Gordon Morgan provides a comprehensive critique of EU, UK and Scottish Government energy policy, and argues that only by breaking from the UK energy market can Scotland ensure security of energy supply and fulfill its enormous green energy potential
The recent coverage in The National of criticisms of the UK energy market from Prof Paul Younger of Glasgow University, who said that the UK national electricity grid was “rigged” against Scotland in favour of London, has put the issue of control over energy back onto the agenda.
Former First Minister Alex Salmond has backed up Younger’s claims, writing in the Dundee Courier (24 August) that “the power market is rigged against Scotland’s interest.”
The paper I co-authored alongside Andrew Cumbers, George Callaghan, Geoff Whittam and Mike Danson in 2013, Repossessing the Future: A Common Weal strategy for Community and Democratic Ownership of Scotland’s Energy Resources , made a similar critique of the UK energy market.
The paper argues that:
– To realise Scotland’s enormous potential for renewable energy, massive investment is required.
– This is failing to be achieved due to a reliance on market forces and the history of underinvestment since privatisation under Margaret Thatcher in the early ’80s.
– The UK ‘s market first and only policy is in effect a failure of Governance, risks a perfect storm of high energy costs, lights going out and missing Greenhouse gas emissions targets. Indeed, foreign companies (often state owned in their countries) seem to have more control over energy policy than the UK or Scottish Government’s.
– A new policy, based on regulation and public investment is required to successfully renew our infrastructure and decarbonise the economy and provide security of supply at an acceptable price i.e. less than we will be charged. Fundamental to this was to control energy policy in Scotland and take the national grid into public ownership.
– Scotland’s energy system should be planned by public bodies to achieve security of supply as a priority policy.
– Public policy should be informed by collective decision-making and public deliberation (rather than pretend ‘consultation’).
– The role of the Crown Estates awarding licenses to exclusively large and mainly foreign energy companies needs to be addressed.
– A mix of forms of public ownership (both state and community) are advocated that allow strategic planning whilst encouraging of local democracy and community participation.
Further Common Weal papers built on this starting. A paper in 2014 by Brian Richardson on energy storage took issue with the Scottish Government’s contention that we did not need to invest at that time in Energy storage, that the lights would stay on regardless of a lack of wind.
Finally our paper on Investment showed clearly that the UK does not invest. That investment particularly in Energy cannot be left to the market and recommended a network of local investment banks which would fund local community and council owned energy companies.
Since the papers were published there appears a greater centrality on putting Climate Change and renewable technology at the heart of Scottish Government policy. Despite this, on 1 April it was reported that Scotland had missed its climate change targets for the 3rd year in a row.
This was entirely predictable given:
1. Energy policy is controlled by Westminster
2. Private energy companies have effectively been on an investment strike for several years due to the disastrous Energy Market Reform’s lack of clarity and the Tories lukewarm commitment to Green Energy.
As the recently appointed chief civil servant in charge of energy at the Scottish Government (ex Treasury) put it at a business conference I attended last year, when asked if he agreed with the UK energy market reforms, he said:
‘As a Marxist I disagree with the privatisation agenda, as a Civil Servant I must strive to make it work.’
The problem is the current strategy – which the EU, the UK Government and the Scottish Government are all locked in to – is unlikely to work, and could indeed be disastrous. I will look at each in turn to explain why, before looking at what can be done.
Although overall the EU is reducing its carbon emissions, there is a widespread feeling that this has more to do with the recession than investment or technological change. Nevertheless the EU as recently as 2014 reached an agreement to reduce its emission 40 per cent over 1990 levels by 2030. This follows the previous agreement on 2020 emissions. Like the previous agreement, each country has set its own targets and to a large part these rely on individual parliaments for action.
The EU works to a pro competition for free market agenda and this conflicts with climate action. Its 2020 goals include “a secure, competitive and sustainable supply of energy to the economy and the society” yet the largest three power companies in each country in the EU between them control more than 2/3 of the generating capacity. Its goal of achieving security of supply through transparent inter-connectors between countries could achieve the opposite result if price pressure reduces investment.
The UK has chosen to implement the “ownership unbundling” option for its grid. In part this has resulted in the high connection charges that so affect bringing new green generation onto the grid in Scotland. It has also prevented the much hyped North Sea energy grid as Norway refuses to deal with a privately owned transmission company and insists its state owned transmission operator Statnett controls inter-connectors. That is one reason Grid nationalisation is so important. The Scottish grid is jointly owned by Scottish Power and SSE, the English grid largely by National Grid which is another listed company responsible to shareholders not the public interest.
For years the EU has tried to cut emissions by charging for carbon emission permits. We are on the 3rd such scheme and all have so far failed as more permits are issued to polluters than are needed and the price of certificates is hence very low.
The one real success in tackling CO2 emissions has come from clean air legislation which has in effect set limits to Sulphur, NO2, Ammonia and Methane. This has forced the closure of many coal power stations (including the likely closure of Longannet although it could operate under legislation till 2018). Once again, political pressure from coal reliant nations since the EU elections has led the commission to water down legislation and a modified and less stringent package is now expected to be legislated later this year.
It is reported that at almost all EU environment conferences, large power company representatives vastly outnumber and out lobby environment groups. There is also a clear left right divide. The European left conference, which I attended in Madrid in December 2013, set clear priorities for environmental action and a coordinated investment plan. However, at present the left comprises less than a third of EU legislators.
Concerns over supply and particular security of gas supply mainly from Russia are huge factors, which rather than stimulate investment have created a climate of uncertainty which is preventing significant investment, not only in fossil fuels but also green energy.
Deiter Helms, professor in energy at Oxford and a leading advisor to the EU commission, considers we should not be too concerned. Rather than massive deployment of new technology, which could be expensive, he has advocated joint investment in R&D in order to make renewables cheaper than fossil fuels.
The EU Horizon 2020 programme, updated on 1 June 2015, is funding EUR80bn for research and innovation over six years. UK universities, research centres and businesses expect PS2bn over next 2 years, which may be matched from other funding sources. Not all of that is for energy research, however, a large part is.
So in summary, the EU has good goals but corrupt practises and weak on collective action. I once had a drink with a chap who when I said the Commission was corrupt could not agree more. When I asked what he did he claimed to be a senior auditor for the EU…
The UK government is the most committed to neoliberal ideology in the EU, if not the world. Even the US has jailed energy executives and bankers.
Faced with widespread evidence that the UK energy market was not working, rather than increase regulation it created more “free markets” – free to competition, but paid for by consumers.
It is worth recalling that until the new Energy Act came into place, renewable energy schemes were guaranteed payments of Renewable Obligations Certificates (ROCs) for a specified number of years (typically 25) which would be bought for around PS46 by a central agency. Different types of renewable generation received different numbers of ROCs. Crucially the Scottish Government could choose to vary the number of ROCs issued and this fuelled the development of renewables in Scotland.
Around 2011, the UK Government announced its intention to radically alter the UK energy market through what became known as Energy Market Reform (EMR). It essentially modified and systematised so called Feed in Tariffs changing both the rates on offer to developers of new generation depending on each energy type and also the length of time they would be guaranteed for.
One uncertainty related to when generation came on stream. If a generator was late in deploying they could get a lower tariff thus making the scheme uneconomic.
The main uncertainty related to what the tariff rates would be and this involved lots of testing the wind by the Department of Energy and Climate Change (DECC) who essentially couldn’t trust what the industry was saying and (with good evidence) believed they were being conned to boost profits.
This process lasted two years during which time energy investment stalled. Finally, large schemes had to seek both Ofgem, DECC and planning approval thus adding to costs and time-frame and also making decisions as to who was allowed access subject to political influence. This laborious and unscientific system is directly affecting efforts at investment in Scotland, with the refusal of the Moray Firth windfarm and Longannet losing a contract to stabilise energy supply.
Other markets and regulators were introduced, supposedly to get the market honest, but because they are not yet fully in place it’s impossible to tell whether they are having any impact or not.
Finally, the most obscure market, the capacity market, was announced. This is supposedly to stop the lights going off e.g. if the wind doesn’t blow, nuclear maintenance required, etc. Bids are made to supply electricity as and when required for a fixed stand by cost over a period and get a premium if it is used. It was suggested crowds of storage heaters in a garden could qualify and indeed the Power Boats proposed for the Thames estuary was apparently in contention, with Longannet to supply energy to stabilise supply when needed.
Not one industry spokesperson or academic export believed this would work, let alone was sane. A primary role of government is security of energy supply yet the UK Government appeared more than willing to forego that responsibility.
Former UK Energy Minister Ed Davey and, I am afraid, current Scottish Energy Minister Fergus Ewing were on the watch when decisions were taken which could put the lights out across the UK and/or Scotland. Crucially the right for the Scottish Government to vary the FIT rates, as it had the ROC rates, was omitted from the Bill, I believe without any contention from the Scottish Government.
As Prof Younger points out in his comments to the National, the threat of the lights going out is now very serious indeed. This coming winter, the UK is only going to have power 1.3 per cent in excess of peak demand. The previous rule was to always have 20 per cent in excess, eroded continuously since privatisation for the sake of efficiency to drive profitability.
The Energy Act came into force in December 2013. Many of its provisions only came into force this April.
The capacity market will have its first auction for 2016/17 in January 2016, so its cost is unclear. However, a House of Lords report in March stated the change of regime to prevent the lights going out: “was put in place at short notice, at considerable cost, and in a way which conflicts with the decarbonistaion agenda.”
Moreover they concluded the public was being misled by Government in that: “it is not possible for the electricity supply to be low cost, resilient and low carbon all at the same time.”
With the election of a Tory Government, the emphasis has moved firmly towards cost reduction of electricity bills in the short term and against a rapid decarbonistation agenda. Specific announcements are:
– New onshore wind farms will no longer be included in the Renewables Obligation scheme from April 2016 i.e electricity companies will not be obliged to purchase electricity from them as part of their renewable commitment. This threatens some existing large Scottish wind farms which have planning permission. Moreover as Scotland has the most wind capacity and is therefore the cheapest place to build onshore wind, it actively damages Scottish industry and employment. It is not yet known if the ban will extend to community energy schemes.
– Two gas power generation plants to be used when energy needs peak have been announced for Suffolk and South Wales (23 July), despite more cost effective sites being available in Scotland no plants here have been approved. Longannet is shutting in March 2016 as it did not get awarded a contract under the capacity market.
– Only one offshore wind farm has been approved since the election, Dogger Bank Teeside, and several proposed significant Scottish off shore wind farms have not proceeded, partly as a result of the connection charges imposed on Scottish developments, whereas equivalent English developments would receive additional subsidy.
– Shale Gas planning proposals have been fast tracked despite increasing scientific evidence of the dangers of soil and drinking water contamination.
– Onshore oil and gas development blocks are to be auctioned despite similar environmental fears.
– Hinkley Point C nuclear power plant has now proceeded to award sub contracts. EDF energy (French Government owned) envisages a 60 year life span for the project and the UK Government has guaranteed the price it will pay to EDF for 35 years, a rate far higher than the rate at which renewable producers will be paid. Although the European Commission after intense lobbying from the UK Government gave approval for this last October, the expected cost has risen from PS16bn to PS24.5bn. In July, Austria as well as ten German and Austrian power companies have lodged a legal challenge at the European Court of Justice claiming state aid to industry in breach of EU policy.
It is crystal clear that the Tories are both reneging on a commitment to a green agenda and are punishing Scotland for rejecting them. Tens of thousands of Scottish R&D and power sector jobs and technical expertise may be lost as a consequence consequence.
Scotland has the greatest renewable energy potential of any other developed country in the world. It also has a long history of interest in renewables, for example the first windmill generating electricity was built in Kincardine, Scotland in 1887 by a Glasgow Professor James Blyth.
Estimates of the potential vary. However, installed capacity at Q3 2014 and estimated potential are:
– On shore wind : existing 4.9 GW; potential 11.5 GW
– Off shore wind: existing 0.2 GW; potential 25 GW (likely to increase)
– Hydro: existing 1.5 GW; potential 2.7 GW (mostly small or micro)
– Tidal: no existing; potential 7.5 GW (25 per cent of EU)
– Wave: no existing; potential 14 GW (10 per cent of EU)
– Solar: existing 0.15 GW; potential unclear but much more
– Total: existing (excl nuclear) 7.1 GW; potential over 60 GW
Generating capacity and actual power generated differ greatly sometimes by days in the case of wind or waves or more predictably in the case of tidal and solar. Actual generation amounted to 17 GWh in 2013 out of a total electricity generation of around 55 GWH (~ 32 per cent) and renewables contribution has risen since.
Scotland exports around 26 per cent of its electricity to England, less if Longannet closes (which became an issue in the referendum as there were threats to cease buying electricity). On average it exports electricity to England for three days for every day it imports it.
However, energy used is not only electricity, it is also heat for houses, fuel for transport etc. The main source for these is Oil and Gas, although renewable heat plays a part. According to the Scottish Government, in 2012 12 per cent of total energy use in Scotland came from renewable sources (I believe excluding nuclear).
Even with reductions in energy usage, and using electricity or hydrogen for fuel, a massive expansion of renewables to possibly 7 or 8 times the existing generating capacity may be required if we are to end our dependency on fossil fuels. This implies utilising our current estimated potential by 2050 (earlier if possible). New tech could reduce the figures required, however, an expanding population from immigration and new industrial regeneration could increase energy usage.
The good news is we know we have the potential and can do this. The problem is ensuring it is done to benefit the people of Scotland both now and in the future.
SCOTTISH POLICY – RIGHT AND WRONG
The Scottish Government is to be praised for setting ambitious carbon saving targets, with cross party support. These are amongst the most ambitious in Europe. Moreover unlike other administrations, particularly Westminster, the SNP Government and the opposition seem to mean it and have set up independent monitoring groups, parliamentary scrutiny and publicly accept some of their failures.
They have encouraged research, taken on board the need for supply chains to feed into real renewable jobs, demanded and got the power (at least till recently) to modify the Feed in Tariffs to encourage investment and seen a significant deployment of renewable generation. They have also finally got the need to be more ambitious as regards community payback for allowing generation within the vicinity of communities.
Nicola Sturgeon now chairs the Scottish Energy Advisory Board (which was key to establishing the not-for-profit Our Power Energy) and it is clear that energy policy is now more central within the SNP cabinet.
Nevertheless, the SNP Government has made errors in the past, many of which have not yet been rectified. The main criticisms are:
– They looked at the power companies as a technical resource to be relied on rather than companies only interested in the bottom line.
– Accepted that Energy policy, reserved to and determined by Westminster, would always be played with a straight bat by the UK Government and be fair to Scotland.
– Welcomed inward investment, in major energy developments, without looking at how Scotland would benefit rather than foreign shareholders.
– Frankly had a naive view on how energy politics worked, in the EU and at Westminster.
– The Western Isles inter-connector, essential for development of their and Scotland’s renewable potential, is still not committed to after around 12 years.
– The endless delays over the Beuly electricity cable.
– The acceptance of the EMR proposals and the giving up of Scotland’s right to vary payments for FITs as they had for ROCs.
– The fact that most proposals coming from academics including world experts and campaigning organisations with impeccable credentials are referred on to the power companies for their consideration, usually to be told the proposals are uneconomic.
– The Future of Electricity in Scotland paper which was released shortly before the referendum last year said after Scottish independence we would remain part of the National Grid, and the National Grid would continue to buy Scottish electricity. A ludicrous position which damaged our arguments for independence.
– The continuing position that storage would not be required for at least ten years, despite the high risk the lights will go out soon. (This is only partly being addressed through the survey of renewable storage locations and technologies).
– A reliance on traditional finance and company investment to pay for an essential resource i.e. major generation and storage and grid upgrades, rather than explore public investment for core developments.
– The denial that Oil and Gas in the North Sea or air travel has anything to do with our carbon footprint.
– Above all the refusal at every turn to contemplate challenging or rigorously regulating the power companies or looking at returning them, or at least the grid, into public ownership.
This is not a criticism of the SNP per se. I have attended cross party groups in the parliament on energy and read parliamentary reports. The same spokespersons turn up over and over from SSE and Scottish Power. The same applies in England. The frustration of MPs, MSPs and indeed MEPs is widespread across all parties.
Thankfully, there are recent signs that the SNP Government is changing its thinking on energy. They have in the last month publicly stated a more decentralised grid and local energy production and consumption is technically the future. An internal civil service diagram reflecting this was shown to me at a conference over a year ago, however, it is the first time I believe the Government has said this publicly.
It is up to all of us to do what we can to change the political climate on energy.
Picture courtesy of Common Weal