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Scotland's Energy - Scotland's Future  

Scotland's energy
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Scotland's Energy — Scotland's Future

a call for action

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Scotland's Energy Industry

The energy industry is one of Scotland's key resources. Three of Scotland's largest companies (ScottishPower, S&SE & British Energy) are in the sector and other major UK companies including Centrica (Scottish Gas) and National Grid Transco have large workforces in the country. Many smaller companies and their staff rely on the industry. It is a major Scottish export, provides high quality employment and makes a major contribution to the Scottish economy.

Scotland's energy industry is under threat. There are less trained people directly employed by distribution and supply companies than during the pre-privatisation period and skilled jobs still continue to be lost in the energy industry. In addition, investment in the UK energy industry is going overseas whilst companies based outside the UK hold more than half the distribution licences. If this picture was not bad enough the so-called regulated, competitive market in the UK has also left consumers utterly bewildered. Despite the energy suppliers signing up to a voluntary code of practice on energy marketing in 2002, reports still continue of staff giving misleading, incomplete and inaccurate advice to energy customers.

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The Energy Bill

The Energy Bill was published by the UK Government in November 2003. It will implement a range of commitments made in the recent Energy White Paper, and the proposals contained in the Managing the Nuclear Legacy White Paper - providing strategic long-term direction to clean up the UK's nuclear legacy. The Energy Bill is expected to receive Royal Assent in the summer of 2004.

The Energy Bill is split into three broad sections. The first deals with the nuclear industry and makes provisions for the establishment of the Nuclear Decommissioning Authority as well as the establishment of a civil nuclear police force (taking over from the UKAEA police). The second section deals with renewable energy sources and includes provisions for setting up offshore facilities beyond UK territorial limits and provisions for their decommissioning at the end of their life. The third section covers energy regulation including the establishment of the British Trading and Transmission Arrangements, designed to bring the energy market in Scotland into the existing market already established in the rest of Great Britain.

Following on from the Energy Review and the Energy White Paper, UNISON Scotland believes that the Energy Bill still shows the government remaining naively committed to liberalised and competitive markets. The bill fails to address the key issue in the Energy Review - Where is Scotland's and the UK's future energy generation to come from? The Energy Review placed far too much reliance on imported gas from what are likely to be increasingly insecure sources in Central Asia. What Scotland needs is a realistic balanced energy strategy.

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BETTA or Worse?

Implementation of BETTA in 2005 will create for the first time, a fully competitive British-wide market for the trading of electricity generation (the wholesale market). Ofgem believes that BETTA will enable more competitors to enter the Scottish wholesale and retail markets, putting increased pressure on prices to the benefit of consumers. Ofgem also believes that these new transmission arrangements will allow Scottish electricity generators improved access to a wider British market to sell their electricity.

Ofgem has long argued for and ultimately justified the implementation of BETTA on a description of the electricity market in Scotland which is unrecognisable by the either the industry or consumers. Currently, Scotland has a competitive electricity market closely linked to the New Electricity Trading Arrangements (NETA) which apply south of the border. This means wholesale prices are essentially the same both sides of the border. It is distribution, transmission and metering costs that account for any difference in price and that is due to geographic and demographic factors. BETTA will have no impact on these issues. In fact UNISONScotland believes that BETTA will not deliver the cost savings to electricity customers that were initially promised by Ofgem when the proposals were announced in April 2001. We believe that the uncertainties about the costs and benefits of BETTA are such that the immediate financial impact of the arrangement may not justify BETTA as a concept.

In the real world, customers in Scotland (as in the rest of the UK) regularly switch suppliers. For example Ofgem's figures show that a third of ScottishPower's electricity customers have switched and many others switch and return on a regular basis. Despite this ‘competition' most customers wish they hadn't bothered. Ministers would do well to ask real customers if they think the competitive market is working. UNISON members deal with thousands of calls every day from confused customers. These customers are bombarded with a bewildering array of marketing ploys and often end up unsure who is providing their energy and without a bill for months. Others are the victims of high-pressure sales tactics and blatant mis-selling. All of these systems and the regulatory empire developed by Ofgem are costing a fortune. Money that would be better spent on Scotland's crumbling utility infrastructure.

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BETTA & Renewable Transmission

A key element of the Energy Bill is the encouragement of generation from renewable sources. Many of the best sites for renewable energy are in Scotland and we already have a better record and more exacting Scottish Executive targets on this issue. However, one of the major difficulties with these targets is the limited transmission capacity.

Probably the only strong argument in favour of BETTA is that the cost of strengthening the transmission network would be shared across the UK, thus encouraging the development of renewable capacity. However, Ofgem is driven by an objective to constantly extend competition and therefore sought to introduce location pricing which encourages the siting of generating capacity close to the demand i.e. in English conurbations. The ‘postage stamp' approach to electricity transmission, sensible though it may be, has no place in the mantra of competition.

Following a review by the Trade & Industry Select Committee the DTI indicated that zonal transmission loss would not be introduced with BETTA. UNISON strongly supports this.

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Renewables

UNISON Scotland believes that any proposal to expand the generation of electricity from renewable sources must be seen in the context of the Scottish energy industry as a whole. This industry is vital to the Scottish economy and is in serious difficulties.

UNISON Scotland is concerned that the Scottish Executive treats renewable energy in isolation to the rest of the industry. Whilst recognising that this reflects the crossover between reserved and devolved powers, joined up government would be preferable. UNISON Scotland supports the expansion of generating capacity through renewable sources with more challenging targets. We believe the Scottish Executive target of 18% renewable generation by 2010 is achievable. It is a modest increase on current generating capacity and well below that planned by other European countries. Currently Scotland ranks only 10th out of 13 in a table compiled by the Scottish Renewables Forum. In addition, it does not require a substantial upgrading of the transmission and distribution networks and could be achieved by utilising proven technology.

However we do not believe the 40% target by 2020 is realistic or achievable. The scope for additional onshore wind power is limited by available sites and likely to be slowed by public opposition. Demands for five-fold increases in contributions from wind farm developers are also unlikely to encourage growth. Other technologies remain unproven and therefore do not, at this time, justify such an optimistic assessment of their potential.

Unrealistic targets for renewables are already diverting government attention from the need to support clean coal technologies (CCT). The level of government funding is totally inadequate. Coal generation will still be required even if the renewable targets are achieved and therefore CCT projects such as that proposed at Longannet should be supported now.

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Fuel Poverty

The latest figures showing a fall in the number of Scottish fuel poor households from 738,000 (35%) in 1996 to 369,000 (17%) in 2002 are to be warmly welcomed. Much credit for this reduction must go to the Scottish Executive's range of fuel poverty programmes. However, it is worth remembering that thirteen years after privatisation fuel poverty still affects an unacceptable high number of Scottish households - almost one-in-five.

And there are other losers. Economically disadvantaged customers have been all but abandoned as energy companies seek to cherry pick the affluent direct debit-paying customer at their expense. More evidence that competitive markets do little for fuel poverty is shown by the appalling figures for debt-led-disconnections released recently by the gas and electricity watchdog, EnergyWatch. Between 2001 and 2003 debt-led-disconnections in Scotland rose from 40 customers a year to over 740 as the energy companies increasingly used disconnection as a means of punishing disadvantaged customers. These figures are disturbing given that the energy companies signed up to the Debt and Disconnection guidelines in 2001 with the intended aim of drastically reducing the number of debt-led-disconnections in Scotland.

UNISON Scotland does not believe that price competition alone is sufficient to assist those in greatest need. Indeed the evidence of fuel poverty and debt-led-disconnections shows that competition has exacerbated long-standing inequalities between low-income groups and more affluent customers. UNISON believes that government support for the mantra of competition must be reviewed along with the Ofgem terms of reference. Without this, solutions will always seek to work with "the grain of the market". What is needed is direct intervention and incentives to encourage good practice.

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The role of Ofgem

Scotland's economy is also a loser. Our energy companies have been forced to incur huge

costs, separating their businesses into ever smaller (and uneconomic) units. Not to mention the confused customers who have to deal with five or more companies to get the simplest job done. The only real gainers have been the logo designers and the sign writers!

Whilst Ofgem focuses on the so-called dominant position of Scottish electricity companies, in the real UK market there is the inevitable consolidation of an ever smaller number of large suppliers. Everyone is forced to seek economies of scale to pay for marketing initiatives and to cut the costs of generation and distribution. Scottish companies attempting to gain scale are faced with unfair competition from European companies who operate in protected home markets. These companies can afford to pay high prices for customers and generating capacity when it comes on the market. As a consequence the UK energy market is rapidly being taken over by German, French and Italian companies.

The harsh reality is that the endless regulatory initiatives from Ofgem have been a costly failure. To cover up these failures Ofgem has championed the BETTA proposals from the outset, indifferent to the fact that the integrated Scottish electricity system had nothing to do with the main issues affecting the wider UK energy industry. We believe BETTA to be just the latest scapegoat for policy and regulatory failure.

UNISONScotland believes that the regulatory ‘settlement' that was made at the time of privatisation is no longer relevant, and that the present regulatory model is now redundant because of the challenges currently facing the UK and Scottish energy industries. Reform of the present regulatory system is long overdue and a system of regulation designed primarily to resolve problems that are not adequately addressed by the market place should be adopted.

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A Scottish Energy Strategy

UNISON Scotland believes that there is scope for the development of a unique Scottish Energy

Strategy within the context of the UK Energy Bill. We believe that it is important for government to remember that Scotland has a distinct energy position within the UK because of its unique integrated electricity industry, different generation structure and the opportunity to develop extensive renewable energy resources. The Scottish Parliament also 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, education and training, economic development and, not least, sustainable development. UNISON Scotland would urge the Scottish Parliament to pursue policies that support a balanced and sustainable approach to energy generation and use, and which promote future investment across the energy sector in Scotland.

We believe a Scottish energy strategy should be based on a planned market for energy combined with security of supply, as well as social, employment and environmental objectives. Key principles should be:

- A balanced electricity generation policy from a number of sources to minimise volatility and ensure security of supply. In the present ‘competitive' market no company will invest in new generation capacity or even modernise existing plant. Security of supply will eventually become a real issue for the UK. The BBC2 If…docudrama vividly illustrated our concerns

- For the foreseeable future, to continue gas and coal generation at current levels, subject to the introduction (with government research support) of clean coal technologies. The dependence on gas (from insecure overseas supplies) envisaged in the Energy Review is unsustainable.

- Given Scotland's current dependency on nuclear generation there is no medium term viable alternative if Scotland is to meet its climate change obligations. However, replacing only the first nuclear facility due for closure should reduce our nuclear dependency. This replacement would also be subject to resolving waste management issues as set out in ‘Partnership for a Better Scotland'.

- There should be an increase in the targets for generating electricity from renewable sources supported by government funding. The Scottish Executive's targets appear to be extremely challenging given the current state of technology, the availability of suitable sites and increasing local opposition to wind farms in particular. Wind and wave power appear to be the most viable medium term options and the necessary transmission infrastructure should be strengthened to support these developments.

- Scotland should aim to continue to produce an energy surplus to export, recognising the importance of the industry in providing high quality jobs.

- Demand for electricity should be reduced by promoting energy efficiency, with new resources for local government and revised targets including new building standards. This should be coupled with a better co-ordinated drive against fuel poverty. Government targets for the growth of Combined Heat and Power should be increased with appropriate support.

- Privatisation and liberalisation of the energy market will not deliver a planned energy policy and has not enabled alternative generation to make a significant new contribution to our energy requirements. The integrated Scottish electricity industry remains the most efficient method of delivering Scotland's energy needs.

UNISON Scotland's detailed contribution to the Energy Review consultation, A Scottish Energy Strategy can be viewed at our web site (http://www.unison-scotland.org.uk/response/energystrategy.html).

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A New Direction

Current energy policy has immense consequences for Scotland. Our energy companies are forced to cut thousands of quality jobs and customers suffer from the worst excesses of liberalised markets. Whilst the Scottish Executive seeks to switch economic development support from inward investment to indigenous companies - UK government energy policy drives our companies overseas. What happened to joined-up government?

By constantly changing the system, the failure of the current regulatory approach is being masked. BETTA is largely an irrelevance in the context of the shambles that is the so-called competitive energy market. That is the issue that urgently needs to be addressed.

The time has come to call a halt and bring some sanity back to Scotland's energy structures. Liberalised and competitive markets are not the panacea that government believes them to be. We need a planned energy policy that provides safe, secure and sustainable generation, which contributes to the economic future of Scotland and eliminates fuel poverty.

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UNISON is Scotland's largest utilities trade union.

For further information on the issues covered in this leaflet visit the UNISON Scotland website www.unison-scotland.org.uk or contact:

Dave Watson, UNISON Scottish Organiser (Utilities), 14 West Campbell Street, Glasgow. E.mail: d.watson@unison.co.uk Tel: 0845 355 0845

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