Scottish Parliament Enterprise and Culture Committee

26 January 2004

Judith Evans

Senior Assistant Clerk

Scottish Parliament

EDINBURGH

EH99 1SP

Dear Ms Evans,

RENEWABLE ENERGY IN SCOTLAND

I enclose the Scottish Council for Development and Industry’s response to the above consultation paper.

SCDI has offered advice to Government on a number of energy policy issues in recent years, most notably the Performance and Innovation Unit’s Energy Review and the resulting consultations, as well as the Scottish Executive’s renewable energy strategy. A key thrust of each response has been the potential for renewable energy to make a significant contribution towards Scotland’s future energy needs, and to meeting the UK’s climate change emission targets. SCDI strongly believes that there is now a window of opportunity for the development of a world-class renewables industry in Scotland, building on its current expertise in the offshore industry and marine engineering.

I trust that SCDI’s comments will be useful and would be pleased to expand on any of the points made.

Yours sincerely,

Alan Wilson

Chief Executive

SCOTTISH COUNCIL FOR DEVELOPMENT AND INDUSTRY

RESPONSE TO SCOTTISH PARLIAMENT CONSULTATION

“RENEWABLE ENERGY IN SCOTLAND”

INTRODUCTION

1.The Scottish Council for Development and Industry (SCDI) is an independent membership network, which strengthens Scotland’s competitiveness by influencing Government policies to encourage sustainable economic prosperity. SCDI has had a strong interest in energy policy for many years, and offered its advice to the Scottish Executive as part of the consultation that led to the publication of “Securing a Renewable Future: Scotland’s Renewable Energy” in March 2003 (“The Executive strategy”). SCDI has also promoted the debate on energy policy in Scotland, through hosting a wide range of events bringing its broad-based membership together with Ministers, other MSPs, academics, and senior figures in the energy industry to discuss the issues.

2.SCDI supports the Royal Commission on Environmental Pollution’s ambitious target of a 60% reduction in the UK’s carbon dioxide emissions by 2050. It recognises the imperative to minimise the impact of energy generation on the environment as part of the achievement of that target. A welcome outcome of UK and Scottish Government energy policy statements in recent years has therefore been an increased emphasis on renewables, as well as on energy efficiency.

3.SCDI believes that the industry has significant potential in Scotland to provide employment in ongoing maintenance as well as in fabrication, particularly in peripheral rural areas. As importantly, the combination of Scotland’s expertise in the offshore oil and gas industry, and its traditional strengths in shipbuilding and engineering, together with a strong Scottish research base, provide an excellent opportunity to build up a world-leading renewables industry, particularly in wave and tidal stream technologies. SCDI is pleased that there is a growing consensus around the desirability of the achievement of this objective. What is needed now is to make it happen.

4.SCDI is keen to see Aberdeen developed as a centre of renewable energy excellence and therefore welcomes the Department of Trade and Industry’s (DTI) establishment of Renewables UK in the city in 2003, as well as the location in the city by Scottish Enterprise of the Energy Intermediary Technology Institute. SCDI supports Aberdeen’s ambition to be the “Energy Capital of Europe”.

5.SCDI notes the preponderance of questions in the Inquiry remit that relate to what could be described as “public acceptability” issues. In other words, the extent of the legitimate limits that can be placed on the development of the industry in terms of planning controls, and the benefits that communities should be entitled to when developments go ahead in their areas. SCDI understands this approach, which no doubt reflects the weight of correspondence regarding onshore wind developments in MSPs’ mailbags. However, SCDI is anxious that the Committee should bear in mind the potential importance of the industry to the Scottish economy during its deliberations. The Committee’s report should lead to a more inclusive approach to planning for renewable energy developments -if it is demonstrated that this is necessary -while at the same time charting a positive way forward for this important new industry.

6.Finally, it should be remembered that over half of Scotland’s electricity needs are already met by carbon-free sources in existing renewables and in nuclear power. Promoting a further increase in renewables should therefore be seen as part of a wider carbon reduction policy. The remainder of this response sets out SCDI’s views on the questions in the consultation paper.

KEY POINTS

Scotland can meet a disproportionate share of the UK’s green energy commitments, but the cost of doing so should be shared equitably on a UK basis.
Renewable energy, particularly wave and tidal stream, offers an opportunity to develop a significant Scottish export industry, with the economic and employment benefits that would result.
A number of well-known hurdles must be overcome if Scotland is to achieve the Executive’s target of 40% of Scottish electricity generated from renewable resources by 2020.
Many of the necessary measures are already in place, particularly the Forum for Renewable Energy Development in Scotland.
The assessment of appropriate royalty payments from renewable energy developments must strike an appropriate balance between commercial viability and the interests of local people.
Biofuels should be supported by Government as a potentially useful diversification opportunity for the farming community.
Scotland’s future energy needs should continue to be met by a diverse mix of fuels in order to promote security and continuity of supply.

RESPONSE TO CONSULTATION QUESTIONS

A. WILL THE EXECUTIVE TARGETS BE MET, UNDER CURRENT CIRCUMSTANCES, AND ARE THEY APPROPRIATE?

7.Research undertaken for the Scottish Executive by Garrad Hassan in 2001 suggested that Scotland could potentially generate 59.1 GW of electricity from renewable resources – in other words approximately three quarters of the UK’s current electricity generation capacity (80 GW). Over half would come from on- and offshore wind, with wave and tidal stream providing a further 21.5 GW. With this in mind, SCDI’s response to the Executive strategy consultation stated that there is every reason to believe that a target of 40% of Scotland’s electricity generated from renewable sources by 2020 could be met. That remains SCDI’s view. Clearly, were the 40% target to be achieved, Scotland would be meeting a disproportionate share of the UK’s international obligations, which could be justified on the basis of the more abundant Scottish natural resource. The additional costs incurred in doing so should be spread equitably across the UK.

8.SCDI believes that renewable energy could grow into an important sector of the Scottish economy. The example of Denmark’s wind turbine industry suggests a possible future scenario for a major Scottish marine renewables industry. Sales in 1996 were 4.3 billion Danish Kroner (approximately £400 million); in 2002, that figure had increased to 20.0 billion DKK (£2 billion). In the latter year, the Danish industry had also secured 50% of the global market and employed 20,000 people (Source: Danish Energy Authority). Although already impressive in themselves, when seen in the context of a global market that will continue to grow rapidly, Denmark is well-placed to reap significantly greater economic benefits from renewable energy going forward.

9.Already, Scotland is seeing some of the benefits of the rapid development of the wind generation industry, with Danish inward investment in the Vestas fabrication yard at Campbeltown, and fabrication work going to sites such as Arnish Point in Lewis. Other technologies, particularly wave and tidal stream, offer the possibility of generating significant economic benefits for Scotland if it can secure first-mover advantage.

10.Given that Scotland has set a higher target than that for the UK as a whole for the share of its electricity generated from renewable sources (18% by 2010 and 40% by 2020, as opposed to 10% by 2010 and 15% by 2015) and that renewable energy is currently more expensive than most conventional forms of generation, it might be suggested that Scottish end-users could be put at a competitive disadvantage due to higher energy costs in the short to medium term. However, Scottish business, like its competitors south of the Border, already has to deal with the implications for running costs of the Climate Change Levy, and it is likely that there will be increasing moves towards taxing carbon at EU and international level, with emissions trading schemes already on the horizon. Competitive advantage for Scottish businesses would result from the step-change in renewable energy generation once these new taxes started to bite.

11.Achieving a 40% share would, of course, reduce the impact of Scotland’s electricity use on the local and global environment. It would also add credibility to Scotland’s general claim to be a “clean, green” destination, with positive knock-on effects on the wider economy, such as tourism, exports of quality food and drink, and the attraction of talented people to live and work in the country.

B.IF NOT, WHY NOT? (WHAT ARE THE CURRENT BARRIERS, AND WHAT ACTION NEEDS TO BE TAKEN TO ENSURE THAT THE TARGETS ARE MET?)

12.In order to achieve the Executive’s ambitious target, a number of hurdles will need to be overcome. These are well-known, and include:

the upgrading of transmission infrastructure, particularly in peripheral rural areas of Scotland, in order to cope with the export of significant quantities of electricity, and enabling it to cope with intermittent sources of supply;
sharing the cost of such upgrades - which will deliver a UK-wide benefit - on a UK basis, as opposed to front-loading the cost in full on Scottish consumers;
addressing the impact of the industry on civil and military aviation;
involving local communities in the planning process in order to promote public acceptability, particularly of onshore wind farms; and
translating Scotland’s world-class research and development, particularly in wind and wave, into commercial reality.

13.SCDI has previously stated that the following steps are required to grow the renewable energy sector in Scotland:

A skills strategy for the industry should be developed;
A target for 2020 should be announced and a clear commitment to providing ongoing financial support to achieve it is required;
A national strategy should be drawn up in concert with the key players in the industry and other stakeholders; and
Appropriate capital grants and other support mechanisms should be put in place.

14.Action is now underway on many of these issues, the results of which will not bear fruit for some time. In the meantime, it is crucial that a strategic overview is maintained and all stakeholders are involved in charting the future direction of the industry.

15.In its response to the consultation on the Executive strategy, SCDI recommended that “a national strategy for renewable energy should be drawn up by all key players in the industry itself, together with the Executive and its Enterprise agencies, the DTI, local authorities, the Further and Higher Education Sector, private sector funding bodies, organisations with an interest in the effect of renewables developments… and community representatives.” It therefore welcomes the setting up by the Executive of the Forum for Renewable Energy Development in Scotland (FREDS), which brings together many of these interests. The group should enable members to exploit synergies, identify obstacles to the development of the industry, and develop workable solutions that all can take on board. This, taken together with a range of other current initiatives - such as the development funding available through the Executive and its agencies, as well as the DTI - should play a significant role in the achievement of the 40% target.

16.Although not without their problems, the upcoming British Electricity Transmission and Trading Arrangements (BETTA) will enable the cost of infrastructure upgrades to be shared across GB. Following consultations by Ofgem and, subsequently, the DTI in 2003, it appears that the prospect of a locational charging regime for transmission losses, which could have had a significant impact on the economics of renewable energy in Scotland, has receded.

17.When the Executive strategy was published, Scottish Ministers were careful to indicate that the 40% figure was an “aspiration”, as the Renewables Obligation (Scotland) is not currently designed to supportrenewable energy developments in Scotland above the existing 18% target. The review of the RO(S) in 2005-06 will offer an opportunity for the Executive to revise the scheme in order to provide additional resource to move the 40% from an aspiration to a hard target. In the final analysis, Government should ensure that the industry has a chance to develop in the context of long-term policy certainty. If the incentives are right, and the legislative and subsidy regime can be guaranteed for the long-term, the private sector will invest in the industry.

C. WHAT OPPORTUNITIES ARE THERE/SHOULD THERE BE FOR LOCAL COMMUNITY INVOLVEMENT IN, AND ECONOMIC BENEFIT FROM, RENEWABLE ENERGY SCHEMES?

18.SCDI recognises that communities wish to benefit from locally sited renewable generation. As well as simple royalty payments, benefits could also come in the form of shared community ownership, as well as the creation of local jobs in construction and ongoing maintenance. Rather than speculate over the correct level of royalty payment that should be made by developers to local communities, SCDI suggests that a balancing exercise must be carried out in each case. If local communities are to receive an annual royalty per MW of installed capacity, as is standard current practice in the industry, the level has to be such that the development will remain commercially viable throughout its lifetime, bearing in mind that the risk in such arrangements remains with the developer/operator. The Forum for Renewable Energy Development in Scotland (FREDS) could play a useful role in setting down guidelines for communities, developers and local authorities to follow.

19.Although the success rate for planning applications for onshore wind developments has hitherto been encouragingly high in Scotland in comparison with England, as the number of proposed developments increases substantially, it will inevitably become difficult to sustain this positive trend. It is vital that local communities should be involved at every stage of the development and planning process, in order that their interests should be safeguarded. This involvement should ensure that local people’s views are accurately measured in order to avoid possible capture by groups unrepresentative of their community. Planning guidance should also reflect the strategic national interest in increasing renewable generation capacity.

20.With EU rules requiring Member States to have a proportion of road fuels manufactured from sustainable sources – 2% by 2006, and 5.75% by 2010 - the production of crops for biodiesel represents a potential diversification opportunity for Scottish farmers. It will be necessary for Government at UK and Scottish level to develop a programme to achieve these targets. Whether such an industry can develop in Scotlanddepends on a range of factors, including the availability of support, in terms of capital grants, and the tax regime applying to the end-product. In addition, new processing facilities would need to be built, as they do not currently exist in Scotland.

21.At present, biodiesel enjoys a rate of excise duty that is 20p per litre lower than the rate applying to Ultra Low Sulphur Diesel. The 2003 Budget announced that, from 2005, bioethanol, will enjoy the same concession. However, despite the excise duty advantage, the relatively low price of oil and the higher production costs of bioethanol and biodiesel mean that biofuel is not currently commercially viable in the UK. Other EU Member States provide more support to their embryonic biofuels industry. In Germany, for example, there is no excise duty on biofuels. In France, the EU’s largest current producer, there is no excise duty on the first 320,000 tonnes of production. Current EU production amounts to some 500,000 tonnes per annum.

22.Although fiscal policy is a reserved matter, it would be possible for the Scottish Executive, ideally acting in concert with Westminster, to institute appropriate grant schemes that would encourage farmers and the private sector generally to enter this new market.

D.ARE THERE IMPLICATIONS FOR THE RELIABILITY OF SUPPLY IF THE EXECUTIVE’S ASPIRATIONAL TARGET IS MET?

23.Although onshore wind is currently attracting most public attention, it should be borne in mind that for many years, Scotland has been relying on renewable energy for a significant percentage of its electricity supply. Hydro power currently supplies approximately 10% of the country’s electricity needs. Wind farms are not the only game in town, and there are a variety of other forms of generation - such as hydro, wave and tide, and biomass - that do not suffer from the intermittent availability of the resource. We will always be able to predict the tides, for example.

24.As at present, Scotland must continue to ensure that it generates its electricity from a diverse range of sources in order to ensure reliability and security of supply. Clearly there are infrastructure issues that need to be addressed in the “rewiring” of the transmission and distribution network to accommodate many more small sources of supply. But with adequate infrastructure and the correct generation mix – including fossil and nuclear power – there should be no reason to suppose that a Scotland generating 40% of its electricity from renewable resources would be any more prone to problems with the reliability of supply than at present.

25.Finally, as SCDI has pointed out on many occasions, one of the best ways of reducing the environmental impact of electricity generation is to use less of it in the first place. SCDI has therefore worked with a number of organisations in recent years, most notably the Scottish Energy Efficiency Office and Envirowise, to promote energy efficiency to its membership and the wider business community. It will continue to do so.

Martin Bell

Policy Unit

Scottish Council for Development and Industry

January 2004