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.

More on Energy Commission report

Former energy minister Brian Wilson gives a typically blunt assessment of the Energy Commission’s report, in today’s Scotsman.

He says, “For the past half century, Scotland has been an exporter of electricity to the rest of the UK, due mainly to our nuclear stations. Last year, we exported more than a quarter of what was produced. The triumph of Nationalist policy will be to turn us into an importer. That matters less while we are part of the same state and market but would matter – and cost – a great deal if we were not.”

This point is also picked up in today’s Herald “it is not all one-way traffic along Britain’s interconnectors. Scotland has begun to import electricity from the rest of the UK. The amounts are not high. Over the past three years, some English-generated power has been required on 162 days. However, on 10 occasions, power was imported right through the day to meet Scotland’s needs and experts believe the situation will worsen as the country’s non-renewable power stations are due to close.”

As Magnus Gardham also reports, “In an article for the latest edition of the Royal Scottish Geographical Society’s magazine, The Geographer, Professor Paul Younger of Glasgow University argues that, with nuclear power stations Hunterston B and Torness due to close in 2023, and ageing, coal-fired Longannet not expected to last beyond 2025, there is barely enough time to build replacements that can provide the baseload, or constantly available, electricity essential when the wind fails to blow.”

While there is a perfectly respectable case for independence, these articles confirm that energy is one of the Scottish Government’s weakest points.

Energy Commission’s case for a single market

The Scottish Government’s Energy Commission has published its report on how the energy market and regulation could operate if Scotland votes for independence in September.

They confirm that a National Regulatory Authority will be required under EU law and the regulator’s duties should be clear and settled for a fixed period to give regulatory certainty.

The report argues that a Single UK Market can continue to work effectively and that there is overwhelming support for maintaining single markets in electricity and gas across GB because
this benefits consumers in both Scotland and the rest of GB and is consistent with the moves towards market integration across the EU. There would need to be robust arrangements governing any settlement with trade-offs that limit unilateral control affecting both partners. They point to working models in Ireland, Iberia and Scandinavia that show it can be done.

They also argue that there is a real opportunity to make a difference to fuel poverty through a fuel poverty agency tasked with targeting assistance, using smart meters and examining the role of the retail and distribution businesses.

This is without doubt a serious and detailed examination of the energy industry in Scotland and many of its conclusions will inform the debate, whatever the outcome of September’s referendum.

However, given the failures of the UK energy market as evidenced by the latest referral to the Competition Commission, it does have to be asked why an independent Scotland would want to join such a system? After all, Scottish Government ministers have been some of its fiercest critics. Joining a single market severely constrains an independent Scotland’s ability to correct the market failures that are all too apparent. The Irish model actually showed that it only works when both parties are pursuing similar policies.

Even if we did seek to join, there is no guarantee that rUK would agree. If they did, it is likely to be on their terms as a major partner. Subsidising Scottish renewables is not likely to be high on their list of priorities. Expecting the EU to come to the rescue on a level playing field, is naive in the extreme.

So, while this is a useful report it leaves open a number of key concerns. Scottish consumers and the industry need radical reform, including greater diversification of ownership. Making those changes will be all the more difficult stuck in the UK system.

The failed energy market needs more than another review

With yet another investigation into the failed energy market, it’s hard to see why consumers should have any more confidence in this latest initiative.

Ofgem is referring the energy market to the Competition and Markets Authority (CMA) for a full investigation. They claim this should ensure, once and for all, that competition works effectively for consumers, by bearing down on prices while driving improvements in customer service and innovation.

Tom Greatrex, Labour’s shadow energy minister, said: “The prospect of a full blown market inquiry is confirmation that there are structural issues to address, despite the government’s lack of interest in real reform. Labour has the policies to reform, refocus and re-set this market, and we hope an investigation by the CMA will provide the impetus and expertise for such action.”

TUC General Secretary Frances O’Grady, put it more bluntly. She said: “Energy companies have been ripping off customers for years and today’s decision to refer them to the Competition and Markets Authority is long overdue. It’s about time the government stood up for consumers who are sick of seeing their rising bills being used to prop up bloated profits.”

Citizens Advice added that the investigation also needed to consider whether competition was working for people on low incomes, not just active consumers. Gillian Guy, chief executive of Citizens Advice, said: “Citizens Advice sees people on lower incomes who are struggling to meet extortionately high energy costs, brought about in part by energy firms’ failure to provide real choice for people with less money to spend.”

In a separate initiative, Ofgem has called on the Big Six energy suppliers to explain to their customers what impact falling wholesale costs will have on their energy prices. Both wholesale gas and electricity prices have been falling significantly. In early June 2014, gas prices for next day delivery reached their lowest level since September 2010 and are now around 38% below this time last year. The trend has been similar in electricity, with prices reaching their lowest level since April 2010 at the beginning of June. They are currently around 23% lower than this time last year. Forward prices for gas and electricity have also fallen. Compared with last winter, gas and electricity prices for the coming winter are around 16% and 9% lower respectively than last year.

Even energy minister, Ed Davey, has admitted there was a “lag” in falls in wholesale electricity and gas prices being passed onto energy customers.

In this context, it is hardly surprising that customer complaints to the Big Six energy companies have reached their highest-ever levels. The Big Six suppliers received a total of 1.7m complaints in the first quarter of 2014, up from just under 1.5m in the same period last year. The quarterly performance is the worst for the sector since its biggest players started compiling records in 2012.

A survey by SMCDB found that more than half of UK consumers don’t trust energy suppliers amid widespread confusion and anxiety about bills. Some 51% said they did not trust any energy supplier, with this rising to 57% of those living in fuel poverty or with a disability. More than a third were concerned that their energy bills are not accurate, and 41% worried that they pay for more energy than they consume.

As usual, Ofgem’s solution is that more customers should switch supplier. Under their new plan consumers will be able to switch electricity and gas supplier within two-and-a-half weeks, including the two-week cooling off period. They have also published additional plans to introduce next-day switching by 2018 at the latest. Around 62% of people have never switched energy supplier, and these people are often on old, uncompetitive deals and consumers could save up to £200 a year if they switched.

However, the SMCDB survey revealed that more than two-fifths of consumers did not believe they have the information they need to choose the right energy tariff, while almost as many were not confident they had enough information to select the right supplier.

Energy companies are now making a record £96 per household, with profits doubling in the past year despite a drop in the price of wholesale gas. The profit on selling gas has now reached 10 per cent – double the 5 per cent profit margin companies were making this time last year.

On this evidence, yet another review of our failed energy market looks less than convincing to consumers. That’s why there is growing support for more radical solutions, including public ownership.

Developing new renewable technologies

New renewable generation in Scotland is almost entirely dominated by onshore wind. That’s not only controversial, but also intermittent. Are there other technologies that might deliver viable generation to the grid.

One established technology is solar panels. Angus might not immediately strike you as sun kissed, but there are proposals, for former crop fields within New Mains of Guynd Farm in Angus to be transformed into a park for solar energy production for 25 years. The system will have a capacity of 9.5 megawatts, which could provide power to 2500 homes.

Ron Shanks, managing partner of the developers BWE Partnership indicated that this is not the limit of their ambitions, he said, “We continue to be on the look-out for further solar park opportunities, especially in Angus and Fife, as we believe there is a real opportunity for Scotland to harvest energy from the daylight.”

Cost has always been a barrier to the use of solar panels. However, a breakthrough in the production of solar cells could make the next generation of solar panels cheaper and safer, and promises to accelerate the development of solar energy over the next decade. A technical advance based on an edible salt used in the manufacture of tofu could revolutionise the production of future solar panels to make them less expensive, more flexible and easier to use than the current models.

Jon Major of the University of Liverpool, who led the research said, “We certainly believe it’s going to make a big change to the costs of these devices. The cost of solar is going to match fossil fuels eventually but this is going to get us there quicker.”

Technologies like this also holds out the prospect of greater diversification in the ownership of generation. SmartestEnergy’s Energy Entrepreneurs Report 2014, shows that 169 new independent renewable projects of 50kW or more started in Scotland in 2013, up 50 per cent on the number in 2012. Scottish Renewables said the rise showed that independent electricity generators, including communities, businesses, farmers and public bodies, were increasingly taking their energy future into their own hands. Given the modest scale of total generating capacity this is somewhat over spinning the case, but none the less it is progress.

Diversification or value for money doesn’t appear high on the UK government’s agenda. The National Audit Office has warned that the government may have handed benefits to corporate power providers at the expense of consumers by awarding £16.6bn of renewable energy contracts without putting them out to competitive tender.

A spokesperson said, “As the contracts-for-difference regime has the potential to secure better value for consumers through price competition, committing so much of the available funding through early contracts, without competition, has limited the department’s opportunity to secure better value for money.”

Finance for new projects could come from the Edinburgh based Green Investment Bank. It unveiled a new fund that could give it access to as much as £500 million to help kickstart more renewables projects.

As Scotland doesn’t have a constant stream of sun or wind, a means of storing energy is a vital part of any future energy system that includes a substantial amount of variable and uncontrollable renewable energy. Energy storage provides flexibility and reduces the need to rely on fossil fuel back-up power. While there isn’t one storage technology, if we are to hang our low-carbon future on renewables like wind and solar, then governments need to focus on supporting industry to develop energy storage technology.

So, there are alternatives to onshore wind, but it will require government support to turn them into reality.



National planning policy and fracking

The new Scottish National Planning Framework includes a range of major energy projects and some restrictions on wind farms. However, anti-fracking groups are disappointed that there will be no national requirement for buffer zones around unconventional gas sites.

While the plan confirms the Scottish Government’s ambitious renewable targets it recognises the need for a minimum of 2.5 GW of thermal generation with CCS to meet our requirements and support diversification of supplies. There will be no nuclear new build in Scotland, although they don’t rule out extending the operating life of Scotland’s existing nuclear power stations at Hunterston B and Torness. Subject to strict safety considerations.

There will be opportunities for communities to develop energy generation, although the ambition remains at a small scale. The plans aim to achieve at least 500 MW of renewable energy in community and local ownership by 2020. CCS, pumped storage and hydroelectric power also feature in the plan.

Electricity grid enhancements will facilitate increased renewable electricity generation across Scotland. An updated national development focusing on enhancing the high voltage transmission network supports this, and will help to facilitate offshore renewable energy developments. Distribution Network Operators (DNOs) also have plans to make essential upgrades to the distribution networks.

The absence of buffer zones around fracking sites in the plan came under most criticism. Green MSP Alison Johnstone said: “They may not be as gung-ho as Westminster but the Scottish government has failed to come down on the side of communities worried about the impacts of fracking. Greens proposed a 2km buffer zone but this has been rejected and now it will be up to developers to put forward a plan for approval. We already have standard buffer zones for wind farms and coal mines, so why not gas extraction?”

The Falkirk campaign group feel badly let down after assurances they thought they were given at the SNP conference. They said:

“It is with utter consternation that we now discover that our Scottish Government is intending to allow the industry to set their own buffer zones i.e. to self-regulate. Given recent experience in the Banking, Press and Food Industries self-regulation does not work. The Scottish Government’s claim to be listening to communities or wishing to protect them is seriously in doubt if this policy is permitted. The self interest of corporate business and their legitimate goal of profit maximisation prohibits them from seeking the best interests of communities and the environment.”

UK ministers claims that there are no US studies on water contamination linked to fracking. However, the TUC has highlighted several published academic studies. One shows concentrations of methane, propane and ethane in drinking water wells across Pennsylvania, where extensive shale gas fracking is taking place. The reason is leaking or fractured drills that pass through the water table into the shale gas rocks below.

The TUC also argues that the UK government’s infrastructure bill should fast track investment in carbon capture and storage technology, rather than accelerating a dash for onshore gas through fracking. Their study shows that job for job, the case for CCS seems to be far more compelling, as CCS lowers carbon emissions. Shale gas could boost greenhouse gas emissions through methane release, a far more potent greenhouse gas than carbon dioxide.

Of course planning policies only enable developments. Delivering on the Scottish Government’s energy plans will be much more challenging. They can also be sure that the anti-fracking lobby will be watching them all the way.

Scottish Water to remain in the public sector post-independence

In our look at the Scottish Water capital programme we noticed that the White Paper ‘Scotland’s Future’ was silent on the future of Scottish Water.

Our request for clarification resulted in this helpful response from the Scottish Government.

“The Water Industry in Scotland is already a devolved issue. Scottish Ministers have full policy responsibility for the Water Industry including the ownership of Scottish Water. This includes the principles that must underpin the setting of charges for customers and the improvements to services that Scottish Water must deliver. The Water Industry Commission for Scotland (WICS), Scottish Water’s economic regulator, determines the customer charges, consistent with the principles set by Ministers, necessary to fund the delivery of services to customers and the required improvements. 

Scottish Water is performing well as a publicly owned corporation; evidence of its performance is clearly demonstrated by the fact that Scottish Water is matching the levels of service provided by the companies in England and Wales whilst ensuring that the average household charge, at £339, is around £50 lower. 

Scottish Water will remain in the public sector and continue to operate in the interests of its customers, the people of Scotland.” 

In view of the controversy over the BBC and other public bodies membership of the CBI, we asked Scottish Water for their affiliations.

Both Scottish Water and Business Steam confirmed that they are not members of CBI/CBI Scotland. 

Both organisations belong to trade bodies, SCDI and various Chambers of Commerce. Perhaps the only surprise is that Business Stream is a member of the Institute of Directors. It is hard to see why a public organisation would belong to a right wing, free market group. Unless they are doing missionary work!


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