Sustaining the Energy Sector in an Independent Scotland
The 18th September is now just over two months away, and as the two camps make their final push in persuading Scottish nationals either to stay put in the UK or run from it as quickly as humanly possible, it seems worth taking stock of what the clean energy landscape may look like in a post-referendum, independent Scotland.
11th July 2014 | Peter Rolton: Chairman, Rolton Group
In 2012, 25 per cent of the renewable energy generated in Scotland made its way south into the UK. As a sizeable chunk of the total, it will have made a substantial contribution to the sector’s annual success. This friendly give and take, however, depends on the maintenance of an amicable relationship between the two component parts, and make no mistake, the energy market will not be exempt from the bitter divorce proceedings that will undoubtedly ensue if the two nations unwed.
It seems optimistic at best and painfully naïve at worst to imagine that Britain would be willing to buy so much as a paperclip from its northerly neighbours in the case of a ‘yes’ vote, let alone to support the independent state’s economy by purchasing swathes of clean power from them. Indeed, far from envisioning independent Scotland as a white knight riding upon a faithful steed, laden with the gift of energy to save Britain from the terrible energy mess we’ve made for ourselves, it is far easier to picture Britain turning its back altogether on any imports and sourcing its green power requirements from elsewhere through the pipeline that runs across to central Europe.
One thing there can be no debate about is that Scotland is a particularly bountiful resource of natural and sustainable energy, with wind and tidal potential that is among the best in Europe. It is this abundant supply that Alex Salmond MP hopes to use as a springboard to a successful economy, announcing that an independent Scotland could source 100 per cent of its electricity from renewable supplies by 2020. Unfortunately for Salmond, he would do well to revise his calculations; potential alone for a buoyant renewable sector does not equate to a thriving economy.
The problem is that sustainability isn’t cheap. Wind and tidal energy are both heavily subsidised to make them commercially appealing to investors, and they are also subject to very low levels of tax. This means that rather than sitting back and waiting for the big bucks to roll in should Scotland vote ‘yes’, the government will find themselves having to pay out subsidies that annually run into the hundreds of millions of pounds (let’s not get into the currency debate here) in order to prop up its green agenda.
While we wait for the technology to reach parity with traditional fuel, predicted by many as a distant dream until the mid-2020s, it won’t be possible to remove the financial incentives that currently support the industry, not least because there are already many deals in place that investors will expect to be honoured regardless of September’s vote. If an independent Scotland is serious about kick-starting its green economy, it will need to have enough in the coffers to support an industry hoped to be so large that it can, in Salmond’s words, ‘power much of Europe’. This is where the wheels begin to fall off. How will an independent Scotland afford to sustain its sustainability sector? The piggybanks are empty and revenues from the North Sea are already tied up in providing public services. It may be a difficult lens to look through, but to ignore these problems is to sleepwalk into an economic minefield.
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