APPENDIX 12
Memorandum submitted by Highlands and
Islands Enterprise Network (HIE)
SUMMARY
This paper contains Highlands and Islands Enterprise
(HIE) Network's response to the House of Common's Scottish Affairs
Committee Inquiry into Meeting Scotland's Future Energy Needs.
The response concentrates on both the future
economic prospects for the Caithness region associated with the
Dounreay nuclear plant and the wider issue of renewable energy
as a critical part of the UK's future energy mix. The following
summarises the key issues described in the paper:
— The decommissioning process at the
Dounreay nuclear plant is currently providing significant levels
of employment in the Caithness area. It is the HIE Network's strategy
to ensure that the local economy benefits to the maximum extent
possible through the involvement of local businesses and the employment
of local people.
— The HIE Network recognises that the
revised decommissioning programme will impact on the area and
to that extent it is also focusing on future opportunities to
sustain the economy and community in the longer term eg by developing
skills and expertise transferable to other sectors and by diversifying
into other sectors.
— The HIE Network believes that renewable
energy will form a critical part of the UK's future energy mix
and that accessing the substantial renewable energy resources
of the Highlands and Islands will be essential to this. This presents
the HIE area with major opportunities in terms of local business
growth and community development.
— Successfully achieving Government
targets for renewable energy will require a mix of technologies
to be developed and deployed. If this is to be achieved further
Government support is needed to ensure emerging technologies (such
as wave, tidal and biomass) are developed and the benefits of
doing so are retained in the UK.
— Substantial investment in the grid
is essential if this opportunity is to be realised. The transmission
connection between the north and Central Belt is critical, as
is the need to strengthen the lower voltage distribution system
and connections to the islands. A supportive regulatory regime
is essential to ensure that upgrades are realised and projects
in the highest resource areas (eg islands) progressed.
— Community scale renewable energy
projects will also play an important part in supporting environmental
goals while increasing levels of locally generated power for local
consumption.
1. CONTEXT
The Highlands and Islands Enterprise (HIE) Network
is responsible for economic and community development across a
diverse geographical area which covers more than half of Scotland
and is home to around 425,000 people. The HIE Network's strategy
"A Smart Successful Scotland—the Highlands and Islands
Dimension" sets out four strategic objectives: Strengthening
Communities; Developing Skills; Growing Businesses; and Making
Global Connections. The HIE core gives strategic direction, undertakes
area-wide initiatives and provides support services for the whole
Network. Our ten local enterprise companies (LECs) each serve
a distinct geographical area and take account of differences in
local needs and priorities. UKAEA Dounreay is situated in the
area served by Caithness and Sutherland Enterprise (CASE).
Decommissioning activity at the Dounreay site
in Caithness is currently a major economic driver in the North
Highlands.
Renewable energy provides opportunities for
the Highlands and Islands across all four of the Network's strategic
objectives. These opportunities have the potential to benefit
some of the remote areas of the Highlands and Islands which have
not as yet fully benefited from the remarkable turnaround in the
economic fortunes of the Highlands and Islands in recent years.
It is part of our vision to demonstrate careful, sustainable use
of the area's natural assets. Growth must be achieved in tandem
with the area's natural environment and development activity must
remain aware of the legacy it leaves for the future people of
the area.
The first part of this response focuses on issues
associated with the decommissioning process at Dounreay in Caithness.
The latter part considers the wider question of future energy
needs and offers our views in relation to the role of renewable
energy as an integral part of that mix.
2. DOUNREAY DECOMMISSIONING
Background
The Dounreay nuclear establishment has been
a major part of the economy of the far north for the last 50 years
and currently provides direct employment (between UKAEA and site
based contractors) for over 2,000 people. Recent estimates from
UKAEA indicates that one in five jobs in Caithness and North Sutherland
depends on decommissioning Dounreay and across Scotland it accounts
for approximately 2,930 jobs.
In recent years it is estimated that £80
million per annum has been directed directly into the local economy
by UKAEA through wages and salaries and contracts with local businesses.
The average salary of UKAEA employees at Dounreay is £24,000
per annum which is significantly higher than the average private
sector salary in the Highlands and Islands (£15,000 per annum).
CASE is working closely with UKAEA to fully
understand the implications for labour/manpower requirements during
the decommissioning of the Dounreay site. We understand that the
Dounreay site will employ, both directly and indirectly, a declining
number of people until the site has reached an acceptable end
point for decommissioning. It is therefore a priority to ensure
that these jobs are replaced by similar high quality jobs in the
area.
Currently (as at November 2004), unemployment
levels in the two Travel to Work areas in the Caithness area are
4.1% in Wick and 2.7% in Thurso. Comparable Scottish and UK averages
are 2.7% and 2.2% respectively. It is estimated that approximately
30% of individuals directly employed by UKAEA are resident in
the Wick Travel to Work area. This figure could well be higher
when contractors' employees are taken into consideration.
The strategy developed and currently being implemented
by the HIE Network has two main elements:
— To help ensure that the local economy
benefits to the maximum extent possible from the decommissioning
process itself through the involvement of local businesses and
the employment of local people.
— To identify opportunities to sustain
the economy and community in the longer term—post Dounreay
Decommissioning for example by developing skills and expertise
which are transferable to other sectors and by diversifying into
other sectors.
UKAEA published an updated version of its Site
Restoration Plan for Dounreay, the Lifecycle Baseline, in September
2004. This revised version of the plan differed from the first
version in that it indicated that the timescale for the decommissioning
programme would be reduced significantly with the forecast end
date being brought forward from 2063 to 2036. It also revised
the total estimated cost of decommissioning downwards by £1
billion from £3.695 billion to £2.695 billion. UKAEA
also indicated their intention to reduce direct employment at
the site by approximately 200 over the next three years. Employment
will decline steadily thereafter.
The changes to the decommissioning programme
obviously have implications for the area:
— There will be a shorter time to identify
and establish alternative employment generating projects in order
to sustain the economy in the post Dounreay era.
— There will potentially be less incentive
for businesses involved in the decommissioning process to establish
in the area and employ local individuals given the shorter timescale
and lower value of available work.
— Young people starting a career at
Dounreay now are unlikely to see out their working life there
as they have in the past.
— The area may be less attractive to
those with young families given that the employment opportunities
present in the past will not necessarily be available to their
children.
— £1 billion less to be spent
over the course of the decommissioning programme.
It should be borne in mind that timeframes and
budgets may change again via the competition process for the management
of the site.
HIE Network Involvement
The HIE Network's response to decommissioning
has fallen into four main areas:
— Major Infrastructure projects (provision
of business space, trials and training facilities).
— Supply chain issues (assisting local
businesses to become involved in decommissioning).
— Lobbying, communication and networking.
— Skills related issues (forecasting
skills gaps and shortages and delivery of training).
Opportunities for the Future
The challenges and opportunities outlined are
intended to help highlight the issues facing the local area from
the decommissioning process in the short to medium term. Maximising
opportunities for employment of local people will be achieved
by ensuring that local businesses and individuals have the capacity
and skills required to meet the needs of the decommissioning process.
In addition the longer term strategy to create a sustainable economy
post-decommissioning will require partnership working between
local, regional and national bodies.
Potential areas of activity include:
— Identifying alternative economic
drivers—renewables, waste minimisation, high quality manufacturing.
— Identifying and establishing other
major projects which could be sited in the area—both from
the public and private sectors.
— Building on the knowledge and skills
base of the area to maximise the potential for transfer to other
sectors.
— Marketing the area as a source of
high quality science and engineering skills.
— Establishing the area as a centre
of expertise in decommissioning and becoming involved in the global
decommissioning market.
— Exploring opportunities for developing
the knowledge economy in the area through exploitation of Intellectual
Property/patents developed during the decommissioning process.
— Ensuring that challenges and issues
faced in the north Highlands are not eclipsed by other areas where
impacts may appear greater but where alternative economic drivers
may be more accessible.
— Ensuring that the socio-economic
responsibilities of the NDA are fully exploited.
— Maximising partnership working and
ensuring involvement and commitment from a wide range of stakeholders.
— Exploring potential for reallocating
cost savings resulting from changes to the decommissioning programme
to development of alternative sustainable economic activities.
3. FUTURE ENERGY
NEEDS—RENEWABLE
ENERGY
The HIE Network firmly believes that Scotland's
future energy mix will be one in which renewable energy will play
a critical role. The Scottish Executive has set a target of 18%
of Scotland's electricity needs to come from renewables by 2010
and 40% by 2020. This will require 800MW of new generation by
2010 and 2,500MW by 2020. This sits against a UK target of 10%
by 2010, 15% by 2015 and an aspiration to achieve 20% by 2020.
Achieving these targets will not only bring environmental benefits
through carbon emission displacement, but will also offer Scotland
a significant opportunity to capture downstream economic and community
benefits through technology and project development. As with the
decommissioning programme at Dounreay, it is HIE's objective to
achieve the highest level of long term economic benefits to the
area through the development of a range of renewable energy technologies
at both commercial and community scale.
Background
The renewable energy resources of the Highlands
and Islands constitute the greatest concentration of potentially
exploitable renewable energy resources in the UK. The Highlands
and Islands area has a long history of exploiting this resource,
and to this day continues to produce the majority of the UK's
renewable energy through its hydro schemes. Opportunities to further
develop hydro electricity still exist, but the area's resources
also go much wider. Some of Europe's strongest sustained wind
regimes can be found in the Highlands and Islands (with load factors
up to double the UK average), along with some of the world's best
wave and tidal regimes and significant forestry resources with
potential for biomass exploitation. It is evident that accessing
the renewable resource of the area will be important not just
in local terms, but also in the wider Scottish and UK context
of meeting national and international commitments.
The Highlands and Islands also currently house
some of Britain's manufacturing, research and development facilities
to exploit these renewable energy forms, such as Vestas, Cambrian
Caledonian, marine energy business Wavegen in Inverness, and the
European Marine Energy Centre (EMEC) offering full scale wave
(and later tidal) device testing and accreditation on Orkney.
Significantly, the area's long association with the offshore oil
and gas industry has ensured an enviable legacy of transferable
knowledge, skills and experience in manufacturing and engineering.
Research by the HIE Network has demonstrated that many businesses
in the area have the capacity to diversify into the renewables
sector, including some which have had considerable involvement
in the decommissioning process at Dounreay. The HIE Network has
prepared a Workforce Development Plan to identify and support
the skills development needs of businesses involved in the renewables
market as part of its strategy to encourage development of a local
industry.
The HIE Network estimates that there are currently
over 600 jobs in the renewables sector in the Highlands and Islands—compared
to 1,300 across Scotland as a whole and 8,000 in the UK (DTI Gap
Analysis). The average wage range of those Highlands and Islands
jobs is £15k per annum for production to £25k for management
which is significantly higher that the average wage rate in this
area.
An Energy Mix
It is clear that to meet government targets
for new renewable generation a mix of energy supply is required,
and this will require new and emerging renewable technologies
to be supported to the point where they can compete commercially
in the renewables market. Equally important will be the mix of
conventional energy sources. Over the coming decade much of Scotland's
conventional energy plant will reach the end of its life. While
renewables will displace an element of this capacity there will
undoubtedly be a need for replacement conventional plant. Again
a mix of sources will help ensure security of supply, while also
allowing the greatest flexibility to react to power demand fluctuations
and to deal with intermittency of increased renewable generation.
Decisions over replacement plant will need to be made by government
and industry in the very near future.
The Role of Renewables
Ensuring a mix of renewable energy sources are
developed and contribute to the Government's overall energy mix
is dependent on continued support for these new technologies.
To date assistance has mainly been in the form of grant support
for offshore wind, biomass, photovoltaics and research and development
assistance. It is essential that this support continues.
Government assistance has supported the development
of a range of wave and tidal energy technologies, but to date
few have reached full scale prototype testing. One wave device
is currently being tested at EMEC and it is hoped that further
devices will come forward to use the centre over the next three
years. Plans are also in hand to extend EMEC to also offer tidal
energy testing, and a number of potential users have been identified.
It is critical that devices are thoroughly tested and their performance
independently verified if confidence is to be built in the ability
of marine technologies to produce useful electricity. Equally
important will be the UK's ability to secure downstream commercial
deployment, manufacturing and retain the knowledge base the UK
is currently home to. To achieve this will require further incentives
from Government—probably in the form of capital and revenue
support. The DTI has allocated a £50 million fund to support
these technologies. It is important that decisions on how this
fund is allocated are made quickly to allow developers to plan
for their future activity in the UK.
Biomass electricity projects have also received
considerable assistance in the last few years. However, to date
a number of the projects awarded capital grant assistance have
not proceeded, and until such time as unspent funds are reallocated
or a new fund established there is no further government assistance
available to new projects coming forward. In the Highland area
alone this is already stalling projects. Again, speedy decisions
are required by government to unlock funds that are unspent or
to allocate new sources of support to biomass to ensure projects
do reach fruition. This support has also in the past focused on
opportunities associated with energy crops. It is the HIE Network's
view that future funding should not be restricted to energy crop
projects but should also be used to support other forms of biomass.
This is particularly relevant in Scotland, and the Highlands and
Islands, where the greatest biomass potential lies in using existing
forestry and wood processing co-products.
Finally, consideration of the future energy
mix should also take into account the role of renewables in both
the heat and transport markets. Heating and transport both constitute
around 40% each of our total energy use (with electricity sitting
at approximately 20%). Both of these sectors should therefore
also be tackled. Renewables sources of heat could include solar
or biomass, and transport fuels could be produced from biofuels.
Incentives to support these wider renewable energy uses are required.
We are pleased to note that the Government is looking at the means
by which renewable heat can be supported and we very much hope
that this work will be progressed quickly.
Electricity Network
It is widely acknowledged that the electricity
grid across the UK is currently ill-equipped to connect numerous
and widespread new generation. In particular, the grid across
the Highlands and Islands, which was designed to supply centrally
produced electricity to scattered communities, is not sufficiently
robust to connect substantial levels of new local generation for
export south to the centres of population and demand. Constraints
also exist further south with bottlenecks in the capacity of transmission
lines between the Scottish and Southern Energy area and south
of Scotland, the English interconnector and within the English
system.
Investment approval for grid strengthening comes
from the industry Regulator, Ofgem. To date is has agreed that
investment can proceed to upgrade the transmission system between
Beauly (outside Inverness) and Denny (outside Stirling). This
will be of strategic importance in allowing the high resource
areas elsewhere in the Highlands and Islands to be accessed for
renewables development. Consent for the line rests with the Scottish
Executive and it is imperative that an early decision is reached
to allow downstream projects to be taken forward. Equally important,
however, will be strengthening of the lower voltage distribution
system across the northern mainland and ensuring investment approval
for connection to the islands. Ofgem do not consider there to
be sufficient market demand/justification for the latter at this
time. This issue is discussed further below, but it is the HIE
Network's view that action is need by government and the Regulator
to ensure the best renewable resource areas in Scotland are in
a position to contribute to government targets.
Regulation
In April this year, BETTA (British Electricity
Trading and Transmission Arrangements) will be introduced across
GB. While this will be positive in that it will increase transparency
in the market and competition, but it will also bring serious
risks to the development of renewables, particularly in the north
of Scotland. Under the proposed charging arrangements for use
of the transmission system generators in the north of Scotland
will pay substantially more than their counterparts further south,
by virtue of location (eg the further a generator is from centres
of population and demand the higher the charges will be). The
Scottish Renewables Forum has estimated that of the total £290
million charging bill payable by generators, £140 million
will be met by Scottish generators, despite representing only
13% of total GB generation.
To exacerbate matters, and despite the short
time left until implementation, it is not yet known what the charging
regime will be for generators based on the Scottish islands. It
is estimated however that charges could exceed £70/kW, over
three times greater than northern mainland Scotland charges and
substantially greater still than English generators. This is obviously
a serious deterrent to developing the renewable resource in these
areas and one which ignores the much higher load factors available
there. This uncertainty poses a further deterrent to island projects
which in turn reduces the ability to make the economic case for
grid investment. While Government has retained the option under
the Energy Act to introduce a cap on charges in the north of Scotland,
there is no certainty how or when this power will be used. Even
if it is, it will have a 10 year limit and this is unlikely to
be sufficient to support projects using new technologies (such
as wave/tidal). A strong commitment is needed from Government
to resolve these issues in the interest of achieving wide environmental
goals and ensuring generators across the entire GB are treated
in an equitable fashion thus protecting the principles of competition.
Community Involvement in Renewables
Renewable projects are not just at the large
industrial level. They also apply at the community and household
level and are an effective means of reducing energy consumption
and carbon dioxide emissions, especially when combined with energy
efficiency measures. HIE's Community Energy Unit (CEU), which
delivers the Scottish Executive's Scottish Community and Household
Renewables Initiative, is supporting over 140 community-based
renewable energy projects across the Highlands and Islands and
interest amongst communities continues to grow. The majority of
these projects are small scale and linked to community facilities,
offering long-term revenue cost savings. Projects supported by
the CEU have encompassed wind, solar, wood-fuel, hydro and ground-source
heat pump technologies.
Community interests in commercial scale projects
is also increasing and to support continue community involvement
in projects of this scale, the HIE Network has recently established
a Community Energy Company. The purpose of that company will to
offer a range of finance and project management options to communities
to assist their investment in commercial scale projects. Income
generated from such projects can then be reinvested in a community.
Options include the possibly of supporting community development
initiatives, meeting the capital costs of implementing local development
plans, or sustaining other community activities in the longer
term. Alternatively, there might be more strategic developments
that such income should be directed to, such as affordable housing
in fragile areas. Such decisions shall rest with individual communities
who otherwise would be unlikely to have such options available
to them.
4. CONCLUSION
The decommissioning programme at Dounreay is
currently of major economic importance to the Highlands and Islands.
The HIE Network recognises the significant impact the decommissioning
programme will have on the economy of the area. We welcome support
from regional and national partners in meeting the challenge of
developing a diverse and sustainable economy in the area in the
long-term following the decline in employment at the site. In
the short term, our aim is very clearly to maximise local benefit
through ensuring local business involvement and employment of
locally based personnel.
While decommissioning activity progresses, we
see growing opportunities for the area to develop its substantial
renewable energy resources and to capture both economic and social
benefits from doing so. We believe that renewable energy will
form a crucial part of the UK's future energy mix, but also recognise
that achieving government objectives will require sustained effort
and support to develop new technologies, resolve grid issues and
ensure a positive regulatory framework is developed. We look forward
to working alongside government and our national and local partners
to ensure that the opportunities associated with this new industry
are realised and that renewable energy is able to contribute significantly
to meeting our future energy needs.
28 January 2005
| 
