SCDI members welcome the inquiry on “Determining and Delivering Scotland’s Energy Future”. Energy is at present the top public policy priority for many in the Scottish economy. However, this inquiry is the latest in a plethora of inquiries, reviews and consultations in recent years. Discussions with SCDI members have revealed significant frustration that these are appearing more frequently and have an ever shorter shelf life, set out to determine the energy future but succeed neither in delivering short term action nor long term clarity, and often put the politics of the debate before the policy. The success of this inquiry report will be judged on whether action follows and on the durability of its influence. Committee members must be prepared to follow the evidence and agree positions which are independent of party policy.
The International Energy Agency (IEA) has said that world energy demand is predicted to increase by 55% between 2005 and 2030, with much of this growth in China and India. Demand will be overwhelmingly met by fossil fuels (84 per cent) and energy-related greenhouse gas emissions will rise by 57%. While debate on “peak oil” continues, the IEA has already said that the world “faces an unsustainable energy future if governments do not radically change their energy policies in the next 10 years.” The Stern Review of the Economics of Climate Change estimated that if there is no international action on climate change, the overall costs and risks will be equivalent to losing at least 5% of global GDP each year, now and forever. It said that the power sector around the world needs to be at least 60% decarbonised by 2050. The European Union (EU) has agreed to a binding target for the UK to generate 15% of its energy from renewable sources by 2020.
The best estimate by the Royal Society of Edinburgh of population and economic activity in Scotland predicts an increase, with a consequential expectation of a 50% increase in Scotland’s energy demand by 2050. [1] Scotland will lose around 30% of its electricity generating capacity from large power stations in 10 years and around 70% in 20 years. Since privatisation, the margin in installed capacity relative to peak demand has reduced from about 30% to 20%. At UK level, one third of generation needs to be replaced in 10-15 years.
On current trends, there will be a growing gap between energy supply and demand in Scotland and the UK, and a growing global gap between greenhouse gas emissions and targets for stabilising the climate. There has been underinvestment in the energy industry over many decades. This will need to be redressed in the next 10-15 years to close these gaps. The scale of the challenge is without precedent – in mindset, skills, finance, raw materials and physical space. The opportunity for industry is that clean energy may be a $1 trillion market by 2030. But, for the UK, the challenge is also that no fully competitive power market anywhere has ever been tested under conditions of such rapid change in which affordability must be balanced with investment in future capacity.
The increasing cost of energy is a major concern to households and businesses. Scotland’s manufacturing industry is finding it increasingly hard to remain competitive. The high cost of energy, in addition to other cost pressures, and the upward trend in prices, is making continued investment in Scotland compared to other locations more difficult to justify for some companies. Higher input costs are also being passed onto consumers at the factory gate and fuelling inflation.
This challenge requires informed debate and agreement on action. SCDI has the following observations on the current energy debate within Scotland:
- Scotland is integrated into the UK energy market. The Scottish Parliament, UK Parliament and European Union all have responsibilities for energy and climate change policies. Energy is an internationally traded commodity and climate change is a global challenge. Scotland’s energy future needs to be determined and delivered within this context.
- There is always much discussion of opportunities and threats. While there are many opportunities, the balance is towards threats to the economy and global environment. Policy-makers must prioritise risk management.
- Security of supply, climate change and affordability are generally recognised in the global debate as the main challenges. But within Scotland, too little attention is paid to security of supply. For the Scottish economy, a key question is how to create stability and certainty over periods of 20 or 30 years.
- All technological energy solutions have environmental drawbacks. Policy-makers need to balance those against their top priority of sustainable economic growth and the greatest global challenge of climate change.
- The technological priority is those which will have the greatest global impact. These will be will the low carbon options: carbon capture, nuclear and renewables. Scotland has a comparative advantage in them all.
- The differences between demonstration of new technology, small scale deployment and large scale deployment, and the lengthy timescales between each stage, should be understood and much more clearly stated.
In response to SCDI members’ concerns about the energy debate and the potential risk of an energy gap – which was also expressed at the National Economic Forum – SCDI has commissioned major independent research. This will address the issue of Scottish power generation between 2008 and 2020, the UK and EU contexts, and reach conclusions about the suitability and like effectiveness of Scottish energy and environmental policy goals and targets. SCDI will share the final report with the Committee when it is available towards the end of September. Some of the following recommendations are therefore provisional until this work is completed. In the meantime, to focus the dialogue and debate, SCDI is organising a major conference on Scotland’s energy future with expert speakers to which Committee members are invited. |
