The renewable energy sector in Scotland Contents

Conclusions and recommendations

The renewable sector in Scotland

1.The renewable electricity sector in Scotland is an exemplar of how this sector can thrive, provided there is a supportive policy environment. Scotland has been immensely successful at attracting investment in renewable electricity generation, and leads the UK in the proportion of its electricity which is generated by renewable technology, producing almost 30% of the UK’s renewable electricity in 2014. We welcome the recognition by Lord Dunlop, Parliamentary Under-Secretary of State for Scotland of Scotland’s importance to the success of the UK’s renewable sector, which mirrors the importance assigned to this sector by the Scottish Government. (Paragraph 16)

2.We note the serious concerns many Scottish residents have about the impact of onshore wind turbines on the environment and their communities. It is important that such concerns are taken into account in the process for approving the installation of new power plants, but as planning is a devolved policy area this is a matter for the Scottish Government and Scottish Parliament. We also note the evidence that the Scottish public support the Scottish Government in taking action to tackle greenhouse gas emissions and climate change, and that the Scottish Government must balance local considerations with how national goals around carbon emissions and renewables are achieved. We would encourage the Scottish Parliament to ensure that people’s objections are properly heard and considered at the appropriate level within the planning system. (Paragraph 27)

Recent policy changes

3.Although the Government has stated that recent policy changes were necessary to respond to the projected overspend of the Levy Control Framework, these changes have been implemented in an ad hoc way. There has not been enough transparency regarding how decisions have been made, and it is therefore not clear how the Government arrived at the specific options it has chosen. The way in which the Government has responded to the projected overspend has created uncertainty for the renewables sector. (Paragraph 39)

4.We concur with the Energy and Climate Change Committee’s recommendation that the Department of Energy and Climate Change should develop and publish a structured response plan, setting out how any future projected overspend of the Levy Control Framework would be dealt with. We also recommend that the Government establish procedures for the communication of any future projected overspend, and also the Government’s response to that overspend. This should be developed with a view to ensuring the renewables sector is as well-informed as it can be as soon as possible, and that it is transparent how the Government has come to its decisions. (Paragraph 40)

5.The Government’s recent changes to support for the renewable sector—early closure of the Renewables Obligation to onshore wind and solar, cuts to Feed-in-Tariffs and delaying the next round of Contracts for Difference—will affect the renewable industry across the UK. However, the fact that cuts fall particularly heavily on onshore wind, where the majority of capacity is deployed in Scotland, means that these changes will have a disproportionate impact on the prospects of Scotland’s renewable sector. Scottish Renewables told us that early closure of the Renewables Obligation to onshore wind will cost Scotland up to £3 billion in lost investment and put 5,400 jobs at risk. We have also heard that recent changes will mean Scotland could potentially lose out on significant additional investment and job creation. It is of serious concern that the UK Government implemented these changes without assessing the impact they would have on Scotland. (Paragraph 47)

6.We recommend that the Government include in its response to this Report an assessment of the impact of recent policy changes on the renewable sector in Scotland, and that sector’s prospects for future growth, as compared to other parts of the UK. (Paragraph 48)

Withdrawal of new subsidy for onshore wind

7.We recognise that the Conservative Party had a clear manifesto commitment to “end any new public subsidy” to onshore wind, but the decision to close the Renewables Obligation—an already existing support mechanism, which was due to close to new entrants in 2017—to onshore wind a year early appears to go beyond this. It is not helpful that the Government has made significant changes to renewables policy, without consultation or engagement with the renewables industry, on the basis of a manifesto commitment which could have been implemented in any number of different ways. (Paragraph 54)

8.Onshore wind farms are one of the cheapest means of generating renewable electricity, and the Government’s decision to deny any further subsidy to onshore wind therefore appears to be in conflict with the Government’s focus on reducing the costs of renewable technology, a principle the majority of our witnesses accepted. This decision will almost inevitably increase the costs of deploying additional renewable electricity generating capacity, and is likely to restrict the prospects of further reductions in the cost of onshore wind technology as new developments will have no realistic route to market. (Paragraph 55)

9.We recommend that the Government review its decision to bar onshore wind schemes from accessing subsidies, and explain in its response to this Report how its decision to withdraw support for onshore wind, one of the cheapest forms of renewable energy, tallies with its commitment to keep down the costs of supporting renewable electricity. (Paragraph 56)

10.The Government should also end uncertainty for the sector by saying whether onshore wind will be eligible for future rounds of Contracts for Difference, and set out its view on whether a “market stabilisation” mechanism for onshore wind could be introduced. (Paragraph 57)

Future rounds of Contracts for Difference

11.It is regrettable that the second round of Contracts for Difference has been delayed by at least a year. This has created a void where renewables projects have been unable to progress because there is no support mechanism available to them. This stop-start funding is bad for investor confidence and for the maintenance of supply chains, which are most efficient when there is a stable policy framework and steady stream of support. (Paragraph 60)

12.Although the Government has finally indicated that the next round of Contracts for Difference will be held in the last three months of 2016, there remain a number of important details to be confirmed. It is essential that the Government set out, at the earliest possible opportunity, the full details for the next round of Contracts for Difference. This should include the dates of the auction, eligible technologies and strike prices. The Government should indicate the timing of the remaining auctions due to take place this Parliament, ahead of providing more detailed information regarding funding levels and which technologies will be eligible for contracts. (Paragraph 61)

Representation of Scottish interests

13.Scotland is home to around 60% of the UK’s onshore wind capacity, and withdrawing access to funding for future onshore wind developments will therefore have a disproportionate impact on Scotland. It is unclear to what extent the interests of Scotland’s renewable sector were considered by the UK Government when it formulated recent policy changes, but it is clear that the decision to bar onshore wind schemes from public support was pursued despite very clear opposition from the Scottish Government. It is not clear what, if any, role the Scotland Office played in representing Scottish interests within the UK Government in relation to a policy change which will have a significant impact on a key sector of the Scottish economy. (Paragraph 64)

14.Given the significant interest Scotland has in UK energy policy, particularly where this affects the renewable sector, it is crucial that the UK and Scottish governments engage constructively on this subject. Both governments have acknowledged the need for improved engagement, and have committed to taking this forward. Lord Dunlop’s statement that it is now time to “put flesh on the bones” of the Smith Commission recommendations regarding consultation between the UK and Scottish governments on energy policy recognises that there is still work to be done on improving engagement between the two governments. This is also evidenced by the Scottish Government’s dissatisfaction with the way recent policy changes have been pursued. The two governments should be encouraged to take a constructive approach to discussions. (Paragraph 71)

15.Although we welcome the implementation of the Smith Commission’s recommendation that the Scottish Government have a formal consultative role in designing renewables incentives, it is not clear what benefits this will have in practice. It is essential that the UK Government engage in substantive consultation with the Scottish Government when it comes to policy affecting the renewables sector, and that this is not simply conducted as a tick-box exercise. (Paragraph 72)

16.We recommend that, to complement the provisions of the Scotland Act 2016, the UK Government put in place a clear process for consulting the Scottish Government on the design of, or amendment to, renewables incentives. We expect to see details of this process in the Government’s response, and will monitor how it works practice. (Paragraph 73)

Infrastructure and security of supply

17.Transmission charging has been a source of discontent for Scottish electricity generators for many years, and particularly for renewable generators which are often located in remote areas and pay significantly higher transmission charges. We endorse the Energy and Climate Change Committee’s recommendation that Ofgem analyse the costs and benefits of levelling connection costs across Great Britain, and look forward to seeing their response. (Paragraph 81)

18.Inadequate connections between the Scottish Islands and the mainland are a significant barrier to the growth of the renewables sector based there, including the development of emerging technologies. Given the excellent opportunities for wind, wave and tidal technology on the Scottish Islands, it is essential that infrastructure be improved to enable these sectors to meet their full potential. We understand that this will only happen if there is sufficient generating capacity coming online to justify the link, which requires a clear signal from the Government that it will support renewable projects located on the islands. (Paragraph 87)

19.We recommend that the UK Government include Remote Island technology in the list of less established technologies which will be eligible to bid for funding in the next round of Contracts for Difference. Strike prices for this category should be set at a rate which will enable sufficient deployment to allow for improved transmission infrastructure to be installed between the Scottish Islands and the mainland. (Paragraph 88)

20.Increasing the proportion of Great Britain’s electricity which is supplied by intermittent renewable technology necessarily creates additional challenges for balancing supply and demand of electricity. However, these challenges are not new, and the operators involved are developing increasingly sophisticated means of balancing supply and demand whilst also accommodating an increasing proportion of renewable electricity. There is a lot more to be done to ensure that decarbonising Great Britain’s electricity generation mix does not jeopardise security of supply. Nevertheless, there is no reason that this cannot be achieved, with the right long-term strategy and policy framework. (Paragraph 96)

Carbon emission and renewables targets

21.It is widely recognised that climate change is a real and present danger at a global and national level. Reducing carbon emissions is essential to combat the risks posed by climate change. To that end, international communities, the UK and Scotland have all committed to challenging targets for reducing carbon emissions and increasing the proportion of the UK’s energy which is generated by renewable technology. We welcome these targets and note that, in order to meet them, it is essential that the UK has the right policy framework to support the development of a thriving renewable sector. (Paragraph 101)

22.There is a significant risk that recent policy changes, and in particular the UK Government’s decision to end all new subsidies for onshore wind, will mean that the Scottish Government is unable to achieve its goal of generating the equivalent of 100% of Scotland’s electricity needs from renewable technology by 2020. The Scottish Government developed this target at a time when UK Government policy was considerably more supportive of the deployment of renewable technology, including onshore wind. It is disappointing that the Scottish Government’s ambitions in this area appear to have been stymied by actions taken by the UK Government, particularly given the clear evidence we have received about the lack of meaningful consultation with the Scottish Government over these decisions. (Paragraph 107)

23.Although recent policy changes are unlikely to mean the UK’s carbon emission or renewable electricity targets for 2020 are missed, the Government has not set out how recent policy decisions will affect the UK’s ability to meet post-2020 targets. The Government’s recent decisions about support for renewables over the next few years will have implications for the deployment and cost-reduction of renewable technology in Scotland and across the UK which will affect the UK’s ability to meet carbon and renewables targets far beyond 2020. It is not clear the Government has taken this into account in the formation of recent policy affecting renewables. (Paragraph 108)

24.If, as the UK Government hopes, gas power plants are to act as a bridge from conventional electricity generation to low carbon electricity generation, it is desirable that Carbon Capture and Storage (CCS) technology be installed on gas power plants. In light of this, the Government’s decision to pull the £1 billion it had planned to invest in CCS is extremely disappointing, and has put at risk the UK’s chances of leading on the development of a technology which will be of global importance in the coming years. We therefore welcome the Minister of State’s indication that the Government will be making announcements this year about its strategy for CCS, and look forward to seeing these. (Paragraph 112)

The need for a long term strategy

25.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. (Paragraph 126)

26.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:

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20 July 2016