Chapter 2. Scotland's Changing Energy System
Scotland has long been an energy rich nation. That reputation, forged in the development of our coal, oil and gas reserves and engineering prowess, has since grown through the rapid development of our renewable resource.
Scotland's electricity supply today is largely decarbonised. We are well on the way to our target of generating 100% of our electricity demand from renewables in 2020 – provisional statistics show 54% of Scotland's electricity needs were met from renewables in 2016, with major new capacity due to connect to the system in the coming years. We are determined now to tackle the challenges of decarbonising heat and transport, in order to meet our longer term energy and climate change targets.
Diagram 1 - Scotland's energy flow, 2015
Energy consumption in Scotland in 2015 was 157 Terawatt-hours ( TWh), significantly lower than a decade earlier. Total final energy consumption fell by 15.4% compared with the mid 2000s. Energy efficiency played a big part in this, as did the impact of the economic cycles, prevalent prices and weather patterns.
We have always prioritised tackling fuel poverty and, by the end of 2021, we will have allocated over £1 billion pounds since 2009 on tackling fuel poverty and improving energy efficiency. Scottish Government programmes, coupled with new building standards, have significantly increased energy efficiency. The Scottish House Condition Survey shows that just over two-fifths (43%) of homes in 2016 rated EPC band C or above, an increase of 77% since 2010. Scotland now has proportionately 38% more homes with a good EPC rating (C or above) than England.
Diagram 2 - Change in Final Energy Consumption, Baseline (2005-07) – 2015
In 2015, total final energy consumption was 15.4% lower than the 2005-07 baseline, achieving our 12% energy efficiency target 6 years early.
More than half (51%) of the energy we consume in our homes and businesses is used for heating, the majority of which is supplied by natural gas. An estimated 79% of homes used natural gas as their primary heating fuel in 2016.
Transport accounts for 25% of total energy demand. The majority of this is for road transport. In recent years biofuel has been introduced into road fuel, and currently accounts for 3.1% of total fuels.
Electricity accounts for just under a quarter of total energy demand, with 77% of electricity generation in 2015 coming from zero or low carbon sources, and 27% from wind energy alone. The installed capacity of renewables in Scotland reached 9.5 GW in June 2017.
Diagram 3 - Final Energy Consumption – split by end use sector, 2015
The cost of energy to consumers has risen considerably over the past two decades. In 2016 26.5% (or around 649,000 households) were fuel poor  .
Domestic consumers in Scotland are now paying over 50% more for an average duel fuel energy bill than they were in 1998, with the cost of gas rising at a faster rate than electricity. Prices for non-domestic consumers have also risen substantially, with large industrial consumers in particular now paying some of the highest prices across the European Union.
Producing useful energy for Scotland and beyond
Oil and gas remain vital, accounting for around 90% of total primary energy in 2015  . Fossil fuels meet the majority of Scotland's heating and transport demand, as well as significant export demand.
Scotland (including Scottish adjacent waters) produced 63% of total UK gas production in 2016-17. While the UK as a whole has significant dependency on imported gas, in 2015, Scottish gas production represented roughly six times that of final consumption.
The share of renewable energy as a proportion of the energy we generate and consume has increased considerably over the past decade. Renewable energy sources now supply the equivalent of almost 18% of Scottish final energy consumption, up from around 8% in 2009.
Diagram 4 - Renewable Energy in Scotland
In 2015, 17.8% of total Scottish energy consumption came from renewable sources, more than double the level in 2009.
Renewables generated 42% of our electricity production in 2015, meeting the majority of Scottish demand alongside the two nuclear power stations at Hunterston and Torness, generation from Longannet  coal power station and with a small amount coming from the gas-fired station at Peterhead. The growth of renewable generation is due to the expansion of onshore wind, complementing the post-war investment in large-scale hydro, as shown in Diagram 5.
An estimated 1.7 Gigawatt ( GW) of renewable heat capacity operated in Scotland during 2016, producing 3,752 Gigawatt-hours ( GWh) (see Diagram 4). These estimates suggest that Scotland produced enough renewable heat to meet between 4.8% and 5.0% of non-electrical heat demand.
Diagram 5 - Renewable Electricity in Scotland
In 2016, the equivalent of 54% of total Scottish electricity consumption came from renewable sources, four times greater than the level in 2000  .
More of us are turning to electric vehicles ( EVs). At the end of June 2016, there were 3,575 electric cars and vans licensed in Scotland (eligible for the UK Government's plug-in car and van grant schemes), compared to 2,050 at the end of June 2015.
More EVs were sold in Scotland in 2015 than the previous four years combined, with 2016 sales expected to have risen further. Our ChargePlace Scotland network has expanded to over 600 publicly available EV charging points, equating to over 1,200 charging bays. This includes over 150 'rapid' charging points, one of the most comprehensive networks in Europe.
Diagram 6 - Renewable Heat in Scotland
In 2016, an estimated 4.8% to 5% of total Scottish heat demand was met from renewable sources  .
Diagram 7 - Yearly Pattern of Energy Consumption
Our energy demand varies over the course of the year, meaning that we need flexibility in the system. Gas provides just that, and can comfortably accommodate large seasonal swings in demand. This means that any future changes to our use of gas, and the effect of such changes on our ability to access that flexibility, will require careful thinking.
Energy storage is another important source of flexibility. Energy can be stored in different ways – for example, in pumped hydro storage facilities, chemical batteries, thermal stores, stocks of coal at power stations, gas storage facilities and more locally in the form of petrol and diesel in refilling stations or in vehicle tanks.
Changes to how we store energy across the system, and particularly in terms of electricity and heat, could have a profoundly important bearing on our low carbon future.
Diagram 8 - Energy Storage in UK, 2014
The area of each coloured square indicates the energy stored. The size of annual total UK energy demand is indicated by the large light grey square and annual total UK electricity demand by the smaller dark grey square.
As shown in Diagram 8, coal was the single largest store of energy in the UK in 2014, consisting primarily of stocks held at power stations ready for conversion to electricity. Coal and gas storage together formed major inter-seasonal storage capability, playing an important role in managing the difference between winter and summer demand. Petroleum-based products are held in a variety of forms – centralised stocks, in local depots and refilling stations, and carried on board vehicles in fuel tanks.
These fossil fuel stores amounted to hundreds of TWh of storage in 2014, similar in scale to the total annual British demand for electricity. By contrast, the forms of energy storage usually discussed in relation to a low carbon electricity system are typically a much smaller fraction of that. The existing pumped storage hydro fleet accounts for around 30 GWh of storage, while the largest current grid-scale battery projects are in the range of tens of Megawatt-hours ( MWh).
Large energy stores in the oil and petroleum sector provide resilience against disruptions in the international energy system. The UK has committed via the European Union and the International Energy Agency to hold stocks of oil-based products equal to more than two months of typical usage. As transport moves away from a reliance on petrol and diesel, the need to hold stocks of these products will reduce. But the issue of our resilience to international disruption will remain important.
The process of decarbonising our energy system is already underway. By the end of 2016, coal stocks had fallen to just 40% of their size in 2014. The Rough gas storage facility is in the process of closing, removing approximately 37 TWh of energy storage from the system.
We need to bear in mind and understand the implications for our energy system of these changes to our existing storage capacity, as well as for the flexibility it has historically provided. We will need to adapt market structures and systems, develop new sources of flexibility, and explore low carbon options which can make use of new and existing storage opportunities.
A future energy system for Scotland
There is little certainty about the exact way in which the energy system might evolve. We have witnessed substantial changes over the past two decades – both large reductions in electricity generated from coal (a 74% reduction between 1998 and 2016) and substantial increases (a more than 10 fold increase since 1998) in renewable generation across the GB system, particularly generation from onshore and offshore wind, driven by large and unforseen cost reductions.
In order to achieve our climate goals, Scotland needs to build on the progress made in decarbonising electricity production, and to see concomitant progress in the decarbonisation of heat and transport – while simultaneously maintaining affordable, secure and reliable supplies. This will not be simple, but Scotland is determined to play its part in the global effort to tackle harmful climate change.
A largely decarbonised energy system by 2050, which meets our climate change targets, can be achieved in a number of ways, and will be influenced by innovations and developments we simply cannot forecast. It will also depend on consumers' willingness and ability to adapt to new opportunities and behaviours, and on the underlying costs of primary energy sources and related infrastructure.
The Scottish Government's Digital Strategy  , published in 2017, highlighted the continuing revolution in Artificial Intelligence and the data-driven economy. This will also have a powerful bearing on the energy sector; emerging digital technologies and applications such as the Internet of Things, cloud computing, blockchain, 3D printing and machine learning can transform business models, markets and employment. These developments will continue to change the ways in which we produce and consume energy.
Cyber security will also become increasingly important, with smart, connected systems potentially more vulnerable to deliberate attack. Scotland's Cyber Resilience Strategy  provides a framework for improving our cyber resilience accordingly.
A greater proportion of both heat and transport demand is likely to be met by electricity. This would allow the continued growth of low carbon electricity generation, combined with technologies such as smart storage heaters and heat pumps, to provide highly efficient ways of providing delivering low carbon end-use space and water heating. However, the uptake of electric heating and transport on a large scale would place extra pressure on the electricity system, and on the network's ability to generate, store and deliver the capacity necessary to meet peaks in demand.
This will require investment at all levels of the network, but will also be influenced by changes in the way that networks are operated. There is scope to manage demand much more flexibly – for example, EV charging and heat pump operation could be coordinated through local and national markets – matching local demand and supply to manage and reduce network constraints.
An alternative approach might be to increase the supply of low carbon gas. Low carbon sources of gas could include biogas (from anaerobic digestion), biomethane, bioSNG and hydrogen. Hydrogen gas can be produced through electrolysis from renewable electricity (green hydrogen), or via a process called Steam Methane Reforming ( SMR) combined with Carbon Capture and Storage ( CCS).
Low carbon gas would use the existing gas transmission and distribution infrastructure, and maintain the system's ability to deal with significant swings in demand. Low carbon gas can either fully replace existing forms of gas, or be blended with existing gas to partially decarbonise the network. The GB gas distribution networks are already investigating the performance of hydrogen across their infrastructure.
Limits on the likely production of biogases and hydrogen from electrolysis would mean relying on significant levels of low carbon gas from combined SMR and CCS industrial processes, although the full suite of future technologies is difficult to forecast.
Scotland in 2050
In order to develop our Strategy, we have developed two indicative scenarios for the energy system, consistent with our current climate change targets. These show how low carbon electricity and hydrogen could be used to meet demand across the industry, services, residential and transport sectors. These are purely illustrative, designed to help us understand what infrastructure and behaviours might be required under different future scenarios.
Scotland's energy system in 2050 is unlikely to match either of these, but will probably include aspects of both. The pace of technological change, and advances in engineering and information technology across the economy and the energy sector over the next three decades, will have a huge bearing on the energy system and the ways in which we interact with it.
Both scenarios represent radical changes to the energy system, and would require sustained investment, high levels of public acceptance and support across society. They offer exciting opportunities for economic growth, using Scotland's existing expertise and knowledge.
The scenarios have been informed by sector-specific analysis and the Scottish 'TIMES' model; a strategic, whole-system energy model, taking into account a range of policy and other constraints. TIMES captures the main characteristics affecting technology deployment and the associated greenhouse gas emissions for Scotland as a whole. The scenarios show the amount and form of final energy delivered to consumers from the energy system.
These scenarios are not intended to predict the future. They are designed to generate discussion about how the future energy system could potentially look, and to help us consider the influence that developments in the near term could have on the eventual shape of the system.
Scenario 1 - An Electric Future
By 2050 electricity generation accounts for around half of all final energy delivered. The sustained growth of renewable generation has helped ensure that we meet our climate change targets.
Scottish electricity demand has increased by over 60% since 2015, and is increasingly supplying transport demand through battery-powered electric cars and vans. Space and water heating is largely supplied, where practical, by highly efficient heat pumps, and via a new generation of smart storage heaters.
Peak electricity demand has risen significantly, moderated to an extent by smart meters, responsive demand, new national and local market structures, and the changes in consumer behaviour that these have supported.
Scotland retains its pumped storage stations, with new capacity added during the 2020s, and electrical energy storage is widely integrated across the whole system. For example, the EV fleet operates as a vast distributed energy store, capable of supporting local and national energy balancing.
Better insulated buildings mean that domestic energy demand has fallen significantly. Most houses, including new and renovated housing stock, now use heat pumps, with heat storage providing an additional level of flexibility where space allows.
Around 80% of residential energy demand is met from electricity.
The Scottish car and van fleet has been fully converted to electric vehicles, with smarter electricity networks and more informed and flexible consumers meaning that demand is managed smoothly.
There is a diverse mix of super-fast chargers replacing petrol pumps at service stations, with a range of charging infrastructure an established feature in supermarkets, car parks, and other destinations, as well as domestically.
Other forms of transport have followed suit. Buses are now almost entirely electric. HGV demand is met partly via electrolysed hydrogen fuel, whilst battery/hydrogen-powered ferries run on Scottish routes.
100% of cars and light goods vehicles are powered by electricity.
Heat pumps provide the majority of heat supplied in the domestic and services sectors. The industrial sector relies on a mix of fuels, including electricity, bioenergy and natural gas, in order to meet the specific requirements of high-temperature processes, or those that require specific chemical reactions which cannot be provided solely by electricity. These sites have found ways to use waste heat from these activities both onsite and, where relevant, offsite.
70% of energy in the service sector supplied by electricity.
Scotland remains an integral part of the British electricity transmission system. Vastly improved demand management and new interconnectors to Europe dramatically improve the management and balancing of demand, with our high levels of renewable generation. Scotland retains some gas generation capacity but this is used increasingly rarely, as is the case across the continent.
The high efficiency of heat pumps, and significant improvements in the energy efficiency of road transport, mean that the amount of final energy being delivered by the energy system falls substantially by 2050. However, the move towards electrification places extra demands on electricity networks, and requires greater flexibility and interaction between generators, network operators and consumers to ensure that we meet our objectives of affordability and system security.
30% reduction in final energy delivered through the energy system.
Scenario 2 - A Hydrogen Future
By 2050, much of the demand previously met by natural gas has been converted to low carbon hydrogen. This is produced through strategically deployed electrolysers and from SMR plants paired with CCS. The effective transition from natural gas to hydrogen – assisted by Government support and regulation, and by consumer behaviour – has helped us meet our climate change ambitions.
CCS development during the 2020s has allowed the production of low carbon gas on a scale large enough to transform the energy system. Final energy demand has fallen, but natural gas demand has greatly increased – mainly to produce hydrogen, but also to power flexible electricity generation, with both processes utilising CCS.
The flexibility offered by gas has also enabled the expansion of the gas network into new locations without compromising the sustainability of the energy system.
Scotland has developed electrolysis facilities, meeting a proportion of the overall hydrogen supply. This helps balance renewable generation on the system, and creates demand which ensures that new gas generation with CCS can run in the most efficient way.
New hydrogen transmission pipes link production facilities with the main demand centres, and new and repurposed pipelines take captured CO 2 to old North Sea gas fields for storage. The gas distribution network has been converted area by area, starting with the main cities.
Domestic energy requirements have fallen significantly and buildings are now better insulated. Natural gas boilers were replaced during the transition with highly efficient hydrogen boilers and fuel cells, alongside other appliances as part of the conversion programme.
60% of demand in the residential sector delivered by hydrogen.
Scotland's car and van fleet is now hydrogen-powered, with fuel cells running an electric drive-chain. Service stations have converted gradually to hydrogen, the process beginning in the 2020s.
Larger road vehicles have been partially decarbonised, with hydrogen-powered buses and HGVs operating. Hydrogen fuel cells have helped move a significant proportion of freight to railways, a shift mirrored in some sectors of shipping.
100% of cars and light goods vehicles are powered by hydrogen.
Hydrogen has replaced natural gas for most industrial and commercial heat demand, and the expansion of gas networks has reduced the amount of space heating in industrial and commercial premises supplied from electricity. Areas without access to hydrogen or low carbon gas have tended to convert from direct heating to heat pumps, or are supplied via heat-networks where this is feasible.
Some specialist industrial processes continue to use natural gas. Processes at large installations are coupled with CCS, which feeds into the network linking the SMR plants with the North Sea storage capacity.
Potential to capture over 10 million tonnes of CO 2 across industry.
The national gas transmission system continues to provide a network of high-pressure pipes across Britain which carry natural gas (methane). Demand increases substantially to feed the hydrogen production process, although this is partly mitigated by the greater penetration of electrolysis. Gas demand is met from a variety of sources in 2050, including a large share of imports of both natural gas from Europe and LNG from world-wide markets.
Biogas, biomethane and bioSNG are also used in a variety of ways, enabling the use of low carbon gas from waste for conversion to hydrogen, to meet industry demand and to feed areas of the gas network where hydrogen conversion isn't feasible.
Demand for gas as an input increases by around 60%.
Diagram 9 – Energy Flows, 2015 and 2050
These illustrative scenarios describe two possible solutions to a difficult problem. Both will require major change to, and sustained investment in, existing infrastructure. Scotland in 2050 is unlikely to reflect either of these; it is more likely instead to combine elements of the two, as well as new options that have yet to be developed.
It's possible that some regions of Scotland will depend on hydrogen or other low carbon gases for decarbonisation, whilst others could rely more on electrical solutions. We would take steps to ensure that any infrastructure issues raised by such regional differences that might arise were identified and addressed in full.
Heat pump development and uptake will likely lead to a range of technologies being deployed, including gas hybrid options. District heating has an important role to play too – both scenarios have these networks meeting over 10% of residential and service sector demand.
These uncertainties mean that we need to take a flexible and open approach to decarbonisation. We will need a portfolio of options, capable of adapting over the coming decades as the world changes. Our Strategic Priorities ( Chapter 3) propose a flexible approach, and our intention is to pursue 'no regret' or 'low regret' options – see the section for a summary of such near-term actions.
Progress over the next five years will have a huge bearing on our decisions about which technologies should form part of the future energy system. We will continue to build our evidence base on the likeliest and best solutions, on how to deliver these economically, and on the associated technical and regulatory issues.
The Scottish Government will work with the UK Government on the major challenges of heat, industry and transport decarbonisation – supporting work proposed across various sectors under the UK Clean Growth Strategy.
Decisions about strategic national infrastructure such as gas and electricity networks will also have a powerful influence. These are financed via infrequent 'price control' periods, managed by the energy regulator Ofgem, with both electricity transmission and gas networks due to begin a new price control period in 2021.
The Scottish Government will develop strategic network vision papers during the coming year for both electricity and gas, to support the development of the respective networks. These will help ensure that the price control processes led by Ofgem take this Strategy and our wider policies fully into account.
Our Annual Energy Statement (see Chapter 5) will reflect changes taking place year to year. We will also periodically review the wider framework put in place by this Strategy to ensure that our approach reflects and responds to changing circumstances.