Scottish and UK governments go head to head on energy

Energy policy has been the focus of the independence debate this week with the publication of Scottish and UK government papers.

First out was the Scottish Government with its paper ‘UK energy policy and Scotland’s contribution to security of supply’. It argues that the UK is facing the highest black-out risk in a generation, with reserve energy margins falling to as low as 2 per cent in the very near future. The consequences of this are upward pressure on consumer bills, extra costs for business and a deterrent effect on inward investment. They blame repeated failures of Westminster governments to take necessary decisions. Electricity Market Reform has also been mishandled leading to a withdrawal of investment in new capacity. The Budget measures will make this position worse and they are particularly scathing about the level of subsidy for nuclear power.

The positive pitch is that Scotland makes a significant and reliable contribution to the security of power supplies. Scotland exported approximately 13 TWh of electricity in 2012 to the rest of the UK. England also imported 12 TWh from the European mainland via the French and Dutch interconnectors, and a further 2.5 TWh from Wales. They argue that there is common interest in sharing energy resources across these islands. Scotland offers safe and secure supplies of electricity and gas and can assist the rest of the UK in meeting its renewable energy targets. However, as a substantial supplier to the rest of the UK, they say that, “an independent Scotland will require a far greater degree of oversight of the market arrangements for energy and firmer safeguards over Scottish energy security.”

The UK government paper, ‘Scotland Analysis: Energy’, (snappier title, but much weightier tome!) argues that the GB energy market is ten times larger than Scotland’s alone and therefore costs can be spread across 30 million households and businesses. The current integrated system could not continue because separate governments not unreasonably pursue their own policy objectives.

As a consequence the costs of supporting Scottish energy network investment, small-scale renewables and programmes to support remote consumers would fall on Scottish bill payers alone. They claim this would add at least £38 to annual household energy bills and around £110,000 to energy costs for a medium-sized manufacturer in 2020. This could grow to £189 for households and £608,000 for a medium sized manufacturer if the full costs of supporting large scale renewable fell on Scotland alone.

They accept that Scotland is currently a net exporter of electricity to other parts of the UK. However, this is only a small proportion of demand in England and Wales (4.59%). In the event of independence, Scotland would be only one of the countries the rUK could source energy supplies from. The decision would be taken on a commercial basis and in the national interest of the rUK.

So what do these papers add to the debate? In my opinion, other than updated statistics and some nice graphics, not a great deal.

The UK government paper is noticeably weak on their failure to properly address the capacity margins across the UK. EMR has been badly planned and the Treasury interference in energy policy has been a malign influence on the development of a credible policy. The first part of the Scottish government paper is therefore largely correct in highlighting the mess Westminster has made of energy policy. However, if this is the case, why would Scotland want to join the UK system?

The answer is that the economics of the Scottish government’s over reliance on renewable energy requires a bigger market to spread the costs. Scotland gets a third of the UK’s renewable support with less than a tenth of the population.

As I set out in the energy chapter in the ‘Red Paper on Scotland 2014’, there are huge holes in the Scottish Government’s core argument that the lights will go out in England without Scottish renewables. The rUK has a range of options even before fracking and new nuclear kicks in. Even more importantly, rUK capacity margins will be tightest when the wind isn’t blowing and therefore intermittent Scottish renewables will be the wrong energy at the wrong time.

I have little doubt that it is in the interests of rUK to allow access to their energy market. It is certainly essential to Scotland if we are to retain our role as an energy exporter. However, the decision to take Scottish renewables will be a purely commercial one. The notion that they would grant the level of ‘oversight’ of the market arrangements that the Scottish Government would wish, is hugely optimistic. The parallels with the currency debate are obvious. We may get market access, but at what price to the energy industry and household budgets?