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STUC Submission to the Economy, Energy and Tourism Committee’s Inquiry, ‘Determining and Delivering Scotland’s Energy Future’

STUC August 2008

1 Introduction

1.1 In its call for evidence, the Committee correctly asserts that ‘energy supports economic growth and is essential to the social well being of every person in the country’. The STUC believes that the development of a coherent and viable energy strategy, which is fit for purpose in meeting the three key challenges of security of supply, climate change and affordability is a prerequisite for the effective delivery of the Scottish Government’s economic and social agenda.

1.2 However, the STUC does not believe that current Scottish Government policy will lead to the development of such a strategy. Discussion at this year’s Business in the Parliament Conference and at the first meeting of the National Economic Forum confirmed that this is a very widely held view in the business community. The only speakers at these events who endorsed current energy policy were Government ministers.

1.3 The Scottish people have not been well served by the quality of public discourse on energy issues. Too often the debate about Scotland’s energy future has been limited to a narrow appraisal of one technology against another (i.e. nuclear against wind). There has been an auction of virtue on renewables targets and a tendency to avoid the difficult issues and trade-offs inherent in seeking to meet the three main challenges identified above. Maximising the wider economic and employment benefits from developing Scotland’s energy sectors has appeared to be an afterthought to, rather than an integral component of, energy policy.

1.4 The STUC has long advocated a balanced energy strategy for Scotland; one that is based on a diversity of fuel sources in order to achieve security of supply, emissions reductions and affordable energy for all. Scotland should aim to continue to produce an energy surplus to export, recognising the importance of the industry in providing high quality jobs.

1.5 The STUC believes that the design and implementation of an effective energy strategy will require prevailing economic orthodoxies to be challenged. The competitive market has failed to deliver and the industry regulator Ofgem has often actively constrained progress towards key Government objectives.

1.6 In drafting this submission the STUC has drawn on the knowledge and experience of its affiliated trade unions (UNISON, UNITE, GMB, PROSPECT and NUM) whose members work across the range of administrative, operational, professional and technical occupations within the energy sector.

2 Key questions

The Committee sought evidence on three key issues:

What type of future is needed in Scotland in terms of the production, distribution and more efficient use of energy, given the issues of price, security of supply and sustainable development?

2.1 The STUC and its affiliated trade unions have long believed that there is scope for a distinct Scottish energy strategy within a UK framework.

2.2 Scotland has a distinct energy position within the UK because of its different generation structure and abundance of renewable energy resources. The Scottish Government has an important role to play in supporting a Scottish energy strategy, having devolved responsibilities that both impact and interface with UK energy policy. These include the environment, planning, agriculture, forestry, education and training, economic development and sustainable development.

2.3 The STUC is currently engaged in a consultation exercise with our members on the extension of the powers of the Scottish Parliament and energy is one policy area under consideration. It is important to acknowledge however that the design and implementation of a Scottish energy strategy could be achieved by devolving full responsibility for energy policy or by better joined up working between the two administrations. The current devolution settlement is not an excuse for inaction.

2.4 A Scottish energy strategy should allow for more coherent working between the various partners in Scotland. It is, for instance, disappointing that agencies with an environmental purpose should have been so active in blocking renewables projects when all are agreed that the impacts of climate change are the greatest threat to Scotland’s natural heritage.

2.5 Recognising that Scotland’s generating capacity will diminish rapidly over the next 15 years, a Scottish energy strategy should aim to maximize the sustainable production of energy supplies:

Wind: Scotland should aim to maximize its energy production from wind in as environmentally sensitive manner as possible. This will require further onshore development with the economics of offshore looking increasingly difficult. The use of local content in new projects must become a priority and the economic and employment benefits made a material consideration during the planning process. The consistent and fair application of Natura 2000 Directives is necessary to ensure that Scotland’s most fragile remote economies can benefit from onshore wind. The infrastructure improvements justified by onshore wind will, in the future, support the development of other renewable projects around Scotland.
Marine: the STUC has criticised the faith placed by some politicians in the ability of wave and tidal technologies to replace conventional capacity before they have properly matured as commercially viable technologies. However, we absolutely recognise that Scotland currently enjoys first mover advantage in marine and that the sector will in time make a significant contribution to the energy mix. There is also little doubt that the sector offers significant industrial opportunities. Therefore it is imperative that policy seeks to maximize the production potential and the related employment opportunities of marine renewables.
Biomass: The STUC believes there are significant opportunities particularly through the co-firing of biomass material with coal. Biomass can offer stable supply whilst contributing to Co2 reduction. The industry has been affected and constrained by a number of poor regulatory decisions to date and it is therefore important that regulatory authorities, Government and agencies work to provide an environment that allows the industry to develop and prosper.
Oil and gas: higher prices should help to ensure that the investment is forthcoming to ensure that production in the North Sea is maximised. To ensure that the maximum economic benefit is derived from North Sea resources, the UK offshore industry requires a transparent system of taxation linked to a long-term development plan and clear incentives for exploration drilling. With an ageing workforce and insecure employment, there are also serious skills issues to overcome.
Nuclear: The STUC strongly believes that there is no viable, medium-term alternative to nuclear if Scotland is to meet its climate change obligations and retain its position as an energy exporter. New nuclear build on existing sites will provide highly skilled jobs, continuity of employment, wider economic benefits for communities with limited alternative opportunities and, through existing grid connections, make the most of infrastructure already in place. The STUC is perplexed by the complacency of Scottish Ministers who are apparently content to preside over the rundown of a major Scottish industry - one which provides very low carbon, stable baseload generating capacity and a substantial amount of skilled employment.
Coal: The STUC believes that coal fired generation can be compatible with low carbon objectives by applying clean coal technology (CCT), investing in carbon capture and storage (CCS) and blending with biomass for co-firing. Coal is the most secure form of supply as it can be stocked in large quantities near the point of burn available for immediate use. It is an important element of a safe, secure, diverse portfolio of fuels although too high a reliance on imports does assume a significant level of risk. Therefore, the case for indigenous supply is strong. Again, significant industrial opportunities could be derived for Scotland through investment in CCT, CCS and indigenous coal production.

2.6 Potential barriers to the design and implementation of an effective energy policy for Scotland include:

Infrastructure/grid: the grid network requires upgrading in order to promote new investment and facilitate the export of power. New sources of generation must be connected and parts of the network need replaced due to age. Onshore wind is likely to continue to lay a pivotal role in justifying this new investment.
Competitive market/Regulation: the market has failed to deliver on any of the priorities for energy policy. The failures of the market have been exacerbated by the activities of the industry regulator which have often appeared to work directly against aspects of government policy i.e. access and transmission charges have worked against renewable energy targets.
Skills: The age profile of those working in the energy sector is worryingly high. A successful low carbon shift therefore needs to be accompanied by sector-based skills and training strategies.

How can this future be delivered in Scotland and how will we meet all the various targets and obligations?

2.7 The STUC believes the setting of targets for renewable energy generation has worked against the development of a coherent energy strategy. Policy development has been distorted by the focus on renewables to the detriment of other sectors. There has also been confusion over whether targets relate to installed or available capacity. This general lack of transparency has encouraged exaggerated claims over the extent of progress the renewables sector is making towards replacing conventional capacity. It is for instance essentially meaningless to argue that installed onshore wind capacity now exceeds that of nuclear when it is the available capacity that counts.

2.8 Hydropower has provided Scotland with a head start in meeting its international obligations and it is entirely realistic for Scotland to fulfil its obligations in the future if the appropriate action is taken now.

2.9 Scotland also requires a planning and regulatory regime that facilitates the development of all energy sectors. The draft National Planning Framework was extremely light on the role that conventional capacity will play moving forward. Whilst this comes as no surprise in relation to nuclear it does contradict Ministers’ strong public support for coal.

2.10 The STUC does not argue as some in the business community do that there should be a presumption in favour of all development . It is absolutely correct that planning seeks to balance the social and economic interests of communities with that of developers. The STUC broadly supports the provisions of the Planning Bill and believes that effective implementation will address many of the concerns of developers. Central to effective implementation will be the sufficient resourcing of planning departments. Blockages in the system are not the result of planners who wish to be deliberately obstructive but simply reflect the pressures on under-resourced planning departments; pressures which have been exacerbated by the number of onshore wind applications over the past few years.

2.11 The STUC is also very concerned about the reasoning which underpinned the Scottish Government’s decision to refuse consent for the Lewis Windpower project. The failure to apply the tests under the Natura 2000 directives in a fair and consistent manner will undoubtedly restrict development in some of Scotland’s most fragile remote economies. Ministers may support wave and tidal technologies whilst they remain in the testing phase but it is fair to speculate that their views might change when large-scale deployment begins to generate objections.

2.12 A successful low carbon shift needs to be accompanied by sector-based skills and training strategies. For instance, one of the main barriers to increasing the uptake of new microgeneration devices is the ‘shortage of appropriate skills and training courses’ for each of the emerging technologies. The development of new technologies in manufacturing industries and the development of our environmental industries, including clean-coal, will require investment in the right skills and specialities. A number of skills issues need to be addressed:

Stakeholders should be involved in a comprehensive survey of labour and skills requirements in the energy sector;
A transitional skills strategy is required for moving to a low carbon economy which provides support both for well-qualified staff at all organisational levels and for lower skilled employees who may lack a portable or adaptable skills base; and,
Environmental literacy in relevant Modern Apprenticeships must be improved. The Gas industry workbook initiative prepared by the Energy and Utilities Skills Council is an example of good practice.

What decisions need to be taken, by when and by whom to deliver on Scotland’s energy future?

2.13 It is difficult to be specific in answer to this question. A plethora of decisions require to be taken at UK, Scottish and local level before Scotland makes real progress towards an effective and sustainable energy strategy.

2.14 Before identifying key decisions, it would be helpful if policy makers recognised:

that current policy will not achieve the objectives of security of supply, emissions reductions and affordability;
a distinct Scottish energy strategy is required; and,
the competition and regulatory frameworks need to change.

3 Supplementary questions

Which energy sectors offer the best prospects for economic growth and reduced carbon emissions, and how should these be secured?

3.1 The STUC regards the narrow comparison of one particular sector against another as one of the least helpful characteristics of the current energy debate. With such a large proportion of existing capacity soon to be lost, we believe there is a place for all sectors in the energy mix. Indeed, a mixed portfolio is likely to provide secure supplies that are protected to some extent from price spikes in particular markets.

3.2 When analysing which sectors offer the best prospects for economic growth, it is also worth distinguishing between the potential for growth of each energy sector and the role secure and affordable energy supplies play in facilitating growth throughout the wider economy. Scotland has first mover advantage in marine renewables and therefore there are substantial growth opportunities in designing, testing, manufacturing and deploying these technologies. However, nuclear and coal should continue to provide a stable and secure basis on which to power the wider economy.

3.3 Scotland will inevitably suffer if investors believe Scotland’s energy security is threatened over the medium to long-term. Therefore, Government should seek to provide assurance that the closure of large-scale coal and nuclear generation will be replaced with a viable energy mix including new conventional generation providing stable baseload capacity.

What are the hindrances to determining and developing Scotland’s energy future?

3.4 As discussed above, the highly polarised debate doesn’t help and it is fair to say that the devolution settlement has led to a lack of clarity over roles and responsibilities. Skills deficits, Ofgem’s policies, the interpretation and inconsistent application of EU Directives and a lack of planning resources are all major hindrances to development.

How can demand for energy be reduced in Scotland?

3.5 This question warrants an inquiry in itself. The STUC will focus on just three areas:

3.6 Sustainable workplaces: Workplaces can make a huge contribution to sustainable economic development and worker involvement is the key to culture change in the workplace. Good practice developed in the workplace will also have a positive influence in the home and community. A sustainable workplace will include some of the following advantages:

Workforce engagement – with union representatives trained in sustainable development and consulting their members on workplace change;
A joint agenda with management – on environmental, energy and other resource issues – working towards a framework environmental policy;
Good terms and conditions;
High quality working environment;
Responsibility for both the local and global community;
A willingness to take on board wider concerns such as ethical investment and fair trade.

3.7 The STUC believes that there is much the Scottish Government can achieve in this respect. Given that there is a role of unions, employers and Government to progress this agenda, the design and implementation of a ‘green workplaces’ agenda could be a positive issue for the National Economic Forum to consider. There is also a compelling case for a Scottish Government fund to support initiatives in the workplace.

3.8 Improvement of the housing stock: a radical improvement of Scotland’s housing stock has the potential to lead to a huge improvement in energy efficiency and to create good jobs for socially useful ends.

3.9 Germany combines a variety of approaches. It provides low-interest loans for older properties to reach new-build energy standards. Its feed-in tariff programme ensures that anyone generating electricity from solar PV, wind or hydro gets a guaranteed payment of four times the market rate. This has created 250,000 jobs and demand is such that Bavarian farmers with large barn roofs and fields are the biggest customer group for PV in the world.

3.10 Procurement: the STUC believes that the Scottish Government should ensure that all contractors have sustainable workplace strategies in place. European Directives provide sufficient flexibility to implement this provision.

How can the energy sector deliver the kind of reductions in greenhouse gas emissions that the Scottish Government wants to see?

3.11 The energy sector will deliver reductions in greenhouse gases by investing in renewables and, in the case of conventional technologies, investing in new and cleaner plant. There is also much the sector can do to support energy efficiency measures in the home. As the STUC notes time and time again, the dominant business model in the UK works against long-term investment. Recognising this as an unfortunate reality, Government must seek to ensure that the correct policy framework is in place in order for this private investment to be forthcoming.

3.12 However, the necessary reductions in greenhouse gases will only be achieved by change throughout the economy – it is not just for the energy sector.

How can energy supplies be secured at a price which is affordable?

3.13 Again, this is a question that begs an inquiry in itself. It is difficult to cover within this short submission the range of issues which will contribute to affordable energy.

3.14 Revisiting the competitive market for energy and in particular the role of Ofgem. As Brian Wilson, ex-UK Minister of State for Energy recently observed, ‘Ofgem has dug itself into the hole of total belief in the competitive market to deliver the best possible outcomes for consumers. That has never been a satisfactory position, since it places all the onus on consumers to hop about between suppliers in search of the best available tariffs. Now, as prices rise by double digit percentages, the advice to “shop around” sounds even more optimistic’.

3.15 The competitive energy market has produced a payment system that is highly regressive, with poorer customers landed with expensive pre-payment arrangements while the better-off derive financial benefits from paying by direct debit.

3.16 The competitive market has simply failed to deliver for poorer customers. Nothing less than a fundamental review of the competitive market and Ofgem’s terms of reference is required. Ofgem needs to be able to look at the energy market in its entirety and directly intervene on price when appropriate.

3.17 The fundamentals must be addressed by increasing cleaner supplies and reducing demand. This will require a massive investment in new capacity.

3.18 Reliance on imported gas is clearly potentially disastrous for energy prices – the recent Commons BER select committee inquiry raised a number of important points in this respect . Proponents of European energy market liberalisation place undue emphasis on the likely impact on UK gas prices when gas, particularly LNG, will increasingly be supplied from outwith the EU.

How can economic benefits from Scotland's energy industries and the development of clean technologies be maximised?

3.19 The STUC hopes that this inquiry will address the unfortunate fact that the wider economic and employment impacts of energy policy are too often overlooked. There is a danger of repeating the old story of Scottish innovation leading to manufacturing gain elsewhere due to lack of investment.

3.20 Given that Scotland’s renewable energy resources are widely recognised to be the most abundant in Europe, our performance in generating jobs has been disappointing. Denmark, Spain and Germany have all built large, job-rich renewable sectors through a variety of means. The STUC believes that the UK and Scotland’s poor performance in this respect reflects an unwarranted faith in markets to deliver socially beneficial outcomes and a deeply embedded antipathy to anything that smacks of industrial policy – other countries better understand that intervention is required in the early stages of development in order to secure technologies and ensure that employment is created.

3.21 Maximising industrial opportunities should be a core strand of a Scottish energy strategy. Some initial actions could include:

Using business support mechanisms (such as RSA and innovation support programmes) strategically to help develop technologies and secure these technologies within Scottish industry;
A comprehensive research project to learn the lessons of other European countries;
Within the context of the Planning Bill, and working within EU Competition Law, consider ways in which developers can be encouraged to use local content; and,
Improve links between developers and Scottish manufacturers – we are not convinced FREDS or the Energy Community are appropriate mechanisms for this activity.

Copyright

STUC August 2008

Composite B (covering motions 5, 6 and 7)

Energy

“That this Congress notes that the debate surrounding energy and supply is now more important than ever before. A balanced energy strategy - incorporating clean coal, nuclear, oil, gas, and renewable sources - utilising indigenous supply, wherever possible, is vital to ensuring security of supply, greater price stability and the transition towards a low carbon economy.

“Congress notes in particular that, while Scotland exports 20% of the electricity it generates, in 2006 overall primary fuel consumption in the UK was not met by indigenous production, and is alarmed that the UK could be importing as much as 90% of our gas needs by 2020. The UK’s growing position as an energy importer is also evident in our use of coal. Coal now generates around 40% of the world’s electricity. The UK imported more than 50% of the coal burn in 2006 and is one of the biggest importers of coal in the world, despite possessing massive reserves. Subsequently, Congress believes there should be urgent emphasis on the application of proven clean coal technology at existing coal sources.

“Congress also believes that the whole of the UK must continue to have access to reliable sources of low carbon energy. Congress, therefore, supports an integrated and interdependent UK energy strategy for all potential indigenous energy sources. We must avoid further waste of the vast natural resources, particularly in the north of Scotland, for wind, wave and tide and, in the lowlands, for clean coal. Government must be pressed, if we are to ensure secure, reliable and low carbon energy sources, and the fulfilment of Scotland and UK climate change targets.

“Congress calls for central government to be vigorously pressed for a serious and urgent commitment to heavy investment in Caithness and Sutherland, particularly into both electricity generation and related vital research and development of renewable resources, alongside lowland clean coal production.

“Congress is also concerned that in the Scottish Government’s recently published ‘Skills for Scotland: A Lifelong Skills Strategy’ (September 2007) the necessity of supplying skilled workers in the energy sector is referred to only once. Congress calls on the Scottish Government to:

invest in the necessary level of skilled labour to deliver the research and development, construction, operation and maintenance of each low-carbon energy source; and
allocate the necessary resources for the training and development of existing and local workers in the energy sector, to achieve the Government’s energy and carbon emissions targets.

“Congress believes investing in skills, training and the retention of people in the energy sector is vital, if we are to:

realise the potential of 'green manufacturing’ and the 35,000 potential jobs by 2020 in the UK renewables sector;
give us the security of supply that is needed in an ever- changing world; and
achieve our climate change targets and respect our international treaty obligations.

“We call on the STUC General Council to lobby the Westminster and Scottish Governments to support these measures.”