Scotland's
Energy — Scotland's Future
a call for action
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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Scotland's
Energy - Scotland's Future 