The case for devolving energy policy to Scotland

Devolving energy policy would tidy up the often conflicting mix of devolved and reserved powers and enable Scotland to develop new approaches to energy policy.

At present energy is a largely reserved matter to Westminster. Specific reservations in Schedule 5 of the Scotland Act 1998 include the generation, transmission, distribution and supply of electricity; the ownership of, exploration for and exploitation of deposits of oil and natural gas; Coal, including its ownership and exploitation; Nuclear energy and nuclear installations. However, secondary legislation has devolved aspects of these powers including the Renewables Obligation in Scotland and consent for power stations greater than 50MW onshore and 1MW offshore.

Perhaps even more importantly, environmental legislation and planning are fully devolved matters. The Scottish Government has used these powers to set more ambitious targets for reducing greenhouse gas emissions by 42% by 2020 (UK target 34%); 20% of all energy from renewables by 2020 (UK target 15%); and finally aims to decarbonise electricity generation by 2030 (no UK target). Most notably, the Scottish Government has used its planning powers to rule out new nuclear power stations, although supporting life extensions to existing capacity.

These conflicts have resulted in well publicised disagreements over issues like transmission charges that discriminate against Scottish generators; Electricity Market Reform (EMR), support for renewables and subsidies for nuclear power.

The Scottish Government believes that the Scottish Parliament should have greater responsibility for all energy policy and regulation, including all oil and gas. They argue this would deliver a streamlined approach and allow Scotland to design a regulatory and fiscal landscape which maximises the return from the energy sector, encouraging a sustainable industry for the benefit of the people of Scotland. This would include joint oversight of UK-wide bodies such as OFGEM, and an arrangement of shared competence in relation to the new Oil and Gas Authority proposed for Aberdeen.

With these additional responsibilities, it is argued that Scotland could also capitalise more fully on its comparative advantages in the energy field. The Scottish Government could advance community and local ownership of energy; and better address societal inequalities through tackling fuel poverty. The connection of the islands to the national grid could also be prioritised.

There is of course a certain irony in the Scottish Government’s position. In the referendum they claimed Scotland would remain part of the UK energy market, despite the obvious consequences for renewables. Scotland gets a third of the UK’s renewable support with less than a tenth of the population. The Scottish Government’s claim that the lights would go out in England without Scottish renewables, was simply not credible. The rest of the UK has a wide range of options, including new interconnectors to Europe and their capacity margins will be tightest when the wind isn’t blowing. So, intermittent Scottish renewables would be the wrong energy at the wrong time.

The UK Government position in the referendum was equally weak. They failed to properly address their management of capacity margins, the mess they have made of EMR, energy prices and the consequences for fuel poverty. Their green credentials are in tatters due to the malign interference of the Treasury in energy policy.

Devolution could well deliver the best of both worlds. Security of supply and support for renewables, as well the opportunity for Scotland to develop a distinct energy strategy. Instead of being a minor player pleading from the outside, Scotland could have a constitutional role in the UK energy market. There is also a potential gain at UK level, with Scotland able to play a positive role in developing a coherent energy policy, rather than just blaming Westminster. The recent problems at Hunterston and ScottishPower’s announcement on Longannet could mean the loss of 40% of Scotland’s generating capacity. A prospect that should shake the Scottish Government out of its own naive approach to energy generation.

Having powers is all very well, but the acid test is how you use them.

A Scottish energy policy should use our abundant renewable energy resources, within a balanced UK and Scottish energy system. A planned energy policy than relies less on the vagaries of the ‘kid on’ energy market and makes a real contribution to reducing greenhouse gas emissions. A formal role in regulation will support the necessary reform of the regulatory system, including transmission charges and retail prices. That links energy efficiency, price and welfare – the three elements that are needed to tackle fuel poverty. It can also link already devolved matters such as training and education to address the workforce skills gap. We set out these approaches in more detail in our policy paper Scotland’s Energy-Scotland’s Future’.

There are international precedents for devolving energy powers. For example, Greenland and the Faroe Islands have devolved energy powers within Denmark. In recent years there has been renewed interest in local generation with local government leading the way in countries like Germany. We need to break away from the big business model of energy that is concentrating wealth in the hands of foreign corporations. One of the strengths of devolution is the ability of smaller parts of the UK to try different approaches. Scotland could be radical and innovative, with the devolved powers and the political will to use them.

UNISON has long argued that energy policy should be devolved to Scotland. It would tidy up the current mismatch of powers that allows governments to stop developments rather than encouraging new approaches. The UK would benefit from the innovation and Scotland would take responsibility rather than looking to others. That looks like a win-win for everyone within these isles.

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Shock to energy generation in Scotland

Big concerns over power generation in Scotland this week, with announcements on Longannet and Hunterston power stations.

Those who thought the transmission charges row had gone quiet while Ofgem prevaricates, got a shock this week when Scottish Power announced that Scotland’s largest power station at Longannet may be forced to close due to the huge sums it must pay to connect to the National Grid. It costs about £40m a year to keep Longannet connected to the national grid, while an equivalent power station in the south of England would receive a payment of £4m.

While these discriminatory charges continue, Scottish Power has decided not to enter the contest to supply energy generating capacity in 2018/19. This means financial changes are needed to avert the threat of closure of a plant that provides essential balancing power to the Scottish networks. It generates enough electricity each year to meet the needs of more than two million homes and unlike many renewables, is not dependent on the weather.

The second problem arose at the Hunterston B nuclear power station in North Ayrshire that generates around 15% of Scotland’s electricity. New cracks have been found in one of the reactors
with two of about 3,000 graphite bricks in the core of reactor four affected. The plant operator, EDF Energy, said the cracking was predicted to occur as the station aged and it would not affect the safe operation of the reactor.
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While there is no immediate question of losing these important power stations, it does raise questions about the impact their closure would have on the system.

Paul Younger, professor of energy engineering at the University of Glasgow, said: “This is really turning the screws on Scotland’s vulnerability with baseload and dispatchable power. If you take Longannet and Hunterston both out of action that mean the loss of 40 per cent of all the electricity used in Scotland at a stroke.”

Scottish Conservative energy spokesman Murdo Fraser said: “There’s absolutely no suggestion of these cracks causing any safety or health issue, that’s been made absolutely clear by the owners. Any scaremongering to the contrary is unacceptable. But this issue does demonstrate that this is a power station approaching the end of its working life, having made an important contribution. Nuclear energy is an important asset for Scotland and that’s why the Scottish Government has to drop its opposition to new power stations”.

Concerns over generating capacity come when wholesale power prices in the UK market climbed steadily over the third quarter of this year due to supply concerns over European gas imports and nuclear availability. The Icis Power Index (IPI) climbed from lows of £46.373/MWh on 10 July to just over £52/MWh by the end of September due to the unexpected shutdown of almost 3GW of nuclear capacity ahead of winter. They said, “Energy companies are actively buying and selling electricity in the market right now for delivery over the next year, so any price rises on the wholesale market could affect what consumers pay later on.”

While there is no immediate crisis, these announcements should be a wake up call to governments and the regulator that plant closures will have a big impact on Scotland’s energy capacity.

Remember the Hydro Boys

On Thursday this week, the Scottish Parliament will debate a motion from Annabelle Ewing MSP that remembers the contribution of the workers, many displaced persons from post-war Europe, who built our hydro power system.

S4M-10672# Annabelle Ewing: Remembering the Contribution of Those who Built the Dams and Tunnels—That the Parliament notes plans by Scottish and Southern Energy to develop a new state-of-the-art visitor centre at Pitlochry Dam and salmon ladder; recognises the contribution that this and other hydroelectric dams and tunnels throughout Scotland can make as tourist attractions as well as their primary function contributing to Scotland’s renewable electricity generation; respects the contribution made by the men, of many nationalities, who built the dams and tunnels, such as the Lednock “Tunnel Tigers”, who set a world record by tunnelling 557 feet in seven days in 1955 while working on the St Fillans section of the Breadalbane Hydro-Electric scheme; further recognises that this was hard, dangerous work and that a number of men lost their lives and countless others experienced injury or illness that affected them for the rest of their lives; understands that some of the public visitor information boards list several nationalities of workers in the tunnels but make no reference to Irish workers, and looks forward to the new visitor centre properly reflecting the contributions of all of the men who built the dams and tunnels.
 

When most people remember the building of Scotland’s hydro schemes, they think of the vision of Tom Johnston who got the projects going, despite political and landowner opposition. However, it’s also a story about people, many of whom paid the price with their lives. Emma Wood’s book ‘The Hydro Boys’ tells the story well.

In this debate we should not forget the human sacrifice of those who built the hydro schemes that serve us to this day.

Utilities and the Referendum

What is probably the longest campaign in political history comes to a conclusion today. We haven’t declared for either side, primarily because we split fairly evenly on the issue and our Editor isn’t saying.

That doesn’t mean we haven’t got a view on the issues. Oil, or rather the amount and value of it has been a central feature of the campaign. Sadly, the utility issues that we focus on haven’t had the same prominence. Water didn’t even get a mention in the White Paper and we had to tease a response out of the Scottish Government. Energy markets are a complex issue and not well understood by the media and the public at large.

Some of the contributions have been very poor indeed, if not downright misleading. One example was a piece on the BBC last week, when a Green MSP said vote Yes to stop us subsidising English nuclear. In the very next segment, the First Minister said if we vote Yes we will remain in the UK energy market. This of course means we will continue to subsidise English nuclear, just as the English consumer will subsidise Scottish renewables. A lot of our colleagues expressed their irritation with this nonsense, but the journalist who put the piece together clearly didn’t understand the contradiction.

While even those of us who are voting Yes would admit the energy case is weak, some of the UK analysis has also been poor. The UK government paper ignored their failure to properly address the capacity margins across the UK. Energy Market Reform has been badly planned and the Treasury interference in energy policy has been a malign influence on the development of a credible policy. Even those of us voting No, accept that the UK Government’s green credentials are in shatters and we all feel strongly that climate change, as the greatest threat to the planet, is being downgraded by Westminster.

In conclusion, we doubt if anyone was swayed one way or the other on utilities issues. While disappointed, we are not surprised. One of the reasons we established this site was to address the paucity of analysis in our sector. We hope our contribution to the debate was helpful.

Oil numbers and the referendum

As we approach the final week of the Scottish independence referendum, claims and counterclaims come fast and furious – hard data and credible analysis is in shorter supply!

For example, an independence supporting firm claims there is a new oil bonanza in the North Sea through the use of fracking. The extra reserves could apparently yield an additional wholesale value of £1 trillion to £2 trillion depending on oil prices. However, Dr Gordon Hughes, professor of economics at the University of Edinburgh, dismissed the report as “pure guesswork”. He added: “The question, which this report largely ignores, is whether or not it is economic to develop them. This game of trying to calculate Scotland’s oil and gas reserves has become almost a pointless exercise.”

Estimates on oil reserves and oil prices have been a key battleground in the referendum campaign. The problem for voters is that no one can give them a credible estimate of either. The Scottish Government uses highly optimistic assumptions on oil prices and the UK, or the OBR, use more pessimistic assumptions. The difference between these numbers is what pays, or doesn’t, for our schools and hospitals. The irony is that both estimates have been proved to be optimistic in the past.

You would have thought oil reserves would be easier to calculate. After all it’s a measurable commodity unlike prices that can fluctuate. However, we have a range of different numbers for voters to pick from. Oil magnate Sir Ian Wood suggests that remaining oil and gas reserves are about 16 billion barrels oil equivalent (boe). While industry representative Oil and Gas UK suggest a figure of 24 billion boe. As Ewan Mearns discusses in some detail, both of these numbers as they stand alone are totally meaningless. It’s not physical reserves we should be concerned about, but those reserves that are economically viable to extract. He concludes by saying:

“The focus on ethereal reserves is a mistake, the focus on direct tax income is a mistake. The focus should be on the continued existence of a multi-billion £ industry that provides jobs and prosperity for many and a single minded focus on doing nothing that may jeopardise the present or the future.”

This shouldn’t be good news for Yes vote backers the Green Party and quite a few environmentalists. As Peter Jones mischievously put it in today’s Scotsman, “It is becoming increasingly clear that if there is to be a boost, or more realistically a maintenance, of living standards, Scotland will need to produce every last ounce of oil and gas. Yet if we do that, we will also be helping planet-wrecking climate change.”

While the latest polls have at least woken up the rest of the UK to the debate in Scotland, they at least don’t have to make this difficult decision based on limited credible data. As the author Carol Craig put it in a thoughtful essay today, “If the No side is Project Fear then, for the most part, Yes is Project Pollyanna”.

Stronger regulation and a price freeze needed to curb power companies

Household energy bills are rising faster in the UK than in most other countries in the developed world.

New research shows that between 2010 and 2013, electricity prices rose by 23.5% and gas prices by 33.8%. Although electricity still costs less in the UK than in other EU nations the UK’s prices have risen much more sharply. In real terms, UK energy bills have risen by an average of 21% – around £221 per year. This figure does not take into account the latest round of price hikes.

In what is possibly the very worst excuse for not passing on falls in wholesale prices to consumers, the chief executive of NPower has said his firm has not reduced fuel bills because of the Labour party’s threat to freeze prices. This comes at a time when Ofgem has forecast that firms are set to nearly double the profit they make from every home. Ofgem estimate suppliers will make £102 from every dual fuel customer between now and next July, that’s up from their £56 forecast last year.

Labour has responded to NPower’s politicking by indicating that it would give a new energy regulator the power to revoke energy companies’ licences to help protect the interests of the public. Shadow energy and climate change secretary Caroline Flint accused the UK Government of presiding over a “broken energy market” and said Labour would hand a tough new regulator the capability to cancel energy companies’ licences where there were repeated instances of the most “serious and deliberate breaches of their licence conditions which harm the interests of consumers”.

She highlighted FoI figures that showed energy companies had continued to “mistreat their customers” and face another 16 probes into mis-selling, poor customer service and other bad practice, despite Ofgem issuing 30 fines, totalling more than £87 million since 2001. The new regulator would be charged with producing an annual scorecard for energy suppliers, reporting on the company’s performance and identifying areas of concern.

More pressure on companies comes from the UK government who have proposed penalties, including potential two year prison terms, for people who manipulate the gas and electricity markets. Manipulation or market abuse is very difficult to prove, but monitoring and data-collection methods are improving.

Given these developments the intervention of five former energy regulators into the debate is bizarre. They have suggested that too much regulation may have hindered competition among energy suppliers, maintaining high prices. Of course these are the very light touch regulators who contributed to the current state of the system.

The energy market has been a dismal failure and most of these developments still tinker at the edges. Stronger regulation and a price freeze is at least a step forward, but Michael Meacher MP sets out a more radical approach.

Ineos take a stake in Scottish unconventional gas drilling

As predicted by us and others, Grangemouth plant owner Ineos has taken a major step towards supplying the plant by unconventional gas from Scotland. The company has bought the majority share of a shale gas exploration licence for Scotland, increasing the likelihood of the controversial drilling technique used for extracting oil or natural gas from deep underground coming to Scotland.

There was considerable scepticism at the time of the investment that the plant would really be supplied by imports from the USA in the medium term. Now Ineos Upstream chief executive Gary Haywood has said: “We are one of very few businesses that can use shale gas as both a fuel and a petrochemical feedstock. Ineos is well-placed to become a major player in the UK onshore gas production sector.”

This will also put additional pressure on the Scottish Government to allow unconventional gas drilling in Scotland. Ineos will undoubtably again use the jobs argument to support their controversial business practices.

This will ironically bring them into line with the UK government, who are desperate to bring US style exploitation of shale to the UK. However recent research undertaken by US experts in the field, independent of the big oil and gas companies, have found a very different story. That data shows high early decline rates in existing shale-gas and shale-oil wells, so that high levels of drilling are needed just to maintain production. The Wall Street Journal has also revealed that large foreign investments in US shale-oil and shale-gas leases were drying up rapidly.

Some have taken comfort from the announcement by Scotland’s energy minister that he is opposed to UK plans to remove individual objection rights over drilling in residential areas. However, the headlines didn’t actually reflect what he said. His primary objection was that the consultation was being undertaken by Westminster not Holyrood. He also said:

“We are taking a cautious approach yes, we are taking an evidence based approach. We are looking at matters further and if we decide that it may provide opportunities for Scotland, then perhaps it should be done in a controlled considered way, in appropriate parts of Scotland.”

Not, by some way, a strong line against fracking. Ineos no doubt has a very clear view what ‘appropriate parts of Scotland’ are!

The New Economics Foundation has recently highlighted other arguments against fracking. The most frequent, though disputed, argument made in favour of fracking is that burning gas emits less carbon dioxide than coal, so shale gas provides a lower carbon bridge towards a more renewable electricity system. They point to several papers that have questioned this assumption, reporting high ‘fugitive emissions’ of methane during fracking. It also ignores the fact that the primary use of gas in the UK is not electricity generation, but domestic heating. Decarbonising the energy supply therefore requires action to reduce our reliance on gas, not embark on a new dash for gas.

Hazards magazine has also drawn attention to the health and safety risks to workers. US unions have noted that deaths in the oil and natural gas industry were up by 23% in 2012 alone. It traces the upward trend back to 2008 and the creation of fracking boom towns. In February 2014, a worker died when a Chevron fracking well in a small Pennsylvania town exploded. The fire burned for five days. Of course trade unions raising awkward safety issues have been a target of Ineos as well!

While it’s tempting just to say ‘we told you so’, the Ineos announcement is a significant development and makes the development of unconventional gas in Scotland much more likely.

Changing public attitudes to recycled water

In a wet Scottish August it may seem a little strange to discuss recycled water. However, severe water shortages in many parts of the world are driving the search for new ways of ensuring a clean water supply.

The technologies to produce high quality water from wastewater are improving all the time. While this could help relieve the strain on water supplies, public attitudes to the idea of using water that is recycled from sewage and other wastewater streams for drinking and domestic use is a major barrier.

Jonathan Bridge in the academic newspaper ‘The Conversation‘ argues that it is public attitudes to recycled water that needs treatment, not the water.

Public attitudes are not necessarily irrational on this point. Untreated sewage is dangerous stuff, and is still responsible for death and disease in many parts of the world. As says “Recent evidence on the prevalence of antibiotic-resistant microbes in treatment plants highlights the need for ongoing technical development to combat emerging threats to health and environment. Other concerns lie around persistent organic pollutants such as pharmaceuticals, which may be concentrated by repeated recycling of black wastewater.”

In the USA a report by the National Research Council (NRC) that reviewed current wastewater treatment technologies found that the possible health risks associated with exposure to chemical contaminants are minimal. They said, “Available technology can reduce chemical and microbial contaminants to levels comparable to or lower than those present in many current drinking water supplies.”

Water UK has also produced a useful briefing that explains how sewage is treated.

Water engineers also face the challenge of tackling real and perceived threats to water quality, mistrust of commercial utilities and government authorities, and a deep-rooted fear of contaminated water.

This is an easier sell in parts of the world where water supplies are under greatest pressure. Here environmental concerns, price incentives, fines and even national security have been used to convince people of the need to adopt wastewater recycling. Not a pressure we face in Scotland – yet!

Another step towards commercial fracking

Shale gas fracking has taken another step forward with the UK government opening the bidding process for onshore licenses. However, a license is only the first stage. Any actual fracking requires planning permission as well. At the same time the UK government has issued new planning guidance for England that places some restrictions on fracking in national parks and other environmentally sensitive areas.

Business and Energy Minister Matthew Hancock said: “Unlocking shale gas in Britain has the potential to provide us with greater energy security, jobs and growth. We must act carefully, minimising risks, to explore how much of our large resource can be recovered to give the UK a new home-grown source of energy. As one of the cleanest fossil fuels, shale gas can be a key part of the UK’s answer to climate change and a bridge to a much greener future.”

However, Greenpeace said millions of homeowners have been stripped of their right to stop companies drilling under their property and now communities will face a “fracking postcode lottery”. “The government has fired the starting gun on a reckless race for shale that could see fracking rigs go up across the British countryside, including in sensitive areas such as those covering major aquifers. Eric Pickles’s supposed veto power over drilling in national parks will do nothing to quell the disquiet of fracking opponents across Britain.”

On the same day, the Scottish Government’s expert panel reported that there are significant reserves of unconventional gas in Scotland, the exploitation of which could result in new jobs.

The chairman of the Expert Scientific Panel, Dr Chris Masters, said: “It is clear the development of unconventional hydrocarbons has had a profound effect on the economy of the United States with global repercussions in terms of gas and chemical feedstock prices. While it is unlikely that Scotland, or indeed Europe, would benefit to a similar degree, there could be a number of positive economic impacts.”

However, the panel did recognise public concerns over fracking and the need for detailed consultation with communities. The Scottish Government welcomed the report and has established a group to examine the findings.

Friends of the Earth Scotland said: “This report raises a number of very serious concerns including impacts on public health and climate. The analysis clearly demonstrates that even if all the environmental, health and regulatory issues could be overcome, there still wouldn’t be a US-style bonanza here, simply because the cost of extraction and the technical and geological challenges are too great. It is simply wishful thinking to imagine that it is possible to safely frack for unconventional gas in the most densely populated part of the country.”

One step forward for the industry, but still some way to go.

How councils can improve our energy system

Cities could play an important role in our energy system. In the energy chapter of the ‘Red Paper on Scotland’, I argued for greater public ownership of energy generation in Scotland by rediscovering the role local government used to play. This reflects what other countries regard as the norm, notably through the growth of renewables in Denmark.

And not just Denmark. Munich in Germany has a target to supply the entire municipality of 1 million people with renewable electricity by 2025. The city has already invested €900 million in renewable energy projects, and it has plans to invest a total of €9 billion to deliver its 2025 target. A group of councils, primarily in England, are also getting involved.

The IPPR has now published a report entitled ‘City energy: a new powerhouse for Britain’. This sets out how cities can become involved in energy and what central government could do to support them.

Cities could deliver the investment to decarbonise our energy system by raising their own finance through issuing green bonds and by making better use of their pension funds. In Scotland, over £24bn is sitting in local government pension funds, mostly invested overseas. Lancashire County Council has already done this.

Using this finance, city energy companies would deliver benefits to city residents rather than shareholders of the mostly foreign companies that dominate the Big Six. Currently, 50% of offshore wind and 69% of nuclear generation is owned by foreign state-backed companies. This means our consumer funded subsidies are going to foreign shareholders.

The IPPR report sets out a number of ways cities could get involved in energy, from becoming a licensed supplier down to joint ventures or partnerships. Aberdeen is one example of a Scottish council that is getting involved by becoming a global pioneer in the use of hydrogen produced using excess power from their nearby offshore wind farms.

The gains include cutting bills and tackling the fuel poverty endemic in our cities. Providing new investment to decarbonise our power supply, with generation that will help secure long term energy security. Not to mention jobs and sustainable economic growth.

In Scotland, this initiative should not just be limited to cities. Scottish Water is well placed to do more than the modest first steps it has taken in this area. Smaller, rural authorities could also get involved, either by linking with cities, or forming partnerships with other councils.

Local government led the way in the 19th Century by generating energy. It’s time to rediscover that role and the IPPR report shows how to do it.

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