Chapter 2: Understanding Scotland's Energy System
27. Scotland is energy-rich. The supply of energy from a variety of plentiful indigenous sources constitutes one of the largest sectors of the Scottish economy. Oil and gas remain key sources of energy in Scotland - accounting for a combined value of 87% of total primary energy in 2014; with the vast majority of Scotland's heating and transport needs supplied by fossil fuels  .
Diagram 1: Scotland's Primary and Final Energy, 2014
28. Scottish energy production is also a substantial contributor to both the UK and EU energy systems.
Scotland Is Estimated To Be The Largest Oil And Second Largest Gas Producer In The EU On An Internationally Comparable Basis, And Produced 95% Of The Oil And 58% Of The Gas Produced In The UK In 2015
Scotland Is A Net Electricity Exporter To The Rest Of The UK - Exporting 29% Of Electricity Generated In Scotland In 2015
Renewable Electricity Generation In Scotland Contributed 26% Of Total UK Renewable Generation In 2015
Onshore Wind In Scotland Contributes Nearly 60% Of The UK's Onshore Wind Capacity
Scotland Produced 92% Of UK Hydroelectricity Generated In 2015
Electricity Production And Renewable Energy Generation
Diagram 2: Electricity generation by fuel type
29. Over the last 15 years, considerable change has occurred in the production of electricity in Scotland. The power sector has become largely decarbonised, with the closure of the last coal-fired power station, Longannet, in 2016. In 2015, renewables represented the biggest source of electricity production (42%) and served the majority of Scottish needs alongside the two remaining nuclear plants in Scotland (35% of generation). A very small proportion of electricity (4%) was (in 2015) generated by a gas-fired power station at Peterhead.
30. The emissions intensity of electricity generation has fallen substantially in recent years. Official figures show that the average carbon intensity of electricity generated in Scotland has fallen by nearly 40% between 2010 and 2014, to less than 200 grams of carbon dioxide for every kilowatt hour generated (on average).
31. The Scottish electricity generation sector operates within an integrated Great Britain wide electricity system, and while there have been considerable changes over the same period, the pace of decarbonisation has been relatively slower GB-wide. Coal and gas remain major contributors to GB-wide electricity generation, accounting for over half of all electricity generated in 2015.
32. Renewables generated the equivalent of 59.4% of Scotland's electricity requirements in 2015, from just over 10% in 2001. Most of this growth can be attributed to onshore wind, complementing the post-war investment in large-scale hydro.
33. Recent years have seen a growth in small scale installations of renewable energy from solar, biomass and hydro power, aided by the UK Feed in Tariff (FiT) which supported renewable generation schemes under 5 megawatts in size. Scotland's renewable energy success is built on the consistent support of the Scottish Government, together with a hitherto stable UK-wide support regime.
Since the UK General Election in 2015, there have been substantial, negative changes to support for key renewable energy technologies arising from UK Ministers' decisions. Notwithstanding these changes, by 2015, renewable energy and its associated infrastructure is now a major industrial sector in its own right, helping to sustain economic growth and employment of 14,000 jobs in Scotland. Renewable energy also generated £5.4 billion in turnover in Scotland, or 18.3% of the total UK turnover in this important sector.
Diagram 3: Electricity generation in 2015, GB and Scotland
Diagram 4: Electricity generated (GWh) from renewable sources, Scotland, 2000-2015
34. Alongside this progress at a national level, the Scottish Government has been a firm supporter of community and locally-owned renewables. Scotland now has 595MW of community and locally-owned renewable capacity. There are a total of 15,570 locally and community-owned renewables sites in Scotland at present. The two largest power sources continue to be onshore wind (273MW) and biomass (162MW).
35. 2015 has seen the largest annual increase in renewable heat output since measurement began in 2008/09 - up by over 1,100 GWh in a single year. In 2015 an estimated 1,504 GW of renewable heat capacity was operational in Scotland, producing an estimated 4,165 GWh of useful renewable heat. Biomass contributed the majority of this, with contributions from heat pumps, energy from waste and solar thermal. These estimates suggest that in 2015 Scotland produced enough heat from renewable sources to meet between 5.3% and 5.6% of non-electrical heat demand.
36. Low carbon transport continues to grow. Electric vehicle ( EV) uptake is increasing. 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). This is 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 on track to rise 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' charge points, one of the most comprehensive networks in Europe. Renewable energy is an input to the transport sector in the form of biofuels - which, in 2015 made up 3.2% of total road fuels used in the UK.
37. Electricity consumption represents 22% of Scotland's overall energy demand and use of transportation fuels 25%. The consumption of heat accounts for 53% of the energy consumed by Scotland's homes and businesses. Addressing this demand represents a key challenge for the future in balancing the needs of consumers with a lower carbon secure energy system.
38. Scotland's heating requirements are supplied predominantly from natural gas at present. In 2015, an estimated 79% of homes used natural gas as their primary heating fuel.
Diagram 5: Energy Consumption by Fuel Type
Diagram 6: Energy demand in Scotland
Diagram 7: Primary heating fuels in Scotland
Diagram 8: Household energy use in Scotland
39. Despite the widespread use of gas as a heating fuel, there remains a high proportion of households in Scotland with no access to the national gas network. According to the Scottish House Condition Survey, approximately 16% (nearly 400,000) of Scottish households are off the gas-grid, with two-thirds of those homes in rural areas. The increased dependence on electricity for heating is demonstrated in the differences in average electricity consumption between Scottish distribution zones, with a substantially higher consumption of electricity in the North of Scotland.
40. Scotland's heating requirement is even more marked at domestic level. Almost 90% of the energy requirement for Scotland's homes is for space and water heating.
41. Gas consumption, as a proxy for heat demand, has fallen considerably over the past decade. An average Scottish domestic consumer now consumes nearly a third less gas than a decade ago. Rising gas prices, improvements in energy efficiency measures and underlying economic conditions, which have depressed household disposable incomes in real terms, have all contributed to this trend of declining consumption.
Diagram 9: Average household gas consumption
Diagram 10: Yearly Pattern of energy consumption
42. The pattern of our energy use over the year demonstrates the value of gas in managing the large swings in energy consumption, the seasons drive our energy use up in the winter. This pattern also demonstrates the potential value in storing energy, within days and seasons, to offset energy demand at peak times. Energy can be stored in different ways including as potential energy in pumped hydro storage facilities, as chemical energy such as batteries, biomass or hydrogen or as thermal energy in individual properties (such as a hot water tank or a battery) or as large-scale storage used with a heat network. The appropriate storage system will depend on factors including costs, geographic opportunities, how that energy needs to be used, and level of flexibility necessary.
43. The peaks and troughs in gas demand (both within a day and across the seasons) are far greater than the variations in electrical demand. They create a challenge for electricity generating assets and networks which, in the absence of storage, may be underutilised for long periods if electricity is used to meet heat and transport demands.
44. Average annual domestic gas and electricity bills in Scotland have increased by up to 114% and 50% respectively between 2004 and 2015. However, the cost that consumers face varies depending on the method used to make payment. On average, electricity and gas consumers across Scotland using standard credit and pre-payment methods face approximately 10% higher bills than those using direct debit.
45. The cost of a unit of gas is similar across Scotland and the rest of the GB energy market for domestic consumers, however the unit price of electricity differs considerably within Scotland. Consumers in the North of Scotland paid between 8 and 9% more per kilowatt hour of electricity, depending on payment type, than, on average, the rest of Great Britain.
46. However, when compared to domestic energy prices across Europe, the UK is below average for both gas and electricity (diagrams 12 and 13).
Diagram 11: Average annual domestic gas and electricity bills, Scotland, 2000-2015
Diagram 12: Average domestic electricity prices for medium consumers in the EU15, January to June 2016
Diagram 13: Average domestic gas prices for medium consumers in the EU15, January to June 2016
47. The Scottish Government has allocated over £650 million since 2009 on a range of Fuel Poverty and Energy Efficiency programmes to help the most vulnerable in society heat their homes affordably. This investment, allied to new building standards, has contributed to a significant increase in energy efficiency: the Scottish House Condition Survey shows that just over two-fifths (42%) of homes in 2015 rated EPC band C or above, an increase of 74% since 2010. Scotland now has proportionately 40% more homes with a good EPC rating (C or above) than England.
Diagram 14: Average energy efficiency levels of households, Scotland, 2010-2015
48. The positive economic impact of the energy sector can be seen throughout Scotland, the UK and Europe.
- In 2015, oil and gas production was estimated to be worth £10 billion to the Scottish economy and supported an estimated 124,500 jobs across Scotland in 2016.
- Scotland is estimated to be the largest oil producer and second largest gas producer in the EU on an internationally comparable basis.
- Supply chain sales in the oil and gas sector reached £23 billion in 2014, with international activity accounting for over 53% of total sales.
- In 2014, the low carbon and renewable energy economy supported 43,500 jobs in Scotland. This accounts for 9.7% of the total UK employment in this sector (higher than population share).
- It also generated £10.7 billion in turnover, 12.9% of the total UK turnover in this sector.
49. The strength of our energy sector in Scotland can also be seen through the rate at which businesses are expanding into international markets and diversifying into low carbon and innovative technologies, with Scottish energy exports totalling £14 billion in 2014.
External Trends And Developments
50. At a critical point in the development of the energy system in Scotland, the future path will be determined by the response to a number of important trends and developments, in particular:
- UK Government policy;
- new powers for the Scottish Parliament; and
- membership of the European Union.
The role of UK Government policy
51. Recognising that much of Scotland's energy policy currently remains reserved, the Scottish Government will continue to work with the UK Government and the GB energy regulator (Ofgem) and System Operator (National Grid) to create an environment that encourages efficient investment in new, clean generation and sets an appropriate regulatory framework to maintain secure supplies and enhance system flexibility. The Scottish Government's priority is to ensure the market works for all consumers, and particularly those vulnerable to fuel poverty.
52. Working within the single GB Energy market, we have a common interest in sharing energy resources with our neighbours. Scotland offers safe and secure supplies of electricity and gas and can continue to assist the rest of the UK in meeting its legally-binding renewable energy targets.
53. In the last two years, the UK Government has made a number of decisions which have undermined the hitherto stable investment climate for energy - such as the decision to remove £1 billion worth of funding commitment to developing Carbon Capture and Storage facilities and a suite of announcements to axe support to key renewables technologies.
54. It is now more important than ever that the Scottish Government sets its own vision for energy, with clear priorities and ambitions for future energy provision, articulating the opportunities for existing and emerging sectors within that system.
55. A new UK Industrial Strategy and Emissions Reduction Plan will be published by the UK Government in the coming year. If the UK Government chooses a progressive approach, there remains a great opportunity to re-invigorate investment in the low carbon economy and signal clearly the UK's sincere commitment to tackling climate change.
An enhanced role for the Scottish Parliament
56. New devolved powers included in the Scotland Act 2016 will see the Scottish Government and Scottish Parliament take on a number of responsibilities that will have a bearing on the energy system, including:
- a consultative role for the Scottish Government in the design of renewable incentives;
- onshore oil and gas licensing powers;
- devolution of new powers over energy efficiency and fuel poverty such as the Energy Company Obligation ( ECO);
- devolution of the Crown Estate in Scotland  ;
- parliamentary scrutiny over the Energy Regulator; and
- devolution of consumer advice and advocacy powers.
57. In implementing the final Scottish Energy Strategy, we will explore how the use of the full set of powers available to the Scottish Government can support the measures required to reshape the Scottish energy system.
Membership of the European Union
58. The Scottish Government has been a vocal supporter of the EU's efforts to integrate energy markets across Europe. The European Commission's latest energy package includes a host of proposals in line with the aims of this draft Energy Strategy, particularly around future renewables and energy efficiency targets, and supporting consumer participation in energy markets.
59. The European internal energy market is vital to delivering affordable energy and to driving decarbonisation and investment in renewables. EU legally-binding renewable energy and energy efficiency targets have played a defining role in stimulating the huge growth in renewable energy in Scotland, which has seen significant inward investment flows into Scotland. Internal market rules also ensure fair access for suppliers, set a framework for interconnection and provide protection for consumers. This contributes to lower energy costs, greater security of supply and the competitiveness of our businesses and the Scottish economy.
60. In December 2016, we published 'Scotland's Place in Europe'  , a set of proposals designed to mitigate the risks for Scotland of being taken out of the EU. We believe that it is in the interests of both Scotland and the UK that the UK as a whole should remain within the European Single Market, through membership of the European Economic Area and active cooperation in other areas. In the event the UK Government adopts an alternative approach, Scotland's Place in Europe sets out a further, differentiated approach, which would allow Scotland to retain single market membership as part of the UK.
61. The final Energy Strategy, published later in 2017, will include an assessment of the latest position on these key areas and any significant but as yet unknown developments affecting Scotland's energy system.
Email: Jenna Williamson
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