PRODUCTION, DISTRIBUTION AND MORE EFFICIENT USE OF ENERGY

In the context of these challenges, SCDI would set the following objectives:

• Security of Supply – Meeting the needs of sustainable economic growth (achieve Scottish Government Economic Strategy targets) as the UK becomes a net importer and global competition grows for depleting resources.

• Decarbonising Supply – Meeting Scottish, UK and European renewable energy targets for 2020 and interim and 2050 Scottish and UK climate change targets.

• Affordability of Supply – Maintain economic competitiveness and affordability for business and consumers (especially the fuel poor) in the post-cheap energy era.

• Maximising Economic Benefit – Investment must turn innovation into successful manufacturing industries and support employment in the energy industry.

Energy efficiency should have the highest priority, but realistic assumptions on its impact on demand must be made. Behavioural change and the supporting investment needed will take a number years. Studies show that consumers have often spent money saved through energy efficiency on other energy-intensive activities and it remains to be seen if rising energy costs will have a long-term impact. So there is a need to reduce the link between energy-intensity and carbon-intensity in goods and activities. Smart metering will improve consumer information and may change habits. Higher and more rigorously enforced standards are needed for new houses, and sustained investment is needed in the existing building stock. Raising standards in Scotland to the level of those in Scandinavia and Germany could save 20% of domestic energy consumption. Energy saving light bulbs should become standard. New technology is being developed and piloted by Scottish companies to monitor energy waste in buildings and should become more widely available. Microgeneration should have an important role, with a collaborative rather than individual building approach increasingly taken. In Scotland, given its relative size, the public sector has a particular opportunity to show leadership. In the private sector over, energy efficiency will become a source of competitive advantage and profitability in a new way. Businesses will view higher carbon emissions as a reputational issue in the global marketplace with which many cannot afford to be associated. This is well illustrated by the success of the Carbon Disclosure Project.

SCDI welcomes the greater attention on heat and transport within this inquiry. Gas for heating and oil products for transport comprise about 65% of the UK’s primary energy demand. A key issue is security of supply. While the contribution of oil and gas to UK energy needs is likely to increase from three quarters to 80% by 2020, the UK is now a net importer of both and the current rate of investment in the North Sea would produce only 12% of projected demand by that year. However, Oil and Gas UK estimates that 40% of UK oil and gas needs in 2020 can be achieved with sustained investment. [2] As the UK Renewables Advisory Board has acknowledged, decarbonising heat or transport before 2020 will be hard as the technology is many years from being available on a commercial scale. In the short-term, government must ensure access for affordable fuel, especially in rural areas, so people can access opportunities, and businesses get goods to market. In the future, decentralised power systems, use of waste heat, rail electrification and links between Carbon Capture and Storage (CCS) schemes and the transport network will be needed. It is important to note that some solutions will increase electricity demand.

With this in mind, SCDI would support a long-term approach which:

• Maximises the exploitation and responsible use of indigenous resources and existing technologies for sustainable economic benefit, while accelerating new technology development.

• Deploys, alongside existing low carbon technologies, new energy technologies and infrastructure to harness more of Scotland’s natural and mineral resources to achieve higher sustainable economic growth and achieve climate change targets.

The future of electricity generation within Scotland is critical for economic growth and climate change, and, in SCDI’s views, is an immediate priority which the Committee should seek to influence. All of Scotland’s major power stations are scheduled to close by 2025 and schemes under construction or planned do not come near to replacing them. The potential for an electricity gap to open up from 2015 onwards is real, depending on demand patterns and plant closures towards the end of the next decade. The Scottish Government’s target to generate 50% of Scotland’s electricity from renewables is widely accepted and is essential to hit UK and EU targets. It can be achieved if barriers, including cost, are overcome. The UK Renewable Energy Strategy: Consultation estimates that a £100bn investment will be needed in renewables to achieve the target for 2020. Its initial projections show the costs to consumer and industrial electricity and gas bills from existing climate change policies, and the higher costs from increased deployment of renewable electricity, financial incentives for the renewable heat sector and the Renewable Transport Fuel Obligation. [3] These are significant and need to be minimised. They are based on fossil fuel prices lower than at present and if the price turns out to be higher than the assumptions the percentage increase could be much lower. The Committee may want to look at the projected costs for each technology in more detail. In evidence to the UK Parliament’s Environmental Audit Committee, E.ON UK has suggested that if the UK needs around 40000MW renewable electricity to meet the EU renewable energy target, 36400MW of conventional supply will also be needed to ensure that winter peak demand can be met. [4] So the key question is how to supply the other 50% of Scotland’s electricity needs, in particular a secure, clean and affordable base load.

A realistic scenario for 2020 and beyond would be peak demand for around 6.5GW. Wind capacity may be as high as 8GW and this may generate 3GW of clean energy on average. With particular weather patterns, however, generation from wind may be virtually nothing. Without complementary conventional supply, in those circumstances, over reliance on renewables would destabilise the entire system. There is therefore a need for about 4/5GW of conventional supply, given import and export capacity. Scotland also, at present, exports around 20% of its electricity generation on average to the rest of the UK market, which is a significant benefit to the economy. But this flow of electricity could, occasionally or more frequently, be reversed. It is therefore possible to envisage three potential scenarios for electricity generation and supply.

• Scotland continuing to meet own needs and exporting power – In addition to 50% from renewables, this would require at least three large power stations.

• Scotland balancing its needs over the course of a year - Occasional supply from England, need for fewer new stations, but implications for economy and employment.

• Scotland dependent on power generation in England - Balancing intermittent supply from renewables, but, again, with implications for economy and employment, and possible threat to the common UK electricity market which subsidising the growth in Scottish renewables.

In SCDI’s view, the first scenario is clearly preferable in meeting the objective of future energy production in Scotland, especially as large amounts of import capacity from the rest of the UK are constrained and might destablise the system. The issue is then how this should be delivered. Fossil fuels offer flexibility of supply to balance the output from renewables, but they emit some carbon emissions. The UK will need new gas fired capacity, particularly in the short term, given its affordability, reliability and efficiency. However, costs are rising, the UK cannot afford to become overly dependant on imports for its power supply and its own valuable reserves need to be carefully managed. The world will be generating power from coal for decades to come and efficient coal-fired power generation will be needed. But the price is increasing. With biomass blending, significant reductions in CO2 emissions can be achieved. However, CCS is unproven at full scale and decisions on new coal-fired power generation cannot wait for it to be successfully demonstrated. If it does not work, the emissions from new coal fired power stations will be locked in for 30/40 years. About 26% of the electricity generated in Scotland was from nuclear in 2006, supplying the equivalent of about a third of Scotland’s electricity. It is the only proven low carbon conventional technology for base supply and the ability to diversify from fossil fuel prices. It is highly productive, but its output is less flexible. Therefore, SCDI supports a balanced energy mix in Scotland, with much higher supply from renewables and a backbone of new nuclear and lower carbon fossil fuels, which it believes is needed to ensure security and affordability of supply, and to reach climate change targets.