What would Scottish independence mean for energy?

Scottish nationalists often used to argue that the revenues from “our oil” would bankroll their dream of a future Scottish state.

Of course, reliance on oil and gas revenues provides a far shakier base case for independence than in the late 70s, when the North Sea boom was taking off.

However, while oil and gas can no longer be counted on as a fiscal banker, surging renewables deployment north of the border looks set to give a fresh lease of life to the case for independence.

Utility Week examines how energy issues will play into next month’s Scottish Parliamentary election and the renewed debates about independence, which looks to have been reignited by the poll.

The industry’s concerns are unlikely to figure highly in the election campaign itself, given that energy remains a matter largely reserved for the UK parliament that is therefore not devolved to Holyrood.

This hasn’t stopped the Scottish National Party (SNP) government setting bold targets for the transition to decarbonisation.

Holyrood has been consistently one step ahead of Westminster in terms of emissions reduction targets throughout the lifetime of the current Scottish Parliament. In 2017, MSPs backed a 90 per cent reduction in emission levels on 1990 levels when the UK wide target was still 80 per cent.

And now the SNP has committed to Scotland becoming net zero by 2045, five years ahead the UK as a whole, a move that reflects the Climate Change Committee’s advice.

Scotland’s abundant offshore and onshore wind resources means that the country is already potentially self-sufficient in renewable electricity. According to recently published figures, renewable generation met 97.4 per cent of Scotland’s electricity demand in 2020. “An embarrassment of riches,” is how Josh Buckland, who was a special advisor in government at the time of the 2014 independence referendum, describes the energy picture north of the border.

Looking to NPF4

Planning and housing are the key areas where the Scottish government’s powers have an impact on energy.

Within these areas, the industry’s eyes will be most closely fixed on the new Scottish National Planning Framework (NPF). The document is not due to be laid until later this year, meaning the proposals will not be implemented until mid-2022.

Simon Markall, head of public affairs at Energy UK, says: “This timescale for the passing and implementation of the NPF4 does not reflect the urgency in which we feel the Scottish government should be moving. We’d like to see steps taken to speed up the implementation of the NPF4, to help provide signals and certainty to the sector to support delivery of the Scottish government’s net zero ambitions.”

Energy UK’s recent manifesto stressed the importance of co-operation both within the Scottish government and between Holyrood and Westminster.

The limited devolution of energy powers extends to regulation, where Ofgem’s remit runs exactly the same both sides of the border.

SNP MP Angus MacNeil MP, who chaired the Commons energy and climate change select committee until it was disbanded in 2016, shares the “frustration” in his party with the relatively high level of transmission network charges generators must pay to connect to the grid in Scotland’s more remote corners.

What SSE has dubbed a “premium” is particularly acute in the Scottish islands, which contain some of the UK’s biggest onshore wind projects, such as the proposed Stornoway windfarm on the Outer Hebridean Isle of Lewis.

What MacNeil, whose Na h-Eileanan an Iar constituency covers Lewis, describes as a “worship of the market” leads to a “crazy situation” where islands that generate more electricity than they consume are “penalised” by distribution costs.

“If we abandon that nonsense and looked at the diversity of our energy, we would have interconnectors to those islands,” he says.

“No other government in Europe would be governing the windiest spot, and have no substantial infrastructure or capability to have infrastructure there.”

Buckland, who is now a director at public affairs company Flint Global, says there is an argument for having higher network charges in areas more remote from main centres of demand but acknowledges they have a “meaningful impact” on generation projects.

Expect these kinds of arguments to get a lot more airtime if the pro-independence SNP, Green and former first minister Alex Salmond’s upstart Alba parties, win a majority in the Scottish Parliament on 6 May.

Scottish energy agency

The SNP manifesto includes a pledge that it will set up a Scottish energy agency instead of its previous plans to establish a public owned supply company.

While the body would have a declared focus on decarbonising the nation’s housing stock, it could provide an essential energy policy block for a future independent Scotland.

Energy will be a “huge part” of any future independence debate, says MacNeil: “When we move beyond our own election to our devolved parliament, energy will be a bigger part of the game.

“We have a second windfall coming through so will be sure that will be a large part of the independence debate.”

Buckland agrees that energy and climate will feature more highly than in the 2014 referendum.

“Both the Scottish government and the pro-independence parties have attached themselves to net zero and delivering ambitious actions,” he says.

Equally Buckland says the unionist parties will point to what the UK as a whole has achieved over the last ten years in rolling out low-carbon technology.

March’s Budget gave a taster of that as Chancellor of the Exchequer Rishi Sunak mentioned Peterhead in north east Scotland as one of the potential locations for a pioneering carbon capture and storage (CCS) cluster.

Alan Whitehead, shadow energy minister, says independence would involve an SNP government having to make hard choices between its ambitious climate commitment and support for Scotland’s North Sea oil and gas industry.

“The fact that energy is a reserved matter allows that contradiction to be sustained, but at independence it would have to be faced.”

The biggest worry for the industry though is that independence could mean the end of the UK-wide electricity market, which is being extended with new offshore transmission lines.

“Devolution around energy and climate is very complex: unpicking that will be tricky,” says Tim Lord, senior fellow at the Tony Blair Institute for Global Change.

“The GB- wide energy market is good for customers,” says Markall.

The integrated nature of the existing energy system makes sense for the industry too, says Buckland: “That makes projects really competitive but any level of increased market friction would increase prices.

“Irrespective of whether Scotland became independent, there would be benefits to a continued unified energy system. You would want to keep some level of co-ordination within the market.”

Peaks and troughs

Lord, who was director of clean growth at the Department for Business, Energy and Industrial Strategy (BEIS), argues that it would not be in the Scottish electricity sector’s own interests to go it alone.

While the figures for overall renewable generation are undoubtedly impressive, the intermittent nature of wind and solar power means that Scotland could be exposed to big peaks and troughs of demand if it is less able to sell to English consumers, he says: “If they weren’t connected to a unified energy system, they would have had a few blackouts along the way.

“Where there are things that are genuine no brainers to have a cross border approach, you have to make sure you do that.

“If were to end up with independence energy and climate is one of the key areas where continued collaboration would be beneficial.”

And independence could raise big question marks over how the rest of the UK could achieve its 2050 net-zero goals, given how heavily concentrated renewable generation is in Scotland, says Lord: “If you look at any plausible net zero scenario, it is very heavily dependent on lots of renewables, afforestation, CCS and bio- energy: a lot of that will come from Scotland.

“It looks very difficult. I suspect that Scotland and England pursuing separate net zero strategies would be a lot less efficient.”

Nationalists “definitely” want to maintain as large a network as possible, says MacNeil, who makes the case that independence offers a route for Scotland to re-integrate with the EU’s wider energy market.

“We will be keen to ensure lights stay on in England and do our best not to regress back to the days of the Tilley Lamp.”

However, the way energy co-operation has been side-lined amidst the UK’s fractious break up with its erstwhile EU partners illustrates how base politics can win out when issues of identity are at stake.