Meeting of the Parliament

Meeting date: Wednesday, November 13, 2013

Official Report 838KB pdf

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Electricity Market Reform

The next item of business is a statement by Fergus Ewing. The minister will take questions at the end of his statement, so there should be no interventions or interruptions.

14:40

The recent United Kingdom Government amendment to its Energy Bill 2012-13 to 2013-14, debated in the House of Lords last week, will remove the Scottish Parliament’s power and discretion over the renewables obligation in Scotland.

The Scottish Parliament has twice expressed support for the underlying principles of electricity market reform if it remains consistent with Scotland’s existing policies and priorities. However, EMR risks failing in its objectives. That has serious repercussions for our existing generation and security of supply in Scotland, as well as for our renewables potential and ambitions.

The UK’s amendment to the Energy Bill, and its new power to close the RO in Scotland, is a cause for serious concern. Successive Scottish Governments and Parliaments have used these devolved powers to advance renewable generation across Scotland. The proposed removal of Parliament’s discretion has caused consternation among stakeholders. The amendment cut through a live Scottish Government consultation. Decisions on issues such as grace periods—the flexibility beyond 2017 for stations that experience delays, a matter of huge importance to offshore and marine projects—will be taken out of Scotland’s hands. I have written to Ed Davey seeking justification for his decision to neither consult nor seek the Scottish Parliament’s agreement to that move.

I also share the concerns expressed by the Office of Gas and Electricity Markets and the National Grid about the risks to security of supply. Electricity margins could drop to as little as 2 per cent by 2015-16, which is a huge challenge to security of supply. The margin is the difference between the aggregate capacity to generate electricity and the peak demand. The equivalent Scottish margin is 20 per cent but, in the medium term, we, too, could be at risk. Some think that Ofgem’s assessment is optimistic and that there should be a full-scale independent audit of capacity margins and security of supply.

Scotland exports around a quarter of its output, helping keep the lights on across the UK. Longannet, Scotland’s largest power station, for example, could feasibly meet a quarter of our annual electricity demand. Longannet needs significant investment. Ofgem’s transmission charging review and the design of EMR’s capacity mechanism are key factors.

The UK Government’s locational pricing methodology and EMR will impact on Longannet. The uncertainty also means that we have the ridiculous situation at Peterhead where the station has de-rated from 1,800 to just 400MW. Meanwhile, there are no plans to develop the new gas station at Cockenzie, which was consented to two years ago, due to UK energy policy confusion and uncertainties.

Our thermal generation must be cleaner, and it can be, but those stations will power Scotland while new technologies are developed, balancing the grid and seeing the UK through this period of investment hiatus. The UK Government must ensure that EMR’s capacity mechanism takes into account Scotland’s role in providing secure supplies of power across the UK.

The UK’s proposals for offshore renewables are sorely limited, with forecasts for 8GW of offshore wind, a level which jeopardises Scottish round 3 and Scottish territorial waters projects. That should be compared with Scotland’s higher renewables obligation certificate—ROC—bands for floating offshore wind. That support is unmatched by the UK just as its proposals for hydro degression jeopardise small schemes across Scotland.

Hydro matters in Scotland. That is why we used our discretion to maintain higher support for hydro under the RO than there has been in the UK. SSE plc confirmed that its £30 million project at Glasa was explicitly linked to the Scottish Government’s decision. Meanwhile, our intergovernmental work on support for island renewables shows that Orkney, Shetland and the Western Isles could provide up to 5 per cent of total Great Britain electricity demand by 2030. However, the current UK Government proposals fall short of what is required to deliver that potential.

The contrast with the UK Government’s support for imported nuclear technology could not be clearer. Consumers will pay up to £1,000 million each year for 35 years, which is more than twice the period of 15 years that is available for renewables technologies. That contract will give new nuclear electricity double the current wholesale price for electricity.

Carbon capture and storage is another concern. Peterhead power station and the captain clean energy proposal in Grangemouth are excellent candidates for support, but Professor Stuart Haszeldine spoke recently of the “anger and depression” that are felt by the sector at the UK Government’s lack of progress.

Those factors create risks. Renewables fabrication at Nigg, Methil and elsewhere, research in Orkney, the export of machines that have been invented in Edinburgh, Glasgow and Inverness, and community ownership and benefit across Scotland can still move forward, but only if the right decisions are made.

Costs remain a vital issue, quite rightly. Investment in new technologies comes at a price. Of course, offshore technologies and CCS have huge economic potential for Scotland and the UK, unlike nuclear, which is all cost and little benefit.

Costs and benefits matter, particularly in the light of gas and electricity price increases. The Department of Energy and Climate Change’s own research shows that renewables can deliver smaller bills in future than can the status quo, which is a point that seems to have got lost amid the UK Government’s confused claims about green levies and costs.

The Scottish Government takes the interests of vulnerable consumers extremely seriously. I have written to and spoken with the energy companies to seek transparency and a commitment to protect people who are in need. We maintained the warm homes programme, even as it was abandoned south of the border.

The Deputy First Minister has outlined how an independent Government will ensure that the costs of vital energy efficiency measures are met centrally, rather than by consumers. That will cut consumers’ energy bills by approximately £70 a year. In our view, that is a fairer system.

This Parliament has supported the EMR process, but that support has been based on our achieving an outcome that is consistent with Scottish policy priorities and ambitions. Such an outcome now looks at best uncertain. The removal of Scottish parliamentary discretion in the matter of the RO is troubling and demands an explanation.

The chamber should also understand the threats that EMR poses to Scotland’s renewables ambitions and to our established position as a provider of secure energy supplies. The Scottish Government agreed to maintain a common energy market in 2011, and the chamber has twice supported the process of EMR. I can update Parliament because, in the past few hours, I have received a reply from Ed Davey. It is remarkable what a parliamentary statement can elicit. At least in tone, if not in substance, Mr Davey responds to some of our concerns. If that signals a change in approach, we will be the first to welcome that.

However, as things stand, the concerns that I have set out remain. Should they be fully addressed, we will remain willing to sign a memorandum of understanding with DECC that gives form to our joint commitments, but we will not do that at the risk of leaving Scottish consumers as vulnerable to power shortages in the future as consumers south of the border are to the power shortages that they already face over the next two years.

The minister will now take questions on the issues raised in his statement. I intend to allow around 20 minutes for questions, after which we will move on to the next item of business.

I thank the minister for his statement and for advance sight of it.

The minister is absolutely right to emphasise the importance to Scotland of electricity market reform, which relates to the crucial importance of a single integrated British electricity market to this country and its future. Although Scotland has less than a tenth of the population of the UK, its renewables industry benefits from more than a third of the subsidies for renewable energy, which are paid for by consumers throughout the UK.

For the sake of security of supply and our capacity to continue to export power—both of which have been mentioned by the minister—as well as the development of an industry on which the Scottish Government has largely bet our industrial future, we cannot afford to jeopardise that single integrated market.

The minister is right that the UK Government must ensure that EMR takes account of Scotland’s role in providing secure electricity supplies and I believe that he is also right to say that this last-minute Lords amendment was no way to go about doing that. However, I am not sure that a public and parliamentary row between the two Governments is all that helpful either. I am extremely glad to hear that Mr Ewing and Mr Davey are talking again, and I ask the minister to explain to the chamber the action that he plans to take following that contact to get past this situation, reach an agreement on EMR and protect the single electricity market that the industry wants and which this country needs.

Iain Gray is absolutely right to highlight the challenge of security of supply. The first obligation of energy policy is to avoid power disconnections. However, as Ofgem, the National Grid and many other expert commentators have made clear, England faces very real risks of brownouts—or intermittent power supply—and even blackouts as soon as two years from now. We are extremely keen to avoid that situation and, indeed, the thermal generation capacity at Longannet, Peterhead and our two nuclear power stations is significant enough to supply that power. It is essential that we address the problem of security of supply, which is why I have suggested that an independent audit be considered for these matters.

As for Iain Gray’s final question, I hope that it will be recognised that I have sought to have—and indeed have had—a constructive relationship with UK Government ministers. We want to continue that relationship, but it is right that we set down markers with regard to very serious concerns that we have heard not only from the renewables sector but from the thermal generation sector, where stations such as Longannet are seriously concerned about the various threats to their continued operation in accordance with their ambitions.

Finally, we are extremely keen to ensure a workable system of connecting the islands to the opportunity to participate in Scotland’s energy revolution.

I thank the minister for advance sight of his statement. With regard to his final point, I welcome the fact that he has now received a constructive response from Ed Davey to his latest letter—although I sense that it rather took the wind out of his sails—and express the wish that the healthy dialogue on energy issues that Scotland’s two Governments have had up to now will continue.

What we need in Scotland and across the UK is not only a balanced energy policy but a properly informed debate. I have to say that I was rather confused by the minister’s comments on the cost of new nuclear power and the partial picture that he painted. I have with me the draft contract for difference strike prices, which shows that the price per megawatt hour will be £105 to £120 for biomass; £95 for hydro; £125 for large solar photovoltaic; £155 for offshore wind; and £100 for onshore wind. As I am sure the minister well knows, the strike price that has been agreed for the new nuclear station at Hinkley Point is £92.50, which is cheaper than the price for wind, solar, hydro, biomass or tidal and, unlike wind, nuclear has no problems with intermittency or unpredictability. The facts might not fit the minister’s narrative, but does he not have a duty to come to the chamber and give us the whole picture, not just the parts that suit him?

First of all, as I have said, I am keen to continue to maintain constructive relations with all UK Government ministers. Indeed, that is how I do my job. However, as I have clearly expounded in my statement, my primary duty is to stand up for the Scottish interest.

Let me turn to the nuclear issue, which the majority of Murdo Fraser’s comments were about. Sadly, Mr Fraser did not really provide us with the whole story. [Interruption.] Mr Fraser should wait a minute; he will get the rest of the story. Mr Fraser equiparated and compared the headline rates of the proposed CFDs and the price for nuclear, but he left out a few other facts about that. The length of contracts for offshore wind will be 15 years, but the length of the contract for nuclear will be 35 years. [Interruption.]

Mr Fraser!

Mr Fraser may not like that information, but it is information of a factual nature. The contract length that has been agreed between the UK Government and EDF Energy will be 35 years and the contract will be worth an estimated £1,000 million a year. Given that the stations may not be in commission until 2023, that means that UK consumers will subsidise output under the terms of the contract until 2060.

There is another difference: decommissioning costs. Another fact that Mr Fraser chose not to mention is that the existing decommissioning cost of clearing up the UK’s nuclear waste legacy at Sellafield has reached £67.5 billion, and there is no idea when the costs will stop increasing.

Finally, the total cost of subsidies to the nuclear industry is not far off from being on a par with the cost of the subsidies for the renewables industry.

We therefore believe that these are not Scotland’s priorities. Unlike the Conservatives, we see a different future ahead for Scotland—in renewables—but that future will potentially be placed in jeopardy unless we can continue the dialogue with the UK Government over the crucial coming months in a constructive vein.

Many members wish to ask the minister a question. I remind members that they should ask only one question. They should make their questions short, and there should be brief responses. In that way, we will, I hope, get through everybody.

Will the UK electricity market reform allow an adequate subsidy to facilitate the development of offshore floating turbines and other innovative technologies?

I certainly hope that it will. Using the powers that we have enjoyed under ROCs, we have set an incentive for floating and innovative offshore wind turbines to enable their test and development. They are particularly suitable for Scottish waters, which are deeper. A floating system, as opposed to systems that have concrete bases or are fixed to the sea bed, has cost benefits in the long term, so it is essential that we continue our work with a number of developers that are close to going ahead with investing in floating and innovative turbines in Scotland. If they do so, one of the benefits will be that places such as the Kishorn yard can reopen. If they do not, such places are unlikely to reopen. That is why I have pressed the case with the UK Government. I very much hope that we will be able to work together to ensure that that vital nascent technology can receive the support that it needs to contribute to meeting our emissions targets, generate electricity and generate a considerable number of jobs in this country.

Since I met the minister when he opened the new visitor centre at Hunterston, I have never—like Murdo Fraser—been entirely sure of his views on nuclear energy. Today, he seems to have forgotten about Hunterston and Torness, and he has had a go at nuclear. He was the one who made the comparison between the strike prices, which are £92.50 per megawatt hour for nuclear compared with £100 per megawatt hour for onshore wind and £155 per megawatt hour for offshore wind. How does the minister compare the investment lifespans for nuclear and wind farms?

The position on nuclear is absolutely clear. We have two existing nuclear power stations, which are generating electricity, and we recognise that they are making a substantial contribution to maintaining security of supply. Electricity needs to come from a variety of sources and, as long as they can be safely operated, they should continue to be operated. Hunterston and Torness were purchased, constructed and erected a long time ago. Mr Macintosh alluded to the fact that I have visited them but, contrary to his statement, I mentioned them earlier as well.

However, the difference with new nuclear power stations is that they involve a massive amount of expenditure. Two nuclear power stations are being constructed in mainland Europe as we speak: the EDF project at Flamanville, whose cost has increased to £8 billion from the original estimate of £3.3 billion—it has more than doubled—and which is four years behind schedule; and Finland’s fifth nuclear reactor, which is six years behind schedule and has a cost overrun of up to £3.6 billion. It is sensible to learn from experience, so we should learn that the cost overruns of new nuclear power stations are a strong argument for not adopting them.

Does the minister agree that Longannet power station continues to be of significant importance to Scotland’s energy needs? Does he share concerns about the impact here of transmission charges?

Yes, I do. I had the pleasure of visiting Longannet a few weeks back. It supports directly 270 jobs and has made a substantial contribution to Scotland’s energy needs.

Mr Coffey raised the point of transmission charges. It is estimated that the transmission charges facing Longannet and Scotland are between £20 million and £30 million more each year than for an equivalent power station in the south of England. Plainly, those additional costs are a burden that has to be paid and met, but they point to a discriminatory charging system across the UK that makes it extremely difficult for companies to replace existing thermogeneration or, indeed, extend its life while we transition to a low-carbon method of generating our electricity needs.

I thank the minister for early sight of his statement, but I am disappointed at his decision to depart from his usual consensual approach and treat us to a bit of a rant. He argues rightly for the renewables sector’s need to have certainty and early warning, but he seems to have been happy to delay making clear his intentions on RO closure, despite knowing the timetable for the passage of the UK Energy Bill. Does he not accept that that will strike many in the sector as odd and suggest that he has been happy to say one thing in private and another in public? In a genuine attempt to encourage Mr Ewing back into more familiar, consensual waters, I assure him of my support for an early meeting with DECC to consider the outcome of the consultation on island renewables.

That was a mixed and varied couple of questions. However, I can assure all members that I have made those points over a long period with DECC and set out Scotland’s particular case, not least our support for Scottish islands’ renewables as a top priority for the Scottish Government. I have welcomed on many occasions the fact that Ed Davey has had a consultation on an island strike price. However, the problem about that is that many of the consultees have indicated very clearly that one strike price for three islands will not form the basis of connections to all three island groups. Indeed, that is not surprising, because the Baringa and TNEI report, which was published this year and which was sought by both Mr Davey and me to prove the need for the island connections, found that each of the island groups requires individual strike prices. That is a clear illustration of what is at stake here.

Mr McArthur will know far more about the island that he represents than I do. However, are we going to see the islands of Scotland connected, or are we not? We have a shared objective, but it is essential that the method that the UK Government introduces will be capable of delivering that objective. It is absolutely right that I come here and set out concerns, of which Mr McArthur will be aware and which many in industry and representatives of his area have expressed, in the hope that we can move from where we are at the moment to a set of proposals that will secure the objectives that Mr McArthur rightly points out we broadly share.

The minister will be aware that the European Marine Energy Centre on Orkney was at least 10 years ahead of the rest of the world in wave and tidal energy research. Is he concerned that that 10-year lead may be lost as those technologies approach commercialisation and need clear subsidy and clear support?

There is a lack of certainty at the moment as to the incentive to be provided for the future of both wave and tidal energy. Just last week, I attended an expert group in Edinburgh in relation to these matters. I entirely agree that there is a will across both the UK and Scottish Governments to support wave and tidal energy. I know that Greg Barker is committed to that, and I will say so. However, the question is not whether there is a will and a shared objective but whether the specific proposals that will be made will be sufficient, and the delay in the consideration of specific measures for wave and tidal in the islands is not necessarily helpful to securing that outcome.

In the light of the minister’s statement, can he confirm his Government’s continuing support for the European offshore wind deployment centre in Aberdeen bay, which has attracted European Union funding? What constructive discussions has he had with UK ministers about the contributions of both offshore wind and offshore carbon storage to the future role of Aberdeen and the north-east as a global centre of excellence in offshore energy?

As a matter of form and with some hesitancy, I think that I should refrain from commenting in direct response to that question, given that the matter is sub judice in the courts in Edinburgh today, but I will write to Mr Macdonald on those matters.

I have correspondence from the Deputy Prime Minister that says that there will be no subsidies for nuclear energy. Will the minister comment on the impact of the recently announced contracts for difference strike price, which includes insurance as well as decommissioning, for the proposed Hinkley Point nuclear facility, and its potential effect on investment plans for alternative and cheaper renewable sources of energy?

Mr Brodie raises a good point. The CFD that the UK Government has offered for Hinkley Point is, broadly speaking, twice as much as the wholesale electricity price. It is not clear what specific account has been taken of huge decommissioning costs in respect of the property. Mr Brodie is also right to say that the subsidy applies not just to the CFD but to other financial obligations. The UK is committing taxpayers to a massive subsidy from about 2023 to about 2060. This is an enormous subsidy and it has completely changed the dynamic of the equation.

In the meantime, the real concerns are about security of electricity supply in the UK. It seems to me that we must collectively give much more thought to that, and an independent audit would be the right first step.

Turning to the House of Lords amendment that prompted the statement, is it not clear from the utter lack of informed debate among members of that chamber on the impact that the amendment would have in Scotland that the House of Lords has once again shown itself to be an unelected, antique and often semi-conscious chamber that is simply not fit to scrutinise legislation as it impacts on this country?

Minister, I will go on to Stuart McMillan as that was not about issues that were raised in the statement.

I will work with commoners or anybody else to deliver the renewables ambitions for Scotland.

Does the minister agree that there is an important constitutional issue here, as Westminster is looking to take back from the Scottish ministers and the Scottish Parliament powers over the renewables obligation? What does that say about the veracity of the no campaign when it talks about providing more powers to Scotland?

What we found disappointing was that the decision was taken without any prior consultation with the Scottish Parliament. That is, by any view, at odds with the rhetoric and the promises that are being made in relation to another debate that is going on at the moment.

Before we move on to the next item of business, and while members are still in the chamber, I say that when we have a statement, questions are supposed to relate to the statement that the minister has just made and should not include issues that are not relevant to the statement.

On a point of order, Presiding Officer. I am grateful to you for raising the issue. Can you explain whether a direct reference to process in the House of Lords is excluded from the issues about which members were allowed to question the minister? The matter was referred to in paragraph 1 of the minister’s statement.

I have made my point, Mr Harvie. I was not directly referring to you, although you identify yourself in that regard. Other members raised issues that were not in the statement. All I ask is that in future when there is a statement we do not waste time raising issues that are not in the statement.