113.We have heard repeated criticisms of the ad hoc approach the UK Government has taken to policy formation, and been told about the negative effect this has had on the renewable electricity sector in Scotland. Recent changes have undermined confidence in the renewable sector and increased the costs of deploying renewable technology. Our witnesses have argued that recent policy changes have been made without any reference to long-term goals, and that lack of certainty about the Government’s commitment to decarbonise the electricity supply will mean investors don’t have the confidence to invest in the UK.
114.The overwhelming message which came through in our evidence was that the Government needs to set out a clear, long-term strategy for the UK’s energy supply, including the role of renewables, so that a consistent set of policies can be put in place to achieve this. As an example of the many submissions we have received calling for such a plan, the Scottish Council for Development and Industry told us:
There is an increasing need for the UK and Scottish Governments to work together to develop a comprehensive energy strategy. This would incorporate renewable development beyond 2020 and address the potential challenges to security of supply.
115.A clear indication of policy support over the medium to long term is particularly important for the renewable sector, because the lead times for deploying renewable electricity generators can be up to 10 years. We have repeatedly been told that it is imperative that Government provide long-term signals that give investors the confidence to invest. For example, Lindsay McQuade, Policy and Innovation Director at ScottishPower Renewables, said that “understanding where we need to get to if we are to achieve the targets at 2030 and again at 2050, how that can then best be supported through more specific policy initiatives, would be very, very helpful.”
116.The Energy and Climate Change Committee has stated that “the Government must turn its attention to creating a credible long-term vision for the future of the UK’s energy system”, and that responding to the Fifth Carbon Budget “presents an ideal opportunity” for the Government to do this. More recently, that Committee’s report on Low carbon network infrastructure recommended that the Government commission a study on the future of large-scale storage in the UK, set out a more detailed strategy for Demand Side Response, and develop greater interconnections with Europe. The Scottish Parliament’s Economy, Energy and Tourism Committee also received similar evidence during the one-off evidence session they held into Renewable energy in Scotland.
117.As well as a lack of clarity about specific policies for supporting the renewables sector, the Government has been criticised specifically for failing to set out future spending limits for the Levy Control Framework, which will indicate the overall level of support for renewable electricity. The Government has set spending limits through to 2020–21, but industry groups and the Committee on Climate Change have called for detail on limits for future years to be published. In terms of the likely level of future limits, Matthew Bell, Chief Executive of the Committee on Climate Change, told us that “by the mid 2020s [the levy control framework] needs to increase by another £1 billion to £2 billion per year to be consistent with the ambitions under the carbon budget.” The Energy and Climate Change Committee has said that the “Government should urgently set out what the budget for the LCF will be post-2020”, and that available funding must be “consistent with meeting our longer-term carbon commitments”.
118.Although most of the evidence we have received has called for clarity on future spending limits, and stated that these will need to go up to allow for the deployment of new renewable electricity capacity, we have also received some evidence questioning whether the cost of reducing emissions could exceed the costs of higher levels of carbon emissions. John Constable, Director of the Renewable Energy Foundation, questioned the case for the Government’s spending on decarbonising the electricity market, telling us that “We are harming the case for a low-carbon economy by producing emission savings at such an extraordinarily and needlessly high cost.” Professor Iain McLeod, from the Institution of Engineers and Shipbuilders in Scotland, argued that the risks posed by carbon emissions were “not very well quantified”, that it was therefore not sensible to implement policies which cost a great deal, and that it would be possible to adapt to the consequences of global warming if this did occur. In terms of the costs to consumers, the Taxpayers’ Alliance has said that the necessary investment in renewables to meet 2030 targets would involve doubling consumer bills, and that this is unlikely to be politically justifiable.
119.The then Minister of State acknowledged that the limits for the Levy Control Framework would need to be increased, and told us that the funding which had been announced in the 2016 Budget for future rounds of CfDs was not currently accounted for. She said that the Government’s intention was to set out limits for future years in the 2016 Autumn Statement.
120.Because the Levy Control Framework is intended to capture support for low-carbon electricity generators, there are concerns that because nuclear is a low-carbon generator, the subsidies which the Government has agreed to pay for electricity generated by Hinkley Point C will be included in the limits for the Levy Control Framework, and that this could then further limit funds available to renewables. The then Minister of State could not tell us whether future subsidies for nuclear would come under the Levy Control Framework, but accepted that including the costs of support for Hinkley under the LCF would affect what is available to renewables.
121.It is accepted that increased deployment of renewable electricity will play a significant role in achieving future carbon emission targets, and given the scale of Scotland’s renewable sector it is clear Scotland will be extremely important in that regard. We have heard that the UK needs to more than double its renewable capacity in order to meet 2030 targets, by which time the Committee on Climate Change has said the UK will need to have largely decarbonised its power supply. Given the current wholesale electricity prices and costs of renewable technology, this will require significant public support. A number of submissions have also argued that as heat and transport is likely to be increasingly electrified, even more needs to be done to ensure electricity supply can be decarbonised. The National Grid’s recent report on future energy scenarios for the UK concluded that the best path for meeting carbon emissions was to focus on decarbonising electricity, then use this as a basis to decarbonise heat and transport. A recent report by the Energy and Climate Change Committee noted that if heat were completely electrified this would result in a five-fold increase in electricity demand.
122.Broadly, those calling for a long-term strategy from the UK Government have asked for a vision for Great Britain’s electricity supply, along with a strategy for how this will be achieved. We have noted in this and previous chapters several areas which would need to be covered—including, but not limited to, the desired electricity mix, future spending limits for renewables, clarity over which technologies will be supported, and a plan for the deployment of electricity storage and CCS.
123.A key point made by many of those petitioning for a clear strategy for the UK’s energy sector was that this must be produced in collaboration with the Scottish Government. The division of responsibilities between the two governments, and the particular importance of Scotland to the UK’s renewable electricity sector, means that intergovernmental cooperation on this is essential. We note that the Northern Ireland Affairs Committee has received similar evidence, calling for a joined-up approach between the Northern Ireland Executive and UK Government on energy policy, to ensure the views of the energy sector in NI, and the NI Executive, are taken into account in the formation of UK Government policy.
124.Although the focus of this report has been on renewable electricity, action is also necessary to decarbonise the energy needs of the heat and transport sectors. This is an area where every part of the UK needs to take further action, and the UK Government has acknowledged that it does not have the right policies to achieve targets on renewable heat and transport.
125.The Government has been too slow to set out its intentions and ambitions for the electricity market and renewable energy sector post-2020. Given the long lead times for deploying renewable technology, it is essential that the Government gives a clear indication what future support it will provide so investment decisions can be made and new generation capacity secured at the lowest cost to the consumer. The scale of Scotland’s renewable sector, and the obvious impact UK Government energy policy has on Scotland, means that it is essential the Scottish Government is involved in the development of not just support for renewables, but the UK’s wider energy policy.
126.We recommend that the UK Government, as part of its response to the Fifth Carbon Budget, work with the Scottish Government to produce a long-term strategy for the future of Great Britain’s electricity supply, and detail how this will be achieved. This should cover:
213 E3G ()
214 E3G ()
215 Q343, WWF Scotland (), Scottish Renewables ( ), Civil Engineering Contractors Association (), Scottish Energy Association (), Scottish Council for Development and Industry (), Statkraft UK Ltd (), RSPB Scotland (), E3G (), Vattenfall (), Hoolan Energy Ltd (), Royal Society of Edinburgh (), Viking Energy Shetland LLP ()
216 Scottish Council for Development and Industry ()
218 Green Highland Renewables Ltd ()
220 Energy and Climate Change Committee, , Third Report of Session 2015–16, HC 542
221 Energy and Climate Change Committee, , First Report of Session 2016–17, HC 267
222 Scottish Parliament, Economy, Energy and Tourism Committee, , 9 December 2015
223 E.ON ()
225 Energy and Climate Change Committee, , Third Report of Session 2015–16, HC 542
229 TaxPayers’ Alliance ()
231 MEG Renewables ()
233 National Grid, , July 2016
234 Scottish Renewables ( )
235 Q235, Scottish Energy Association ()
236 National Grid, , July 2016
237 Energy and Climate Change Committee, , First Report of Session 2016–17, HC 267
238 Written evidence received by the Northern Ireland Affairs Committee from the Northern Ireland Chambers of Commerce ()
239 Scotland Gas Networks plc (), Scottish Renewables ( )
240 Oral evidence taken before the Energy and Climate Change Committee on 10 November 2015, , Q4
20 July 2016