Today’s release by the UK government of its latest Scotland analysis paper ‘Energy’ is the newest in a series of depressingly one-sided and negative releases. Cobbled together in mind-numbing civil service prose, and constantly repeating itself, it is hard to see who its target audience might be, except maybe those whose convictions are wavering as they watch the No vote decrease in the polls.
The paper can be easily enough summed up. It proclaims that energy costs will rise in an independent Scotland; there’s no guarantee of a market; we won’t be able to afford infrastructure investment; we can’t cope with oil price volatility; it’s all very difficult; taxpayers and consumers will suffer. An ‘analysis’ which goes out of its way to present only one side of the story in the worst possible light is not what most business people would understand by the word.
The paper almost entirely ignores the real difficulties faced by the UK’s need to ensure security of electricty supply and the uncertainties posed by Westminster politics. A 2014 survey by utility investor specialists Exane found that “the UK tops the political risk table for the first time, and now ranks above Spain for political risk.” It also skates over the 2013 warning issued by regulator OfGem, which contained the following prediction:
To illustrate the potential impact on customers, we estimate in the Reference Scenario that the probability of a large shortfall requiring the controlled disconnection of customers increases from around 1 in 47 years in winter 2013/14 to 1 in 12 years in 2015/16. This increases significantly to around 1 in 4 years if the demand reductions fail to materialise. Aside from the potential for controlled disconnections, any tightening in de-rated margins could impact customers through an increase in wholesale prices.
OfGem estimated the surplus of supply over demand could fall as low as 2%. In Scotland’s case, it is closer to 20%. Moreover, Scotland exports between 11% and 23% of its electricty to the rest of the UK. Yet the analysis paper suggests that there would be “no overriding need for the continuing UK to support Scottish energy costs to ensure its own security of supply.” It is hard to see how OfGem and the UK government can both be right.
The fact is that the UK currently has an integrated energy market, with the National Grid ensuring balance of supply and demand. Using common sense, the Scottish government’s white paper suggests this continues, but with a separate Scottish regulator. The analysis paper’s negative spin on this is that it would involve long and tortuous negotiations, with added difficulties if the two countries’ energy policies differed.
It’s nonsense. The Scandinavian and Baltic countries run a successful integrated electricty market without any apparent difficulty. That’s a network involving seven independent countries, making up the biggest electricity market in Europe. The map on the left shows the extensive network connecting the countries. The enterprise and co-operation required to achieve this stands in sad contrast to the failure of imagination in the Energy analysis paper.
This is not even to mention the market for Scottish renewable energy. EU directives demand that the UK reaches 15% of energy equivalent generated from renewables by 2020. The figure for 2012 was 4.2% Even if by a miracle the rest of the UK reached its target without Scottish input, it’s hard to see how there will fail to be a market for Scottish renewables ‘credits’ in other EU countries.
The doom-laden scenarios for an independent Scotland’s energy capacity outlined in this report are all too typical of the UK government’s analysis papers. But this one must have been more difficult to put together than most, since there’s little doubt that Scotland is an energy rich nation, and, with independence, will benefit from that huge advantage.
And it’s not just us saying that: Here’s Peter Strachan, professor of energy policy at Robert Gordon university, speaking on the radio today: “In no scenario can I see, in an independent Scotland, electricity bills increasing. Plus an independent Scotland, even with an integrated electricity market, would be able to sell its electricity at commercial rates. What would also be very helpful for Scotland’s renewable energy industry is that an independent Scotland would also be able to offer discretionary spend. So you could see a great big bunch, for example, of off-shore wind. At the moment what we are seeing, with the Coalition Government, is the off-shore renewable industry effectively being strangled at birth.”