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Options for Energy Generation in Scotland

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OPTIONS FOR SCOTLAND

Electricity Generation Options for an Independent Scotland

Foreword

Electricity is central to modern life.  It is a prime responsibility of Government to ensure that domestic and industrial customers have a reliable and environmentally clean electricity supply, produced at the cheapest possible cost.

Scotland has a huge reservoir of energy resources not least in its potential to produce electricity. It is distressing therefore to witness the amount of fuel poverty that exists in Scotland, a statistic that is set to soar as Westminster follows a solution of generously subsidising producers at the expense of poor households.

It need not be so in an independent Scotland.

There are options that will be open to an independent Scotland different to the path presently being followed.  We discuss some of these options in this report.

We must stress however that this is not a POLICY paper.  When Scotland is independent the various political parties will have contrasting proposals for energy policy in their manifestos for the first and subsequent general elections. They will presumably produce proposals that are principally in the interest of Scotland.

The OPTIONS we are suggesting are meant to be of interest to those hoping to widen the general debate in the independence Referendum.

 

 

 

 

 

Introduction

Energy policy in the UK is reserved to Westminster.  Thus at present, energy policy in Scotland takes place within a UK-wide policy context. Electricity generation policy is a part of overall energy policy.

In the UK at present all electricity is generated by private companies operating in a free market environment, albeit supplemented by a complex range of subsidies. These private companies, the market, and the subsidy regime are regulated by a Regulator, Ofgem.

Although the electricity grid in Scotland is still owned by SSE and Scottish Power, the electricity generated in Scotland is delivered around Scotland, and exported from Scotland to England, by a grid operated and balanced on a Great Britain wide basis by the National Grid Company, the private company which owns the grid in England.

The present direction of travel of the expansion of electricity generation in Scotland within this UK context has been well established since privatisation.  As things stand the signs are that this arrangement will continue with electricity generated in Scotland simply being one of the ingredients in balancing that GB Grid in a manner that satisfies both the grid company and generating companies.

However both the present electricity generation mix and the projected future generation mix in Scotland, and the geography and renewable resource scenario in Scotland, are very different from those in England.

It is worthwhile to consider what policy options may be available to a future Scottish Government should Scotland become independent, and choose to make its own way in deciding what the electricity generation priorities should be to maximise the undoubted advantages that have been bestowed on Scotland.

The present electricity generation situation in Scotland

The annual “Peak Demand” figure for electricity in Scotland is probably around 5,600MW.  This figure had been recorded for decades but curiously since 2005 it is no longer announced. Indeed there are many energy statistics that are only available at a UK level. This has already been pointed out by the Holyrood Energy Committee and is something which the Scottish Government should take more seriously.

If the lights are not to go out at times of very high demand, the installed electricity generating capacity must be able to meet this demand safely.  This is done by planning to have a total installed dependable capacity of about 20 – 25% greater than the anticipated peak demand. In Scotland, we are fortunate in having our conventional hydro and pumped storage to call upon at short notice to help lop any high or peak demand.

The supply system should of course also be able to meet the large daily and seasonal electricity demand fluctuations throughout the whole year.

It is well known that Scotland has been a major exporter of electricity to England for decades. This has been done via 2,200MW capacity interconnectors linking the Scottish Grid to the English Grid which are being upgraded to 3,300MW. Plans are also in place to increase the interconnector capacity to 7,000MW by 2021.

Interestingly, practically all of Scotland’s present non-wind capacity, which underpins both our normal base load and peak loads, was built in the pre-privatisation era more than two decades ago.

And as things stand, most of this capacity ( Hunterston B, Torness, Peterhead, Longannet and the conventional hydro and pumped storage stations, which have a total installed capacity of around 8,000MW) is still likely to remain operational until 2025.

The recent development of “fracking” for gas in the USA has aroused a great deal of speculation in energy circles around the globe, but given the environmental problems that may arise, particularly in overcrowded England, and indeed even the cost of the operation, it is too early to alter the present generating equation; but it is a factor to keep under observation.  Its emergence does underline however the danger of rushing too early and too much into any particular technology.

It is obvious that there is no danger that Scotland will experience any internal shortage of electricity in the near future. This means that in 2016 we will be able to review our options calmly and sensibly as to how best to proceed to tackle the longer term electricity supply problems that will lie ahead in the 20s, including our climate change legal obligations. But we can do this incrementally in a well planned manner.

Fundamental issues in future electricity generation policy

There are fundamental issues that need to be challenged if we are to investigate genuinely and comprehensively the options for a future electricity generation policy in an independent Scotland. Thus we should,

  1. Revisit the privatised free market approach.
  2. Reconsider the adopted timeline target for renewable penetration.
  3. Consider delaying the introduction of large amounts of offshore wind.
  4. Question the ownership and control of the Grid in Scotland.
  5. Question the efficacy of the Feed in Tariff (FiTs) scheme for Scotland, and particularly solar PV.
  6. Examine whether we need to have nuclear power?
  7. Encourage progress of carbon capture and storage (CCS).
  8. Review the extent of support for Scotland’s marine energy potential presently under development.

We shall discuss these in turn below.

Option 1: Revisit the privatised free market approach

The electricity industry in the UK was privatised in 1990.  For the 40 years prior to that there were three statutory generating Boards in the UK; the CEGB in England and Wales, and the SSEB and NSHEB in Scotland.  Their statutory responsibility was to plan and build a mix of power plants so that the consumers in their statutory area had a secure electricity supply at the cheapest possible price. Of course all three Boards had grid connections to one another and co-operated to achieve mutual savings.  Thus, for example, the NSHEB’s conventional hydro and SSEBs pumped storage at Cruachan, all flexible, dependable and rapid response plants, could be used to mutual advantage at peak times, with both Boards making capital savings and gaining premium prices.

And importantly, the public knew where responsibility lay to plan where the next power station should be constructed to meet growing demand, and what type of power station it would be; someone was in charge and we knew who it was.

With privatisation all that changed. Today there is no Board or Organisation in the UK with the statutory responsibility to decide where and when the next power station should be constructed in the national interest, and to see that it is built.

This was not a problem in the early years following privatisation as the UK was able to rely upon what had been inherited from the Statutory Boards.  It became a bit of a problem when the privatised electricity generating industry decided it should make a “dash for gas” in the 90s, which suited the industry but not necessarily the long term needs of the country. The Government was helpless to prevent it.

For the past decade however the main, and serious, energy issue has been the UK’s international climate change obligation. A target timeline to reduce our carbon emissions has been drawn up by the UK Government, and the electricity industry has been chosen to deliver the major part of the carbon savings in the early years. That is what the electricity subsidy regime (Renewable Obligation Certificates and Feed-in-Tariff ) is all about; to encourage investment into “new” but expensive renewable sources. Renewable Obligation Certificates are issued to “accredited” electricity producers. These ROCs are required by electricity suppliers and there is a trade in them. At present 1.0 ROC is worth about £50/MWh to an accredited electricity producer.

The carbon reduction issue has thus massively complicated the “ Market “ arrangement.  The legal obligation to reduce carbon emissions lies with the Government, not the industry.  So the Government has to distort the market with subsidies and try, as best it can, to organise these subsidies to “direct” the industry to achieve some acceptable generation mix.  However the industry is still free to build only what it thinks will be profitable for itself in the long term taking advantage, of course, of the benefit of the subsidies on offer. These subsidies are many and varied to cover the wide range of generation technologies. For example at present (having been reduced in 2012) they run from 0.5 ROCs/MWh for new large hydro, 0.9ROCs/MWh for onshore wind and twice that for offshore wind. Under the FiT scheme about 15p/kW is now paid for solar PV, and various amounts for small wind and hydro depending on size.

Given these generous subsidies which are guaranteed for 25 years, massive amounts of investment is being poured into onshore wind in Scotland and offshore wind in England.  There is a degree of control over where the offshore wind farms will go as the Crown Estate is in charge of leasing the offshore areas.  However for onshore wind it is the industry itself, or landowners who choose where the wind farm will be sited.  A study of the performance of what has been built to date would soon reveal that many wind farms have not exactly been erected in the optimum place from the national investment benefit point of view.  The difference in performance from the best to the worst performing of these wind farms is substantial yet all seem to be profitable.  We can conclude that we are over subsidising many of them.

Another concern is that, when the Government first has to decide what particular subsidy levels will ensure that the flow of investment capital takes off. The government is then slow to change that level of subsidy.  But in the renewable industry, especially wind technology where billions of pounds are being invested annually, steady technical improvements are being made in turbine size and efficiency. Thus bigger and bigger profits begin to be made with each new wind farm constructed under the original subsidy regime. There is always a delay before the subsidy is reduced to a less generous level.

Perhaps the biggest example of this was in the FiTs scheme for solar PV where the initial tariff of 43 pence per kWh was so high that it started a feeding frenzy in the South of England and led to the Government virtually panicking and slashing the tariff by almost two thirds within two years.  FiTs is hardly a scheme designed to keep consumer prices as low as possible as will be discussed in 3.5.

As stated above the responsibility for ensuring that the country has sufficient electricity, or meets the carbon reduction targets, lies with the Government, not the electricity generation industry.

In the present situation the industry need not take a risk knowing that the Government will eventually have to come up with a subsidy arrangement to ensure them a profit.

There is no doubt that UK energy policy, particularly the electricity industry, is a bit of a dog’s breakfast. The Government’s absolute faith and reliance on market led solutions is beginning to fray at the edges.  When set against the looming generation shortfall problems and carbon reduction obligations ahead it looks  less than convincing. We think it will remain so until some Board or Organisation is given overall responsibility to “get things done “.

We may have long forgotten the words “ central planning “.  It sounds a bit Stalinist for the free-market enthusiasts of the Thatcher, Major, Blair, Brown and Cameron governments.  But it seems to us that in an independent Scotland a much greater responsibility must be taken by our government in deciding how much electricity we need, what the technology mix should be, and where the generating capacity should be constructed.  That way Scotland would optimise the investment and only pay for what we want and what we get. That is not to say that it should be politicians who take the decisions. It is for the politicians to set up the organisation staffed by technical experts to take responsibility in the national interest.

It may be that Mrs Thatcher led the world in privatising the electricity industry (minus nuclear which embarrassingly no one would buy at the time) but such a move was not universally followed in Europe. A number of countries in Europe retained a State involvement in their electricity generation industry.  We have Vattenfall in Sweden, DONG in Denmark, Norsk Hydro and Statkraft in Norway, EDF and GDF Suez  in France, EDP in Portugal, Enel in Italy and  Landsvirkjun  in Iceland.

Ironically some of these foreign State companies are now investing heavily in the UK’s renewable electricity industry, taking advantage of our generous subsidies, while we in the UK have no State involvement whatsoever; and we even have the situation where the UK is totally dependent on a French state-owned company to build its next generation of privately owned nuclear power stations. That is the same UK that built the world’s first nuclear power station via a state company yet has now totally lost the industry through privatisation.

Option 1 for an independent Scotland: An independent Scotland must give serious consideration to getting the Scottish state more fully involved in planning and executing our future electricity generation needs even if this means the setting up of a state-owned generation company to operate in future along-side the existing private companies who now own our power stations.

 

Option 2: The adopted timeline target for renewable penetration

The Scottish Government has announced that one of its electricity generation targets is for Scotland to generate the equivalent of 100% of its own electricity needs from renewable sources by 2020.  It emphasises that this does not mean that in 2020 all electricity in Scotland will come from renewable sources. In 2020 we would still generate a lot of electricity from other non- renewable sources. Indeed it expects that in 2020 Scotland will generate almost as much electricity from non-renewable sources as from renewable sources, the hope being to export to England what is not consumed in Scotland.

However implicit in achieving this “2020 aspiration” will be that Scotland will have the following installed generating capacity and mix,

  • 10,000MWs of onshore wind, about 3 times what we have at present,
  • 7,500MW of offshore wind, of which we have little at present
  • Other generating capacity (fossil, nuclear, hydro, pumped storage, biomass, solar, etc. ) of around 8,000MW.

This would give Scotland a total installed generating capacity of around 25,000MW, which will be over 4 times our annual peak demand figure and over 5 times the average daily maximum. All the wind generated electricity and even half of the conventional hydro, receives a subsidy.

One wonders if the full financial and technical implications for Scotland have been thought through.  Such short term rapid expansion with one subsidised technology, if it comes to fruition, would severely financially constrain an independent Scotland from developing a long term strategy which would ensure that Scotland was able to encourage and develop the undoubted potential of our not as yet fully matured renewable electricity potential sources such as wave and tidal flow.

An independent Scotland will have to take on a carbon reduction target to meet our international obligations under climate change legislation to reduce carbon emissions.  At present this legal international obligation lies with the UK Government.

To help meet that obligation the UK Government has set a target to produce 30% of the UK’s electricity from renewable sources by 2020 and, since Scotland was already producing about 10% of its electricity from conventional hydro, the then Scottish Executive originally agreed to accept a target of 40% as its proportionate contribution. The figure of 40% would probably be the 2020 target that an independent Scotland will have to adopt under the EU legislation aimed at combating climate change

Scotland could achieve this 40% renewable electricity obligation by 2020 from the following generation capacity and mix;

  • the existing conventional hydro, biomass and solar PV capacity plus around 6-7,000MWs of Onshore wind. ( At present the total of ‘operational plus under-construction plus consented‘ onshore wind capacity is just under 8,000MW ).

The other 60% of our annual electricity needs would come from the following,

  • the two nuclear power stations ( Hunterston B and Torness ),
  • the coal-fired power station at Longannet,
  • the gas-fired power station at Peterhead ( and possibly a new gas-fired station at Cockenzie)
  • the flexibility for high demand lopping given by our 800MW of pumped storage capacity which “stores” electricity generated at low demand periods for later use at high demand periods.

With the above we would still have an excess of Scottish generating capacity for export which would last into the 2020s. For Scotland it is obvious that there is no over-riding supply side urgency at this time to go out on a limb on a massive wind farm construction programme well in excess of our own needs and obligations.

By aiming now for the 100% by 2020 renewable target a future independent Scotland could become uncomfortably exposed to excessive internal subsidy costs, and would be reliant on external demand conditions beyond our control.  As shown above our massive excess installed generating capacity will be overwhelmingly of erratic wind whose output may or may not be able to be sold or exported.  We have no certainty of when the incredibly expensive Grid extensions, that would be needed to send this excess electricity out of Scotland to where it could be used, will ever be constructed and who will pay for them. We will have no certainty that when the electricity is being generated at times of low demand, it will actually be required somewhere else.  Already with less than 4,000MW of onshore wind embedded in the Scottish part of the national grid, and producing its own fluctuating supply complication to the difficulty of balancing the grid, large sums of money are having to be paid out in compensation for electricity that cannot be used and has to be constrained off the Grid.

The 100% target is not a requirement imposed on Scotland by the UK Government although they are quite happy to see renewable capacity being built in Scotland at this time to go towards the UK’s carbon reduction obligation.  But it will lock an independent Scotland permanently into a Great Britain grid operated by the National Grid Company.

The Scottish Government claims that allowing large amounts of onshore and offshore wind development to take place at breakneck speed at this time will encourage a massive injection of capital investment into Scotland, leading to the creation of tens of thousands of jobs; and, some have even said, to the ‘’ re-industrialisation ‘’ of Scotland.  That is quite an enticing prospect but it does not stand up to close inspection.

The early development of Scotland’s North Sea oil and gas industry, requiring a far greater financial investment, across a much wider range of technologies, may have created a lot of jobs in Aberdeen and the Shetlands, but it certainly did not re-industrialise Scotland. It did lead to boom and bust platform construction jobs few of which exist today.

By the end of 2014 Scotland will have more wind farm capacity per capita than any other country in the world, yet not a single one of these wind turbines or the blades will have been assembled in Scotland.  Massive investment in Scottish wind farms there may have been, but little of that investment money has been spent in Scotland. German and Danish turbine manufacturers have received probably 70% of the money. The employment created by the construction of some of the steel towers is of course welcome, as are the erection jobs, but these are hardly high tech, and they certainly don’t use any Scottish steel.

The question has to be asked.  Who persuaded the Scottish Government to go so much out on a limb on such a risky policy especially when we are facing the prospect of Scotland becoming independent?

Why are we accepting so much wind generated electricity capacity at this time that has the following drawbacks.

  • It is not only intermittent, but seriously fluctuates in output, potentially producing grid instability as its installed capacity grows.
  • We still need an almost total equivalent back-up generating capacity from conventional power stations to secure our own domestic needs. As the renewable wind capacity is embedded in the grid and has priority, this will reduce the economic viability of these conventional stations.
  • It will need an annual subsidy that by 2020 could reach £2billion; all right if paid for by England who will be receiving the electricity but it is not clear how this could be done when Scotland is independent. It would require that Scotland will continue to have no control of its own Grid even though that Grid is still owned by SSE and Scottish Power. This will negate all the technical and financial advantage that Scotland’s conventional hydro, pumped storage and cheaper wind capacity should give Scotland, and
  • It will potentially prevent any major future major input from the developing wave and tidal current technologies that Scotland wishes to see developed for the future.

The current policy of producing for export is based on UK needs and those of the generating companies. It adds to the costs of consumers in Scotland. It provides no economic benefit to Scotland. In short it is a strategy for a devolved Scotland subject to UK energy requirements. It is entirely unsuitable for an independent Scotland.

Option 2 for an independent Scotland: Scale back the 100% by 2020 target and concentrate not on exports, but on following an electricity generation policy that will produce the lowest cost electricity for Scotland by ensuring that Scotland’s economic and technical advantages do indeed work to Scotland’s full benefit. The export policy can be initiated for supply of green energy to England or continental Europe as and when marine energy from tide and wave is available at competitive rates. In that context Scotland will supply only if any necessary grid and interconnector costs are absorbed by contracting customers and where there is a financial dividend payable to reduce energy costs to Scottish domestic and industrial consumers.

 

Option 3: Delay the introduction of large amounts of offshore wind

If Scotland does embark on a policy of aiming for lowest cost electricity, and has to produce 40% of its electricity from renewable sources, the obvious move is to concentrate on onshore wind.  Offshore wind will be twice as expensive as onshore wind and will almost certainly have major maintenance issues – the seas around Great Britain being far from benign in winter. Over time and with wear and tear, breakdowns will become more and more common.  Weather delays before repairs can be carried out will be much greater for offshore installations, and load factors can be expected to drop significantly.

Scotland has 60% of the land area of England and only one eleventh of the population.  England has virtually given up on establishing a large capacity of cheaper onshore wind – it simply does not have the space for the very large number of turbines they would need.  It has thus embarked on a massive offshore wind farm programme which could see as much as 20,000MW of offshore capacity by 2020.  This will be very expensive to construct and will attract a substantial subsidy to support.  The annual subsidy for this wind energy alone could reach £7billion by 2020, yet would go nowhere near meeting England’s 30% renewable target. Substantial additional subsidies will be required to fill their renewable target gap. Meanwhile in any all-GB grid Scotland will have to share all these subsidy costs.  For comparison the 6-7,000MW of onshore wind mentioned above in 3.2 would require about £750million in 2020.

In Scotland, with its harsher climate, keeping electricity prices down will be a priority. Massive amounts of offshore wind, and the related expensive grid expansion to bring this electricity ashore, will put up the price of domestic electricity, drive more and more people into fuel poverty, and raise electricity prices for our industry and business.

Also looking at onshore wind, the rush for ‘wind‘ because of over-generous subsidies has led to a stampede with inadequate control where now the interests of landowners and suppliers dictate the speed of development rather than the State. On independence, the Scottish Government can ensure a better balance by both control of subsidy levels and ensuring that only optimum sites are approved. It should also bear in mind that a reasonable capacity limit for new onshore wind in current economic circumstances is in sight.

Option 3 for an independent Scotland: On independence the Crown Estate will come under the control of the Scottish government. The government must declare a moratorium on further offshore wind until it has reassessed its policy with a view to having low cost electricity as its priority

 

Option 4: Take back the control and ownership of the Grid in Scotland

With control of the grid on a GB wide basis ( Northern Ireland has a separate grid control arrangement with the Republic ) Scotland loses control of its own electricity generation resource. The advantages of our valuable conventional hydro and pumped storage  assets for example are utilised for the benefit of the whole grid. There is also a financial benefit to the private companies that now own these plants, but little financial benefit to the Scottish economy. This also applies to our other renewable resources. Their development will inevitably be dictated by the GB grid requirement, rather than a specifically Scottish need.

Option 4 for an independent Scotland: For the reasons stated above, Scotland can only reap the full benefit of its renewable and other economic advantages when it removes itself from the all-GB grid constraint.  It must take back ownership and control of the Grid in Scotland

 

Option 5: Question the efficacy of the Feed in Tariff scheme ( FiTs ), and particularly solar PV

Any engineer will tell you that when generating electricity, big generating plants are more economic than small ones. It is therefore difficult to understand why the UK Government embarked on a policy of encouraging so called micro-generation using the Feed in Tariff scheme.

The generating cost per kWh of these very small schemes is much higher than for larger units and to subsidise investment in them simply raises the overall cost of our electricity. It is a bit like paying people with gardens two or three times the shop price of vegetables to encourage them to grow their own, then add the extra cost on to the shop price.

It is not the Government which picks up the subsidy tag. There is a “cost levelisation” process operated by Ofgem, compulsorily involving all the big electricity generating companies, and it is the consumer through their electricity bills who foot the bill for the FiT scheme.  The levelisation process also includes the administration costs incurred by the generating companies compelled to take part.  Since there are  hundreds of thousands of installations, the administration cost will run to £millions of pounds/year; and the scheme will last for 25 years.

Consider in particular the Feed in Tariff scheme for solar PV which makes up over 70% of the cost of the FiT scheme.  If Scotland was an independent country it is unlikely that our Government would have embarked on a scheme to offer large subsidies to households in our not exactly sunny country to encourage them to put expensive solar panels on their roof.  It may be that solar is an appropriate technology for Spain, or Cyprus or Saudi, but surely not Scotland.

But Scotland is not an independent country and when the Westminster government decided it was going to encourage households to install solar panels on their roof, Scotland was included in the scheme’s reach.

Solar panels do not come cheap.  The subsidy has to be substantial to enable those householders who invest in them to get their money back, with interest.  The initial FiT payment was set at 43 pence per generated kWh, about three times the subsidy of offshore wind.  The scheme was designed to give investors over 8.5% annual return and hundreds of thousands have taken up the offer.

Figures are now available from the DECC to give some idea of the scale of what will be added to our electricity bills.

Up to May 2012, over 1,100MW of solar PV capacity had been installed, the electricity from which will be paid for at 43 pence/kWh.  The DECC estimate that the total subsidy that this 1,100MW will attract over the 25 year contract period will be an astonishing £10.5billion.

The UK’s solar PV has a Load Factor of less than 10% and a Capacity Credit of zero.  Few would argue that this is the most sensible £10.5billion energy investment the country could have made just for the first 1,100MW of not very useful generating capacity.

Some people are making money out of the FiT scheme and it is instructive to reveal who they are.  The Renewable Energy Foundation have analysed the UK solar PV installation database and have computed that less than 5% of the installed capacity is in Scotland. So although Scotland will have to pay its proportionate share of the £10.5billion subsidy sum as a result of the levelisation process, most of the subsidy money will end up in the pockets of well-off investors in the South of England where not surprisingly most of the solar installations are.

The overall effect of this solar FiT scheme, apart from being very poor value for the subsidy money, will be to transfer a not insubstantial amount of wealth from the poor to the fairly well off and from the North of Great Britain to the South.

The remaining subsidy elements of the FiT scheme covering mini-hydro, biomass, small scale wind and anaerobic digestion are very complicated. The installations will add relatively little to our overall generating capacity and at high cost. If indeed some small schemes can come in at a price little above the normal ROC arrangements they can perhaps be catered for under that scheme.

Option 5 for an independent Scotland: There is no Scottish national investment advantage for a FiT scheme. If continued it would only serve to increase the overall cost of electricity.  An independent Scotland should abandon this scheme.

 

Option 6: Do we need to have nuclear power?

The Scottish Government has come under much pressure and criticism over its decision to oppose the construction of further nuclear power stations in Scotland. Regularly we see people writing to the newspapers predicting that, to keep the lights on, Scotland will in future have to import nuclear electricity from an enlightened England, who are in favour of building nuclear power stations.

However it was not always thus in England. It was only in 2006 that the then Labour Government in Westminster reversed its policy on nuclear power.  The Industry Secretary, Alistair Darling, announced the go ahead for a new wave of nuclear power stations to help reduce England’s carbon emissions. In 2008 they then projected that England could have up to 10 new nuclear power stations by 2020, mainly to replace the ones that had to be shut down. It was however emphasised that because nuclear was a mature technology there was no way that the Government would agree to subsidise these new nuclear plants.

Seven years have passed since that policy reversal, there has been a lot of talk and negotiations,  and nothing much has happened on the ground! Only one company, the French state owned company, EDF, seems still interested in proceeding with the construction of a nuclear power station in England. It is now unlikely that England will have even one new nuclear plant by 2020.

However behind the scenes what was being discussed between the Dept. of Energy and Climate Change and EDF was the framework that could be devised to assure EDF that, when they build the new nuclear plant, they will make a handsome profit over the lifetime of the plant. EDF needed to be guaranteed both a profitable “strike price” structure and a market share for its electricity. That form of subsidy has now been conceded by the Government although the terms of the deal such as the strike price are still not known.

The prolonged impasse can best be understood by looking to mainland Europe where two nuclear plants similar to the ones proposed for England, are being built by the French.

In 2007 at Flammanville in Northern France, construction began of a 1600MW nuclear plant. It was to be completed in 2012 and to cost 3.3billion euros.  It is now expected to be complete by 2016 and cost 8.5 billion euros, four years late and almost three times over budget.

In 2005 work started in Finland to build the Olkiluoto 3 nuclear power station, also 1600MW. It was to be completed by 2009 and cost 3 billion euros.  It is now 6 years behind schedule and way over budget (although unfortunately for the contractor it was a fixed price contract).It is fairly obvious why EDF were hesitant to get seriously under way at Hinkley Point without assurances on financial returns.

The figure of £14billion has been floated for the cost of the new Hinkley Point plant. Enormous as this is it may still be as economic as offshore wind, and a lot more dependable as a source of electricity.

The prolonged impasse which is symptomatic of an incoherent energy policy that has been followed by England, has also left England with a looming serious electricity shortage. Ofgem have now drawn Westminster’s attention to that shortage, which can now only be filled with gas-fired stations which will use gas that has to be imported and may prove expensive. It will also make it very difficult for England to meet its carbon reduction target. These new gas stations will be replacing England’s existing nuclear power stations most of which are due to close by 2020. There will be scope for a Scottish Government to enter into a commercial agreement that will answer England’s need for electricity on terms that will give a dividend to Scottish consumers.

Option 6 for an independent Scotland: Scotland will have the benefit of watching what happens in England and other European countries over much of the next 10 years, as they wrestle with their carbon reduction obligations. So an independent Scotland will be under no immediate pressure to make any decision about the future of nuclear.

 

Option 7: Encourage progress of carbon capture and storage( CCS)

Faced with the international legal obligation to reduce carbon emissions from electricity generation to almost zero by 2030, even an independent Scotland would have to rely on only three options.

a) We can reduce demand for electricity.  There are ongoing UK programmes aimed at doing this but a much greater effort will have be made to reduce electricity demand in an independent Scotland. This option must be given much more priority in an independent Scotland.

b) We can build new electricity generating plant that does not emit carbon dioxide while producing electricity.  This will mean adopting a range of renewable sources, and perhaps even nuclear as a last resort given its nuclear waste disposal problem.  However the trouble with all forms of renewable electricity is that they cannot cater for the base load requirement; and in the UK the demand for electricity does not drop below 20,000MW, and is above 30,000MW for 80% of the time.  The intermittency of renewable electricity means that there will always have to be an almost equivalent non-renewable standby capacity.

The term Capacity Factor is used to measure the percentage of installed capacity that we can confidently rely upon to be available at all times. It is reckoned that at present the Capacity Factor for our wind is less than 10%; for solar PV it is 0%. Only by linking intermittent renewable electricity to some form of “Energy Storage” could you increase its capacity factor, and reduce your reliance on conventional plant.

There is no immediate likelihood of a North Sea super grid system but as a number of countries may face similar carbon reduction problems, particularly Germany which is giving up nuclear power and encountering problems with conventional renewable resources, the Scottish Government may find a market for any emergent supplies of marine energy based on tidal stream and wave.  For the next decade or so each country will have to look after its own electricity needs, with electricity swapping being essentially a fringe activity compared to the overall national electricity demand figures.

c) Or we can find some way of capturing the carbon emitted from fossil fuel plants and sequestering it in a long term storage location. This is called Carbon Capture and Storage.  Scotland is particularly well blessed with possible sequestration locations. Considering how important this technology could become as an aid to reducing carbon emissions from reliable fossil fuel plants, the foot dragging of the Westminster Government over the past four years has been a national scandal. It is absolutely essential that an early start be made to a major CCS project in the UK and to deploy every conceivable effort made to make it an economic and technical success.

If CCS cannot be made to work, either technically or financially, then the task  of meeting climate change obligations will be all the greater.  In the long run, when electricity generation will have to be totally decarbonised, it leaves  only nuclear as the provider of the necessary non-carbon back-up for intermittent renewable.  Even in Scotland, fairly mountainous as it is, we could not provide enough additional conventional hydro and wind driven pumped storage capacity to see us through all low renewable supply periods. Since all our neighbours would have the same problem we could not confidently rely on emergency imports.

The devolved Scottish government is presently at the mercy of the Westminster Government to progress CCS technology.  The cost estimate for the full-scale scheme put forward by Scottish Power for the Longannet coal-fired station was reported to be £1.5billion. The Government could not reach agreement with them to proceed.

When one considers that under the FiT scheme discussed at 3.5 above, the total subsidy given to the first 1,100MW of solar PV will run to £10.5billion, a sum which could fund seven Longannet size CCS projects, you begin to wonder who the energy advisers are at the DECC.

Other relatively small experimental CCS programmes are still being pursued by the DECC but the financial amounts that are involved are modest considering the importance of the technology.

Option 7  for and independent Scotland: It remains to be seen what progress is made between now and 2016 on CCS, and what technical and financial information regarding the feasibility of CCS that an independent Scotland will inherit. A greater urgency will be required by a future Scottish Government because Scotland will need CCS if it eventually decides it must avoid nuclear.

 

Option 8:  Support Scotland’s marine potential.

Theoretically there is a great deal of scope for getting electricity from wave and tidal stream.  However at present electricity from these resources is still very expensive and a great deal of further development is still required to get the cost down. This may still take more than a decade, but could be helped if more research capital was deployed.  Support for these technologies still only runs in the tens of £millions annually.  The beauty of this support is that it is spent almost totally in Scotland.

Option 8 for an independent Scotland: Since the UK’s potential marine energy resources are mainly in Scotland, it will fall to an independent Scotland to progress these technologies. Scotland must step up the financial effort to see if these resources really can be brought to the market.

 

Option 9: The special case of our Hydro

Scotland has around 1,500MW of conventional hydro electricity.  Most of it was constructed by the North Scotland Hydro Board ( NSHEB) between 1946 and 1964 but a number of the stations go back to the 1930s.  This investment is one of the best that Scotland has ever made.  It produces around 10% of Scotland’s electricity in a highly flexible and controllable way – it can be brought on and off stream in minutes – and is thus ideal for both base load and peak load operation.

By the 1980s it was producing the cheapest electricity in Scotland and helped significantly to keep the electricity prices down for the then statutory Scottish electricity generating bodies, SSEB and NSHEB.

However, even though the bulk of these power stations had been constructed by the NSHEB, and paid for by their consumers, in 1989 they were privatised along with all the other UK non-nuclear power stations with no “compensation”  given to Northern and North Eastern Scotland for the loss of their uniquely valuable asset.

The NSHEB hydro assets are now owned by SSE while the SSEB hydro assets (the Galloway Scheme and the River Clyde stations at Lanark ) are now owned by Scottish Power (who are themselves now owned by the Spanish company Iberdrola)

All these hydro stations are still producing very cheap electricity which is not surprising as they are driven by ‘”free “ water, their high initial costs have been paid off, and their overall maintenance and running costs are low.  Yet astonishingly a large proportion of their electricity output actually receives a subsidy.

In 2000 when a consultation was held to decide what “new”  renewable energy schemes could be accredited for Renewable Obligation Certificate support, a representative from SSE went to London and told a Select Committee that the refurbishment costs of their “old” hydro schemes was so onerous that they were arranging to close them down.  This suggestion was absurd but apparently someone believed it.

A couple of years later, when the first Ofgem Report came out on how the ROC scheme was working, it came to light that “existing” hydro stations with a “declared net capacity” of less than 20MW would qualify to be accredited for a subsidy of one ROC per MWh.

 “Declared” by whom one may have asked.

The big three hydro station Owners, ie. Scottish Power, SSE and Rio Tinto (at Kinlochleven ) quickly availed themselves of this generous arrangement. The latter two even went the length of deliberately throttling back the station generating capacity of a number of hydro stations from well above 20MW to a “declared net capacity “ of less than 20MW, simply to qualify these stations for accreditation.  So now we know who did the “declaring”. Over 50MW of valuable generating capacity was lost to the system by this move.  The regulator, Ofgem, didn’t challenge it saying that the legislation did not explicitly rule it out; and our politicians seem either unconcerned or blissfully unaware of it.

The biggest financial beneficiary of this green light for accrediting existing hydro stations was, not surprisingly, SSE. They are now receiving around £100 million per year in ROC subsidy for the electricity produced from about half of their hydro capacity.

To try to justify receiving this massive annual subsidy for producing cheap electricity from these under 20MW existing power stations built decades ago, SSE claimed in 2002 that they needed to invest £300million in refurbishing all their hydro assets. One would have thought that refurbishment expenditure on the turbines and control gear is a normal part of the ongoing running of such a business as hydro electric power stations, especially as the periodic refurbishment of the generating plant is a small cost in the overall main civil engineering cost of originally building a hydro station; dams, tunnels and pipelines.

Be that as it may however, we can now project that by 2016, when we may see an independent Scottish government having to formulate its own energy policy, SSE alone will have received over £1billion pounds in payments under the ROC subsidy arrangement, in addition to receiving the normal electricity price for the high value electricity output that their hydro stations generate.  That is over three times as much as their £300million refurbishment backlog burden; and they will continue to receive this subsidy at that rate for more than a further decade, an astonishing state of affairs.

At privatisation in 1990, all the NSHEB hydro assets taken over by SSE were capitalised at £169million in the new private company.  There is little likelihood of anything being done under the present political arrangements.

 When the NSHEB was set up in 1945 it quickly brought together a very talented team of engineers and planners who had a clear vision.  Their task was to tap the water resource of the Highlands to bring electricity to every town, village and glen; and it hit the ground running.  Plans were drawn up for a whole series of hydro schemes across the Highlands, the first major one being the Sloy scheme which to this day is still Scotland’s biggest conventional hydro-electric power station.  But there were some who opposed these developments in the Highlands, the landowners.  They eventually prevailed and power station construction was halted in the 1960s when there was still an estimated 1000MW of potential hydro that the NSHEB engineers had plans to develop.

Much of this untapped potential is still there and the present silence surrounding the possible future development of it is curious.  It surely cannot be because the cost will be too expensive to exploit, especially when one looks at what renewable solutions are being encouraged from Westminster at present.  Offshore wind which is a potentially high risk investment with very large construction costs and hazardous maintenance pitfalls, will receive a subsidy of £100 per MWh, yet will produce intermittent electricity and require almost 100% back-up.  As mentioned above solar PV is being given eye-watering levels of subsidy under the FiTs scheme (the first 1100MW will receive a total subsidy of £10.5billion) yet it has a load factor of less than 10% and also requires full back-up. With all this in mind we propose the following policy option for a future Scottish Government.

Option 9 for an independent Scotland: That an all-Scotland Statutory body be set up similar to the old NSHEB. Its first task would be to review the original NSHEB plans for further hydro development. After carrying out this review it will bring forward proposals for further hydro development of Scotland’s hydro potential.

It should also be tasked with taking over and running all the hydro stations that were privatised in 1989 thus returning these to Scottish public ownership.  This will require compensation to be paid but when assessing this compensation the massive amounts of subsidy received by the Owners since 2002 will be taken into account as would their necessary expenditure actually incurred.

Finally the new body will be tasked with assessing, along with the Scottish Grid operator, how best pumped storage schemes could be incorporated into the national generation network so that we can effectively store the excess output of the intermittent renewable sources ( wind, wave and tidal flow ) at times of low demand for release at times of high demand. Only then will Scotland’s valuable hydro resource and geography be made to work for the direct benefit of Scotland.

 

                                                         Summary

Options:

  1. More State involvement in planning and executing future electricity generation, including   a possible state-owned generating company.
  2. Scale back the 100% by 2020 target on carbon emissions and concentrate on lowest cost      electricity, with production for export considered only when a profitable market beneficial to the Scottish consumer exists.
  3. Use the Crown Estate to control development and have a moratorium on new offshore wind.
  4. Return ownership and control of the Scottish grid to Scotland.
  5. Abandon the FiT scheme as non-economic.
  6. On the basis of overcapacity, suspend any consideration of nuclear.
  7. Implement research and commissioning of carbon storage (CCS).
  8. Increase investment in research and industrial development of potential wave and tidal flow marine energy.
  9. Expand conventional hydro under a state company with an option to acquire privatised hydro stations on payment of reasonable compensation, given exploitation of unjustified subsidies.                                               

 

March 2013

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