Friday, 16 December 2011

Has the Scottish Government done a deal with George Osborne?

On the face of it the Scottish Government's targets and statements about renewable energy seem impressive, but under the surface doubts are emerging about how strong this policy really is. At the end of 2010 it seemed that the Scottish Government was critical of of the Westminster Government's proposals for Electricity Market Reform (EMR) which threatens to shift subsidies away from renewable energy and towards nuclear power. However, in recent months the Scottish Government has fallen silent on this topic. 

For example, the Scottish Government appears to have accepted without challenge the 10 per cent cut in incentives for onshore wind outlined in the Department of Energy and Climate Change (DECC) review of banding of Renewable Obligation Certificates (ROCs). This is despite the centrality of onshore wind for reaching the Scottish Government's ambitious '100 per cent' renewable energy supply target for Scotland by 2020. 

Of course the reduction in incentives for onshore wind will at least go some way to satisfy the pressures coming from Tory backbenchers to cut funding for so-called 'low windspeed' sites. This is despite the fact that even so-called 'low windspeed' sites represents a cheaper source of energy than nuclear power (given that new nuclear power will require higher levels of incentives and guarantees to go ahead).

However, coincidentally, in November (the same month as the results of the renewable banding review was announced) the Government announced that the Treasury was releasing £103 million to be given to the Scottish Government. This money comes from profits made by the Government in selling electricity generated from old renewable projects set up under the renewable Non-Fossil Fuel Obligation (NFFO) scheme that operated in the 1990s. The Treasury otherwise pockets the money that comes from the sale, by the Non Fossil Purchasing Agency (NFPA which adminisiters renewable NFFO contracts), of renewable electricity through its auctions.

So, has the Scottish Government done a deal with the UK Government so that a sop can be given to English lowland Tories at the expense of onshore wind development? Certainly there seems little financial sense in this if renewable energy targets both north and south of the border are concerned, but the Scottish Government seems very pleased about the £103 million which it can use to pay for direct investments into renewables. Yet while such investment is very welcome, it is coming from Westminster, and not from Scotland. 

Moreover, the Scottish Government has been unable to clear up uncertainty over the future of renewable incentives created by the possibility that Scotland will become independent after the referendum. The financial analysts Citigroup expressed such fears in a recent report. Asked specifically about this by the BBC, Scotland's First Minister Alex Salmond seemed unable to guarantee the continuation of renewable incentives under Scottish independence. On the contrary, he implied that the English would continue to pay for offshore renewables installed in Scottish waters!

Salmond told the BBC that investors 'know that renewable power from the seas around Scotland is going to be required to fulfill England's electricity is power for export'.  See 

Salmond seems to assume that the English will have no other choice but to buy Scottish offshore renewable power to keep the lights on. However, given the direction of UK Government policy of cutting incentives for renewables, it seems increasingly likely that the UK Government would simply build more gas fired power stations before they paid extra for renewables from an independent Scotland.

Of course, the power can only be exported if somebody is willing to pay for it to be generated in the first place. It does require a bit of leap of faith to believe that another country will pay the extra incentives needed to produce offshore renewable energy from schemes located in Scottish waters. Given that the UK Government is opposing plans for Scottish independence renewable energy interests can be forgiven for being rather sceptical that the continuation of incentives for renewable energy is more-or-less guaranteed. 

The remaining confidence for continued incentives being available for renewable energy seems to reside in a belief that Scottish independence will not actually happen and that Scottish renewables will continue to be supported by English money. The fact that the Scottish Government seems all too compliant in allowing the UK Government to cut support for the most cost-effective widely available renewable energy source, onshore wind, does not encourage faith in the Scottish Government's ability or willingness to back up their bold pronouncements about renewable targets with the deeds necessary to make them happen.

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