person in this room has a role to play. All of you are working in industries and sectors, which have the potential to help create a better future, not just for Scotland, but for the whole world.

Achieving that future will not be easy, it will not be straightforward. It will require great commitment from government, action across all of our society and – of course - all of the ingenuity and expertise of the energy sector.

But I firmly believe that it is possible. And my faith in that is strengthened, by seeing the passion and innovation on display at this conference.

I very much hope that some of the discussions, contacts and ideas that will be sparked here, can and will help to bring Scotland’s net zero future that bit closer.