Address to the Scottish Renewable Conference 2014
Edward Davey speech to the annual Scottish Renewable Conference.
Introduction
It’s great to be back here at the Scottish Renewables Conference.
It feels like I’ve never really been away.
Since we last met my Ministerial team and I have been getting around Scotland.
Visiting new energy projects.
Seeing the incredible progress being made in Scottish renewables.
Generating electricity for the grid, powering people’s homes.
I had the great pleasure of opening the Natural Power Wind Control Centre in Dumfries and turning on the Burnhead Hydro scheme.
Greg Barker has been here helping you pursue the goal of opening up marine energy in all its forms.
And just last week Michael Fallon was flown over Whitelee so he could appreciate the sheer scale of what you are achieving.
Scotland is fast becoming a world energy hub – not just in oil & gas, but in renewables too.
Being here with you is business as usual for me.
And for Scottish Renewables, business as usual means investment and progress.
And I want to celebrate that today.
But I know that some of you are nervous about the regulatory change that is coming with the move from the Renewable Obligation to Contracts for Difference.
So I want to talk about the stability the new regime will bring.
And the Scottish people are also facing a historic choice on independence in September.
This has the potential to fundamentally change the integrated energy system our United Kingdom has enjoyed for so long.
So I want to make the positive case in energy for Scotland to remain part of our family of nations.
But let me start with the progress being made.
Progress
Last year when I spoke here, the latest figures showed Scottish renewables were providing enough electricity to meet roughly 35% of Scotland’s consumption.
That has now increased to 40%.
A third of all renewable generation in the UK is now in Scotland.
As a whole the United Kingdom is making phenomenal progress.
The latest figures show that between the third quarter of 2012 and the third quarter of 2013, renewable electricity generation is up 20% on the previous 12 months.
Together we are now around half way to our ambition of meeting 30% of the UK’s electricity needs from renewables by 2020.
And my prediction is, that with the framework we are putting in place, we’ll do even better than 30%.
Bloomberg figures show average annual investment in renewables has doubled since 2010 compared to the previous 5 years.
And last year almost £8bn was invested in renewables – a record high.
This record is in stark contrast with the rest of Europe, where renewables investment halved between 2012 and 2013.
I’ve been able to boast with my European colleagues about how the UK has become Europe’s renewable investment hotspot.
Many on the continent are casting envious glances our way.
And the pipeline is looking very healthy.
My Department’s planning database shows that Scottish renewables projects set to generate 5GW have been consented, worth around £4bn, supporting over 4,000 jobs.
These include the Dorenell Wind Farm in Moray which is estimated will generate at least £93m in direct benefits for the Scottish economy.
And the Speyside Biomass Combined Heat and Power Plant at the MaCallan Distillery, which would represent an inward investment of £60 million to the local area.
A further 9.7 GW of Scottish renewables projects are currently in the planning system worth over £10bn, supporting almost 8,000 jobs.
These include the Inch Cape Offshore Wind Farm set to support up to 1,600 Scottish jobs during construction.
And the Kype Muir Wind Farm that would see contracts worth up to £20 million placed with local businesses.
This whole positive picture is down to your hard work - our hard work together.
So the challenge is to maintain this momentum as the regulatory picture moves from the Renewables Obligation to Contracts for Difference.
So let me turn to the stability and certainty we are bringing under the new regime.
Energy Act 2013
When I was with you here in Edinburgh last year, the Energy Bill was just starting its passage through Parliament.
Now it is law.
It passed through the Westminster Parliament with the active support of the Labour opposition.
And all six SNP MPs voted in favour at its crucial third reading.
This sends out a strong message.
There is a consensus on the continued deployment of renewables across the UK.
This legal, financial and political framework is designed to last.
Not just for the next few years, but it reaches out ten, twenty, thirty years into the future.
Certainty, stability, predictability.
By creating, the world’s first low carbon electricity market, we are going green at the lowest cost.
Demonstrating that carbon reduction and economic growth can go hand in hand.
We estimate that the new framework has the potential to support investments up to 2020 of at least £40 billion in renewable electricity generation projects alone.
I know that the CfD auction process is of particular interest to you.
Following formal and informal consultations over the last 6 months, we have developed a CfD allocation approach based on confidential sealed-bids.
Auction design is now being developed.
We intend to publish further detail in the Spring and the allocation framework will be published in advance of the first round.
So, our design will prevent so called bed-blocking and ensure confidentiality - and as we have done throughout EMR design, we will listen to you
Public support for renewables remains high with only 1 in 20 voicing opposition.
But to maintain public support we must continue to show that this vision of a competitive low-carbon market will keeps bills as low as possible as we decarbonise.
We need to provide certainty, stability and fair returns for investors, generators and suppliers.
But we also need to provide affordability and value for money for consumers.
Ultimately, you know as well as I do, that renewables must reach grid parity.
In a world where carbon is properly priced.
Within a reformed EU ETS, Europe’s carbon market, subject of this month’s European Council.
Costs are already reducing.
By three-quarters in raw solar PV costs over recent years.
Support rates needed for onshore wind dropped 10% last year.
And the offshore wind industry has set out a clear pathway for cost reduction.
But to see further cost reductions we continue to need a real commitment to innovation.
The affordability of existing technologies needs to improve and new technologies need to become commercially deployable in the future.
That is why I am pleased to announce today a £2.7m grant award to 2-B Energy to take forward their two-bladed turbine design that has the potential to reduce offshore wind costs by up to 35%.
I will do everything I can to help you with the process of cost reduction.
Because I recognise the huge and complex issues you face.
And we continue to work closely with the Scottish Government and others to explore where we can make a difference.
For instance, we have recognised the particular challenges of harnessing renewable resources on the Scottish Islands.
That is why we announced a higher strike price for the islands.
And I will do everything I can to continue to drive investment into renewables.
To help Scotland’s renewable industry, along with industry in other parts of the UK, to realise its potential.
To maintain energy security as we transition to a low-carbon economy.
And to help the household across the whole of the UK by using competition to keep prices as low as possible.
And that brings me to my final point today.
Scotland in the United Kingdom
In September, people in Scotland will take one of the most important decisions in our shared history.
Whether to stay within the United Kingdom family.
Or whether to divorce and go it alone as an independent state.
I don’t have a vote in this.
But it is right, that as a UK Government Minister, I continue to set out the case for our United Kingdom.
I have no doubt, that with the talents of its people, and its natural resources, Scotland could make a go of it, alone.
But the United Kingdom is greater than the sum of its parts.
When it comes to energy, the positive case for Scotland in the United Kingdom is simple.
The size of the United Kingdom protects Scottish consumers from the full costs of Scottish power generation.
In the United Kingdom, Scotland’s households pay less than they would in Scotland alone.
Why?
Because, the UK’s integrated energy market is ten times larger than that of Scotland’s alone.
Scotland has a tenth of the households in the UK as a whole.
But over a quarter of all UK support for renewable generation goes to Scotland.
These costs and subsidies are spread out over all 27 million households, not just Scotland’s 2.5 million.
If Scotland were to choose to go it alone, maintaining this level of support would take up a greater proportion of national finances.
Meaning either higher taxes, higher energy bills or cuts in other areas.
Welfare, housing, education, health, defence - maybe losing out.
As a United Kingdom, we act as a family.
Those who need more, get more, supported by the whole.
For instance, in recognition of the lack of transmission infrastructure particularly in remote parts, almost 30% of the investment earmarked for upgrades to the British transmission grid over the next 7 years is to be spent in Scotland – over £6bn.
This is business as usual in the United Kingdom.
It’s the way we do things.
It’s natural.
We don’t tot it all up on a per capita basis.
Instead everyone across the UK pays their fair share.
And the money goes where the money is needed.
Where it will be used best on behalf of all the citizens of the UK.
So the positive case for Scotland’s energy future in the UK is the protection of the integrated market.
Sharing support, sharing benefits and sharing costs.
Scotland alone
But this positive case also leads to the negative.
We are an integrated, border-blind, market.
What happens if there is a border?
Look, I have no doubt that we would continue to trade energy with an independent Scotland.
But net electricity imports from Scotland make up only about one twentieth of demand in England and Wales.
Around 4.5%. A very small proportion.
With a border in place, the integrated market will not be sustained in the same form.
We would have to strike a new deal.
I have experience in negotiating cross-border energy deals.
And believe you me, it is incredibly complex and difficult.
And throughout the whole process I keep foremost in my mind the interests of the UK taxpayer and UK consumer.
And where the UK benefits in terms of jobs and economic and industrial growth.
Negotiating post-independence energy contracts would be no different.
I would put the interests of the UK first – a UK then without Scotland.
The Scottish Government asserted in today’s Scotsman that “England and Wales will continue to need and pay” for Scottish renewables regardless of the cost and there would be no taxation issues at all.
But let me be frank.
There can be no guarantees about how much or at what price the UK will trade energy with an independent Scotland.
Because there are no guarantees about how much electricity from an independent Scotland will actually cost.
Scotland alone would need to find the £6bn required to upgrade Scotland’s transmission grid.
Scotland alone would need to subsidise its remoter parts.
Scotland alone would need to pay for the Scottish Government’s ambition to meet 100% of Scotland’s domestic electricity consumption from renewable sources by 2020.
All of these costs would fall to the Scottish consumer or Scottish taxpayer without being shared across the whole of the current UK base.
It will be much harder for a nation having to spread these costs of across the small Scottish base to keep green energy prices competitive.
And it is at this point that our trade would begin.
When looking to import electricity, the UK would consider rationally which sources provide the cheapest and most reliable options for our people.
Scotland will go onto a list of all the places in the open market the UK can buy power from – wind from Ireland, geo-thermal from Iceland, Hydro from Norway.
And don’t underestimate the renewable potential yet to be tapped in England, Wales and Northern Ireland, including offshore wind and tidal.
The Scottish Government can assert that UK consumer would continue to subsidise the costs of Scottish renewables and buy Scottish electricity to meet renewables targets no matter what the cost.
But this goes against all commercial logic.
At some point they are going to have to face up to the fact.
Independence means independence – not a continuation of business as usual.
Conclusion
You know, I was up in Peterhead last month to celebrate the funding for the next stage of the Carbon Capture and Storage project there.
If we can develop CCS as a viable commercial proposition, our energy future, the world’s energy future and the future of our climate, becomes that little bit more secure.
These things should not be trivialised.
But Alex Salmond’s response was to accuse me of trying to ‘bribe’ the Scottish people ahead of the referendum.
But I don’t see everything through the lens of independence.
I see success and I celebrate it.
Whether it is in Scotland, England, Wales or Northern Ireland.
That is why I’m here today to celebrate your success.
Scottish renewables, just like renewables in other parts of the United Kingdom, are an integral part of our vision for a low-carbon future.
The wide cross-party agreement we have reached through the 2013 Energy Act puts in place the legal and fiscal framework that supports this vision for the decades ahead.
I am confident, that as we work through the process of implementation, we can maintain the momentum.
Investment, consent, construction and generation.
Scotland – a world-leading renewables energy hub.
The United Kingdom – the best place to do business.
Our citizens – reaping the benefits of the home-grown green energy revolution that you are driving forward.
ENDS