Meeting the Energy Challenge - Energy policy Briefing No. 165 Nov. 2007

Introduction

Energy is essential in almost every aspect of our lives and for the success of our economy. There are two long-term energy challenges. Tackling climate change by reducing carbon dioxide emmisions both within the UK and abroad; and ensuring secure, clean and affordable energy as we become increasingly dependent on imported fuel. Energy has both reserved and devolved aspects. This briefing covers the UK Energy developments and devolved energy issues.

Meeting the Energy Challenge

The Department of Trade and Industry (DTI) published the Energy White Paper, Meeting the Energy Challenge, in May 2007.The White Paper consists of 11 chapters on energy security and climate change; saving energy, heat and distributed generation; oil, gas and coal; electricity generation (including renewables, carbon capture and storage for fossil fuels and nuclear power); devolved administrations; impact of the measures and the implementation process.

The White Paper sets out the Government's international and domestic energy strategy to respond to the main energy challenges of climate change and energy security. The main challenges are:

• The impact of climate change and the need for a concerted global effort to cut greenhouse gas emissions, especially carbon dioxide.
• Rising fossil fuel prices and slower than expected liberalisation of EU energy markets at a time when the UK is increasingly relying on imported energy;
• Heightened awareness of the risks arising from the concentration of the world's remaining oil and gas reserves in fewer regions around the world, namely the Middle East and North Africa, and Russia and Central Asia;
• In the UK, companies will need to make substantial new investment in power stations, the electricity grid, and gas infrastructure. This is a particularly important issue for Scotland.

The framework which addresses the challenges is mainly based on the four energy goals of the 2003 Energy White Paper:

• Cutting CO2 emissions by some 60% by about 2050, with real progress by 2020,
• To maintain the reliability of energy supplies;
• To promote competitive markets in the UK and beyond;
• To ensure that every home is adequately and affordably heated.

The White Paper also reiterates the various activities relating to the four energy goals which were carried out before its publication, including the UK Climate Change Programme (28 March 2006); and the Stern Review of the economics of climate change (October 2006).

Since the White Paper the UK Government has published The Energy Markets Outlook (October 2007) that looks at energy supply over the next 15 years. The UK Energy Minister argues that the market will deliver the required capacity although he recognises a number of risks. Others including UNISON and the STUC are more sceptical and argue that government needs to take a more interventionist planning approach to ensure security of supply.

Scottish Government Response

On the same day the White Paper was published, the First Minister set out the priorities and objectives of his administration in a speech to the Scottish Parliament. He was critical of the White Paper's arguments for a new generation of nuclear power stations and instead sought to highlight Scotland's achievements and future potential in renewable energy and clean coal technologies.

The First Minister also announced a 'Green Energy Day' to celebrate his claim that installed capacity in the renewable sector is overtaking the capacity of the nuclear sector.

However, this claim was undermined when the Scottish Government was forced to admit that Scotland's two nuclear power stations provide double the amount of energy produced by renewables. The difference is explained by the fact that wind farms generate about 30% of their possible output whilst nuclear normally operates at around 80%. However, technical problems at Hunterston means that nuclear has not generated in Scotland at full capacity.

Scotland currently has around 2.5 gigawatts of renewable electricity generation but a further 12 gigawatts of projects are proposed (mainly wind farms). This is almost twice what is required to meet the Scottish Government's new target for generating 50 per cent of electricity renewables by 2020. This requires significant investment to connect projects to the transmission and distribution networks, and increase the overall capacity of the networks in Scotland. A key test of the Scottish Government's commitment to renewables will be the approval (or not) of the Beauly-Denny powerline.

The number of renewable projects that will go ahead over the next five years is uncertain. Ofgem has introduced additional flexibility into the price controls so that the two companies that run Scotland's electricity networks can make further investment, in response to additional demand for connections. This additional generation will also require investment in the downstream network in England and Wales. In addition there is substantial opposition to many onshore wind farms that causes planning delays.

Offshore generation using tidal power has significant potential in Scotland and pilot projects are being developed in Orkney. However, the technology is not yet proven on an economically viable scale. Scotland had hoped to benefit from carbon capture technology that takes carbon emissions from gas and coal power stations and pumps them into former oil sites. Peterhead was one possible site and BP had a scheme that was withdrawn because of delays in the UK Government decision process. Scottish Power is investing in technology that will reduce carbon emissions at its main coal plant at Longannet.

Overall it seems likely that renewable generation will not be able to plug the Scottish energy gap by the time the nuclear station licences run out at Hunterston in 2011 and Torness in 2023. At the very least this may mean extending the lifespan of these plants or more controversially replacing at least one of them.

Transmission loss and charges

Probably the major political issue between Scottish and UK energy policy is the issue of access charges to the networks and charges for transmission loss. It is argued that access charges discriminate against Scottish generators who have to pay more to get the power to the main users in the large English conurbations. This has been the subject of legal challenges from Scottish power companies.

Ofgem also indicated that it is considering introducing transmission loss charges which would directly discriminate against energy generation in Scotland although they have now announced a further review of these plans. These plans seek to alter the rules so that the costs of transmission losses would be allocated where the loss occurred, unlike the current system where costs are allocated irrespective of where electricity enters and leaves the network (the 'postage stamp' principle). Removing this principle would mean discriminatory charges against generators further away from the main centres of population. By encouraging generating capacity close to urban centres, the proposals directly discriminate against renewables and other forms of generation that are best located outwith urban areas. UNISON Scotland was the first to highlight this issue and our stance has subsequently been supported by Scottish Renewables and others.

UNISON Scotland policy

UNISON Scotland's position is set out in our policy statement Scotland's Energy – Scotland's Future. Together with the other energy unions through the STUC we remain sceptical that Scotland's current generating capacity can be replaced by renewable energy on its own. We favour a balanced energy policy that provides safe, secure and sustainable generation, which contributes to our economic future and eliminates fuel poverty.

Contacts list:

Dave Watson – d.watson@unison.co.uk

Kevin O'Neil
k.oneil@unison.co.uk

@ The P&I Team,
14 West Campbell Street,
Glasgow G2 6RX
Tel 0870 777006
Fax 0141 342 2835

Further info

Department of Trade and Industry:
http://www.dti.gov.uk

Energy White Paper:
Meeting the Energy Challenge
http://www.dti.gov.uk/energy/whitepaper

Stern Review on the Economics of Climate Change/Executive Summary
http://www.hm-treasury.gov.uk/
independent-reviews/stern-review-economics_climate_change/
strernreview_summary.cfm

First Ministers Speech to Parliament
http://www.scotland.gov.uk/news/
news-extras/strategicobjs

UNISON Scotland Press Release
http://www.unison-scotland.org.uk/news/2007/
mayjune/2706.htm