How would the UK’s renewable energy market fair if Scotland goes independent?
On 18 September, Scots will vote on whether they want to stay united with the rest of Britain or become an independent nation. But with the countdown to vote day well underway, there are questions arising around what will happen to the UK's renewable sector if Scotland does go independent. Ratio Law's Stuart Stones investigates.
One of the first issues to take into consideration is the cost of energy to consumers and businesses. Currently, a third of the UK’s renewable subsidy goes to Scotland, while Scots only contribute one tenth of the cost.
Energy secretary Ed Davey has warned that if Scotland breaks away from the rest of the UK, it will lose this financial support. This could result in household energy bills increasing by as much as £189 a year by 2020. It would also impact businesses, with a recent report from the UK Government noting that a typical medium-sized manufacturer could see bills rise by as much as £608,000 per annum.
While some think such estimations are simply the Government’s attempts to scare Scots into voting ‘No’, a single energy market does help to keep energy bills down for all consumers and businesses – it helps to keep prices lower for everyone, regardless of where they are located. This is especially beneficial for people who are based in remote, rural areas of Scotland such as the Highlands.
With 25% of Europe’s offshore wind resources and an estimated 25% of the continent’s tidal potential, Scotland has a prosperous renewable industry. Currently, Scotland generates enough renewable energy to power the equivalent of every household in the country and it has set itself the ambitious target of generating the equivalent of 100% of gross annual electricity consumption by 2020 through renewable energy.
The whole of the UK is bound by EU law to reduce carbon emissions by 20% by 2020. If Scotland went independent, the rest of the UK would have a significant shortfall to make up and Scotland may not be governed by the EU-imposed targets at all.
Although it may appear that it is in the rest of the UK’s best interest for Scotland to stay united, this isn’t necessarily the whole picture.
For Scotland to well and truly establish itself as an international leader in green energy, it needs funding to finance new projects and the technology to drive them. But is the country a safe option for investors?
Investments and security
If Scotland is unable to guarantee security for investors, it risks not being able to take advantage of the opportunities in the market. Not only could this prevent the country from becoming an industry leader, it could threaten the jobs of 11,000 people who work in the sector.
But it does appear as though Scotland is preparing for this by investing in renewable energy now to prepare for independence. Recently it was announced that £3.5m of new investment would be made available and four new projects would be backed through the Renewable
Among these projects are the Islay energy Community Benefit Society, which has been given £735,000 to put towards a community owned turbine, and Nova Innovation, which has been given £700,000 to support the first phase of the Shetland Tidal Array.
While such investments may help Scotland to start with, it will need to find more finance to continue to fuel its emerging renewables market. In order to achieve this, it will need to assure those with the cash that their investments are safe.
If Scotland breaks free from the rest of the UK, it will still need to work closely with England and Wales in terms of power sharing. Scandinavia is a good example of how such a model can work. Nord Pool Spot trades energy between the participating countries. So if Denmark produces a surplus of wind power, it can send it out to the Nord Pool partners, making money on the transaction. Likewise, if Denmark has a shortfall of energy to make up, it can purchase additional power from the other countries.
Such a relationship would be vital for Scotland if it did go independent, but negotiations and plans would need to start now to ensure the country’s power supply was safeguarded.
It is difficult to tell which way the vote will go at the moment, but a lot still remains unclear in terms of how Scotland will ensure it keeps bills affordable for consumers and businesses and how it will encourage investors to spend.
There are a lot of factors required to build a successful renewables market. Scotland undeniably has an abundance of renewable energy sources, but does it have the ability to drive investment and manage international relationships to drive the market forward?
It is an exciting time for the renewables market, and there are a lot of opportunities available. Regardless of whether Scotland goes independent, if the whole of the UK can’t act now and work together to build a powerful, sustainable and effective renewables market then it risks not being able to achieve this at all.
Stuart Stones is a founding partner of Ratio Law, a specialist business and property law firm located in the heart of Manchester.