Scottish renewable energy in the post-referendum era

Scottish renewable energy in the post-referendum era

The democratic verdict of the independence referendum in Scotland gave the proponents of the Union a 55% majority ahead of about 45% of independence seekers.

Prior to the referendum, the U.K.'s three political party leaders had promised Scots that should they vote to remain in the U.K., "extensive new powers" over income tax rates, spending and welfare would be transferred to Holyrood, Scotland's parliament in Edinburgh.

However, the vow from the three party leaders -- Tory Prime Minister David Cameron, Labour's Ed Miliband and the Liberal Democrats' Nick Clegg -- did not refer to energy policies and there is not the least hint that a potential transfer of powers to Edinburgh would include energy policy.

The case of devolving energy policy

To date, Scotland does not hold constitutional energy policy powers. The impressive success of the Scottish renewable energy (RE) sector, which led to a combination of wind and hydro energies providing Scotland's 46% of electricity in 2013, stems mainly from its great resources, the U.K.'s RE financing model and the Scottish government's passionate push towards RE deployment via minor policy powers such as the devolved environment and planning policies as well as the U.K.'s RE financing model.

Should Scotland's energy policy become devolved to the Scottish Parliament, it is certain the Scottish National Partly (SNP)-led Scottish government will seek to increase the percentage of RE and achieve its goal for 100% of electricity from RE by 2020.

The SNP has pointed out that renewable energy generated locally in Scotland is also exported to the rest of the U.K. Being part of the Union guarantees the U.K. character of Scotland's energy market and has also benefited the Scotland's renewable energy sector.

Financing Scotland's RE sector under a devolved energy policy would be the big question. Until now, public spending on devolved matters is calculated according to the so-called Barnett formula, with funds allocated by the U.K. Treasury. There is talk to change the way the Barnett formula works, but nothing is certain.

Furthermore, various energy market analysts have spoken strongly against differentiating financing models within the same market. A shared energy market needs common financing rules applying to all parts of the U.K., otherwise there is risk of market distortions, they argue.

Energy policy being a U.K. matter

The second case of retaining the U.K. nature of the energy policy appears rather more likely. Given today's multifaceted nature of energy policy and its high position in the global agenda, the U.K. will most likely seek to keep the primary say in its energy market.

So, is it business as usual for the Scottish RE sector? It appears it is rather not.

Under the recently established Contracts for Difference (CfDs) renewable energy remuneration mechanism, subsidies are spread across different pots for renewable technologies. However, subsidies for the RE sector are capped. Furthermore, CfDs will be implemented via bilateral contracts between the generators and the Low Carbon Contracts Company, a state institution.

RE investors in Scotland applying for CfDs will need to compete with investors deploying RE plants elsewhere in the U.K. While onshore wind energy projects in Scotland are expected to continue strong, other renewable energy projects will face fierce competition from similar projects south of the Scottish border.

Large-scale solar PV

Large-scale solar PV plants larger than 5 MW will need to compete with onshore wind projects and conventional-waste-to-energy technologies for the £65 million per year that the CfD mechanism will allocate to them. Investors are expected to prefer the U.K.'s southern parts to develop their projects, where resources are better and empty sites near the big cities largely abandoned.

Rooftop solar PV

Small-scale rooftop PV installations in Scotland are eligible for the U.K.'s feed-in tariff scheme. Precisely, Scotland's 121 MW photovoltaic installations stem from this category. However, the Scottish government needs to promote this type of renewable energy harder. According to Scottish Renewables, Scotland's renewable energy industry voice, Scotland installed only 5 MW of solar PV in the first quarter of 2014. This is a figure the Scottish government cannot take pride in. Promoting solar rooftop installations will also benefit the local economy. Scottish Renewable's data is astonishing: Despite a tiny 121 MW of photovoltaic installations by the end of March 2014, the solar PV sector employs 363 people compared to the 3,397 jobs added to the Scottish economy by onshore wind power's 4,672 MW of installed capacity in the same time period.

A £20 million Local Energy Challenge Fund created recently by the Scottish government to support community energy and local energy solutions is an example of a Scottish initiative that could promote small scale installations.

Onshore wind

Onshore wind turbines will continue be installed in Scotland in high numbers mainly due to Scotland's particularly high wind potential that in some areas can even reach the offshore wind potential. Because of the way wind turbine technology works, a slight increase in the wind's speed means a huge increase in the energy harvested, leading to more profits. Developers investing in Scotland will generate much higher income than at any onshore spot in England. Add to that the facts that Scotland is less densely populated than England and the Scottish government is very supportive of the industry and it is no wonder why the onshore wind sector does so well in Scotland and will continue to do so.

Offshore wind and wave

Less established technologies, such as offshore wind and marine, will share in up to £235 million of the U.K.'s subsidy support this autumn when the government allocates the CfDs. Theoretically, a part of this support can end up in Scottish projects. However, Scotland does not have the same clear advantage over England in offshore wind potential that it does in onshore. Offshore wind speeds in England and Scotland are similar. Wave potential off the English shores is also equally good as Scotland's. Investors are expected to prefer siting their projects in English waters and nearer to the high population centers.

Bloomberg recently wrote that Scottish independence would harm the Scottish wind sector, which would risk loosing billions of U.K. government support. Bloomberg ignored a fundamental factor, however. Developers will have no need at all to invest in Scotland when they can do so in the south, near to where they sell the electricity they generate. Scotland, most possibly, will hardly benefit from U.K. subsidies in the marine sector. It would require extremely good political skills deployed from the Scottish government to expect the opposite.

Scotland's large solar PV and marine energy sectors will struggle to secure impressive gains under the existing U.K. energy policies. Its onshore wind sector is set to continue thriving while dependant on the Scottish government; the residential and commercial rooftop solar could gain too. For the last to happen, Scottish institutions need to promote solar PV solutions more actively and engage local councils and communities in solar projects.

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