Scottish Energy Strategy

UNISON Scotland's contribution to the Energy Review consultation

March 2002

Executive Summary

UNISON Scotland supports the development of a Scottish Energy Strategy within the context of the UK review. 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. In addition there is a split in responsibility for energy issues between the UK and Scottish Parliament.

UNISON Scotland believes that 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. The strategy should be based on the following principles:

• A balanced electricity generation policy from a number of sources to minimise volatility and ensure security of supply.
• For the foreseeable future a continuing role for gas and coal generation, subject to the introduction (with government research support) of clean coal technologies.
• Given Scotland's current dependency on nuclear generation there is no medium term viable alternative to nuclear if Scotland is to meet its climate change obligations. However, replacing only the first facility due for closure should reduce our nuclear dependency. This replacement would also be subject to resolving waste management issues.
• There should be an increase in the targets for generating electricity from renewable sources supported by government funding. 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 a surplus of energy for export, recognising the importance of the industry in providing high quality jobs.
• Demand for electricity should be reduced by the promotion of 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.

• The 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.

Introduction

There is a wide ranging debate in Scotland and the UK over future energy policy. This reflects the challenges governments across the globe are facing as they attempt to counter the effects of global warming, and is also set against a background of important changes that will affect the future supply of energy in Scotland and the UK.

To consider long term UK energy requirements, the Government has published the PIU Energy Review (www.piu.gov.uk). This is not a statement of policy but rather a contribution to the debate on how to best meet future energy needs. There will be a further period of consultation leading to a UK government White Paper this autumn.

UNISON Scotland supports the development of a Scottish Energy Strategy within the context of the UK review. 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. In addition there is a split in responsibility for energy issues between the UK and Scottish Parliament.

UNISON is Scotland's largest trade union and is a major union in the energy industry. This paper sets out our position in this debate and follows consultation with our members in the industry and in the wider community who have a legitimate interest in this policy area affecting as it does the nation as a whole.

Background

Climate Change

The challenge of global warming and the UK's commitments under the Kyoto Protocol mean that the UK has to reduce its emissions from a basket of gases. Methane, nitrous oxide, sulphur hexafluoride, perfluorocarbons, hydrofluorocarbons, as well as carbon dioxide by 12.5% below 1990 levels by 2008-12, and the government has set itself a domestic target of 20% below 1990 levels by 2010.

The government therefore has to look at how it can provide sufficient, affordable energy whilst meeting its Kyoto targets. It will need to change the way energy is supplied, decrease demand by making more efficient use of energy, bringing in new technologies and changes to the whole infrastructure of the industry. Major programmes are being introduced to promote the development of renewables and increase energy efficiency.

However, with our current nuclear power stations (which produce low carbon energy) due to decommission on the next 10 - 20 years, our emissions could begin to rise again.

Changing Global Conditions

Until a year ago the UK had plentiful energy supplies, there was ample capacity and infrastructure and prices were falling. This outlook changed with the sharp increases in oil and gas prices, the petrol crisis, the recent electricity crisis in California (which had a 20% overcapacity 6 years ago) and forecasts of a less balanced fuel mix.

At present the UK has a good balance of energy from coal, gas and nuclear, plus a small amount of renewables. In recent years the trend has been to move away from coal burning to mainly gas fired power stations, and this, coupled with the nuclear station decommissioning will leave gas as the major fuel for electricity production. North Sea gas and oil production is due to peak in 2005, which will lead us to become reliant on gas imports as early as 2006/7. While this is not seen as a particular problem at present, it does raise questions about the security of supply that have not been evident in the UK for the last few decades.

Electricity Trading Arrangements

From April 2001 the previous "pool" of energy has been replaced by the New Electricity Trade Arrangements (NETA). This change has come about as a result of the Utilities Act and is essentially a bi-lateral commodity trading system. The aim of the new arrangements is to create greater competition in the electricity market. There has been a period of settling down to the new arrangements with no certainty as to the likely impact on long term energy prices. Energy price is a key determinant for investment in new generating capacity.

Scotland has its own wholesale trading system reflecting the vertical integration of the Scottish market at privatisation. The energy regulator Ofgem has a long-standing hostility to the Scottish system that in UNISON Scotland's view is unjustified. Ofgem is therefore planning to move to a new system of British Electricity Trading and Transmission Arrangements (BETTA) in 2004 subject to the Westminster parliament passing the necessary primary legislation.

Electricity Generation in Scotland

The electricity industry in Scotland is mainly composed of two companies, ScottishPower and Scottish & Southern Electric which each generate, transmit, distribute and supply electricity within their respective areas. In addition, British Energy, which is primarily a generator, sells most of the electricity it generates at its two nuclear power stations at Torness and Hunterston ‘B' to Scottish Power and Scottish & Southern, under the Nuclear Energy Agreement signed at the privatisation of the industry. ScottishPower is currently challenging this agreement in the courts.

At present Scotland has a wide mix of energy generation, including nuclear (Torness and Hunterston ‘B' and a small BNFL plant in Galloway), gas (Peterhead), coal (Longannet and Cockenzie), hydro and a limited amount of wind power, in the following proportions (figures 1999/2000):

ScottishPower and Scottish & Southern are both subject to government targets for reducing carbon emissions and will both have to aim for the target of 18% of their output coming from renewables by 2010 under the Renewables Obligation (Scotland) announced by the Scottish Executive.

Scottish & Southern has been undertaking a £20m refurbishment programme on its larger existing hydro stations throughout Scotland, adding between 5 and 10% to the efficiency of each plant. It has recently announced that it is considering sites for new hydro capacity, either a medium 30-megawatt plant or a larger 100-megawatt project. New dams will undoubtedly raise environment concerns.

Until last year there were fears that the larger existing stations between 10 and 50 MW would not be eligible for support under the Renewables Obligation Scotland or qualify for exemption under the Climate Change Levy, and the refurbishment programme ceased. However, in July 2001 the Scottish Executive announced that support would be extended to older stations up to 20 MW and new build of any size, resulting in the refurbishment of a further 30 stations.

The DTI is also to increase funding of research and development into hydro generation.

In addition, both companies are to use Scotland's wind resources by starting to build wind farms. Scottish Power so far has three small capacity wind farms in Scotland and has recently announced plans to build two more at Eaglesham Moor and Black Law Mine in Lanarkshire. The Eaglesham project that will be the largest in Europe should increase the whole of Britain's wind power capacity by 60%. Scottish & Southern Electric so far have one farm in Argyll and there are three run by National Wind Power (a subsidiary of Innology). Several small independent companies are also entering the market. These will all be assisted by the announcement that Vestas, the leading Danish wind turbine company is to commence manufacturing in Machrihanish, in Argyll.

Scottish Power has plans to move into offshore wind farms. In April Crown Estates which owns the UK seabed announced 18 new sites for offshore development, including one in the Solway Firth. Offshore developments experience better wind conditions, lower turbulence, cost less and have low environmental impacts than onshore wind farms.

Very little investment has been carried out on tidal and wave power so far, with only one small plant operating off Islay. However, the Scottish Executive recently unveiled plans to provide funds for the Scottish Marine Energy Test Centre in Orkney, which will assist in evaluating technology for power from marine sources. In a linked arrangement the DTI have provided £1.6m for Wavegen to build a mini-power station off Stromness.

Scotland is starting to utilise energy from biomass sources. One new plant has opened in Fife that manufactures energy from poultry litter. There is a project in Barony Colliery in Ayrshire which aims to grow willow energy crops, using West of Scotland Water's waste products, with the aim of attracting a multi-million pound biomass power station development, hopefully in the Barony Colliery area, since it is a potential location for the development. Scottish Power and West of Scotland Water also have a new development to produce granules of waste derived fuel for burning alongside coal at Longannet Power Station.

From the above description of the industry in Scotland it can be seen that in addition to the structure of the industry our generation capacity could differentiate our energy policy from the rest of the UK.

These generation issues include the heavy reliance on nuclear power which along with our coal stations have a limited life span. A strong capacity for renewable energy and the opportunity to develop this further. Scotland has also been a traditional exporter of energy and this has supported the Scottish economy and provided significant high quality employment.

Generation Options

Renewable Energy

Renewable energy is the creation of power from the natural energy flows of the planet, achieved by using the wind, waves, solar heat and light and the energy of plants (called biomass energy). Renewable energy is a devolved matter and on 3 August 2001 the Scottish Executive committed Scotland to deliver 18% of its energy from renewable sources by 2010 (10% for England and Wales).

Wind Power: The UK (and Scotland in particular) has the biggest and best wind resource in Europe (23%) yet is one of the lowest users. The potential for development of wind technology, both onshore and offshore is massive. It is estimated that the potential for offshore wind power alone is greater than the UK's current generation capacity and output. A number of Scottish companies including British Energy and ScottishPower have taken advantage of government grants to develop off shore wind farms although most opportunities are in England as our coastal waters are too deep and wind speeds too high. ScottishPower is a major developer of onshore wind farms including new facilities at Hare Hill and a proposed farm on Eaglesham Moor. In the USA ScottishPower takes the output from the world's largest wind farm (300MW) in Oregon.

Hydro Power: Until recently, only new, small hydro power schemes were designated as renewable energy, but this has now been altered to include larger, existing schemes. This remains an important contributor to Scotland's generating capacity with some scope for expansion as highlighted above.

Tidal and Wave Power: The UK has some of the biggest wave and tidal power resources in the world but again has not begun to exploit them on a significant scale. The world's first tidal energy device (Stingray) is to be deployed off Shetland this summer supported by a £1.1m grant from the DTI. Wavegem is also planning to manufacture its wave power systems at Stornoway. Major capital investment in generation and transmission facilities would be required to introduce this form of power on a large scale.

The DTI are also studying the possibility of an underwater transmission cable linking Scotland's west coast to major population centres.

Biomass Energy: Biomass energy utilises material from crops, wood, waste to produce fuel. The UK has developed leading technologies such as gasification and pyrolysis, and great potential is envisaged. However, due to long term growing periods for the material, a guaranteed market would be needed.

Solar Power: Harnessing the power of the sun is a very important source of energy in much of the world, but so far has not been much used in the UK to any treat extent. However, trials are underway in the UK to assess viability for this form of energy.

Nuclear Fusion: Research programmes are underway across the globe to try and capture and utilise the nuclear forces that heat the sun. Taming this resource could solve all the world's energy requirements for an indefinite period. Scientists believe this technology is within reach, although research is still at an early stage.

Other Low-Carbon Energy Options

Cleaner Coal Technologies: Despite the recent change in the ratio between coal burning and gas fired power stations there is still coal being produced in the UK and cheap, plentiful imports are available. Longannet Power Station uses coal that has a low sulphur content ‘sweetened' by other supplies. Cockenzie operates within existing emission limits but will need significant investment if current capacity is to be maintained when new emission limits are introduced.

In June 2001 the DTI announced a review of the case for government support for CCT research including demonstration plants. In addition to providing a reliable form of energy generation CCT could contribute to the sustainability of energy world-wide through sales to developing countries such as India and China.

Carbon Sequestration: One of the options for producing cleaner coal and other fossil fuels is to capture and store the carbon underground, thus providing carbon-free fuel. Again technology is being tested for such schemes.

Energy Efficiency: Industrial energy consumption in the UK has fallen by 43% since 1970 whilst industrial output increased by 50%. However, domestic consumption increased by 85% during the same period.

Energy efficiency reduces the demand for energy. A wide variety of schemes exist in Scotland operated by the public, private and voluntary sectors. Local authorities have particular responsibilities in this field through HECA. This issue is closely linked to measures to alleviate fuel poverty, a campaign actively supported by UNISON Scotland. The UK and Scottish governments have published a fuel poverty strategy which places a high priority on energy efficiency.

Energy efficiency standards for equipment and buildings could be made much tighter encouraging investment in new technologies. Countries such as Holland levy 2% on the price of gas and electricity and then invest that money to achieve a 20% target reduction in carbon emissions. Similar schemes in the UK are at a much more modest level.

Combined Heat & Power (CHP): CHP utilises the waste heat created when generating electricity. Schemes utilising CHP have up until recently been used in industry and commercial applications, but tests are being carried out to assess its potential for domestic use. CHP dramatically increases the efficiency of such plants. However, there are price disincentives to the development of CHP in the UK and few planning incentives. Despite this Scottish companies including ScottishPower have invested in these systems.

Nuclear Power: Current government policy on nuclear power has been for existing stations to continue to operate so long as it is economic, safe and environmentally acceptable for them to do so. Nuclear power produces neither carbon nor any of the other greenhouse gases so is at present a carbon-saving form of fuel. Nuclear power can also add to the security and diversity of energy supplies the government is aiming at.

However, the are strong arguments against nuclear generation from a wide section of the public. They argue that is too expensive to produce (the UK's last nuclear reactor cost £2.3bn to build) and that disposal of nuclear waste is still unresolved. It would add considerably to the unit cost of production if it had to be borne by the generators, and consequently there is considerable hostility and scepticism from the public. Solving the waste disposal problem would counter some of these concerns and a consultation paper on this issue has been published.

The issue has been addressed in Finland, and the industry hopes that similar progress can be made in this country.

At current electricity prices new nuclear plants in the UK are uneconomic without government support. The nuclear industry argues that this could come in the form of an extension of the existing Renewables Obligation and other fiscal measures which recognise the non-carbon emitting basis of nuclear generation.

Proposals being put forward by BFNL and British Energy (Scottish Nuclear) which produces Scotland's nuclear energy, are to replace existing UK nuclear capacity by building stations on the site of existing stations. Seven sites have been identified including Hunterston and Torness. These would be much cheaper and quicker to build (Dungeness in Kent took 10 years to build) and would slot into the gridlines currently in place for the existing plants. British Energy believes that the logic would be for, say, a new Hunterston ‘C' to be ready and waiting for when Hunterston ‘B' in Ayrshire closes, using the same transmission lines and, more importantly, the same labour force, within a community that has accepted nuclear power for many years.

These proposals would, however, be opposed from environmentalists who would be concerned that any subsidies for the development of new nuclear stations would be taken away from funds for research on renewables.

Developing a Scottish Energy Strategy

It is clear that over the next few decades the supply of electricity in Scotland will change beyond all recognition. There is much in the PIU Energy Review which UNISON Scotland could support. The recognition of the need to make carbon reductions, long term incentives for investment, keeping generation options open and the promotion of renewables and energy efficiency.

However, we believe the review is complacent about the dependence on gas and the security of gas supply. The view that competitive markets will continue to be central to energy policy is also in our view misplaced. Whilst competition appears to be the government's answer to everything it does not address the real need for a planned energy strategy for Scotland. Competition has brought major disruption to the industry in Scotland without commensurate benefits.

Research produced for UNISON shows that price decreases have resulted from other factors, which would have occurred without privatisation. Instead we have a confused consumer and a regulatory bureaucracy which is undermining the Scottish economy. Not to mention the massive job losses which continue to undermine growth.

UNISON Scotland remains opposed artificial separation of the electricity industry in Scotland as directed by Ofgem. The Scottish model of an integrated system has served Scotland well over many years and Ofgem fails to make a convincing case for destroying this system. Ofgem appears to simply bow to commercial pressure from England to have a standard UK system. Splitting the businesses will result in an inevitable increase in costs with no improvement in service to the customer. Essential economies of scale will be lost and investment will go abroad. The management expertise gained in operating as an integrated business has been a factor, in the worldwide growth of Scottish energy companies. A further example of how Ofgem's approach is damaging the Scottish economy. We believe the attitude of Ofgem towards the Scottish electricity industry strengthens the case for statutory responsibility for electricity regulation to be transferred from Westminster to the Scottish Parliament.

The key issue is the replacement of the 50% of Scotland's energy, which is generated by the nuclear industry, and the 19% generated by coal. If one or both of the current nuclear stations are not replaced the shortfall has to be made up in some other way. If it is not Scotland will cease to be an exporter of energy and then become a net importer of electricity. Security of supply and a California type problem could be a real issue.

Some argue that as Scotland is a net exporter of energy we can afford to reduce capacity. The same organisations do not argue for a reduction in other industries that produce more than Scotland uses. Should we close electronic plants or whisky distilleries? Of course not. Like the electricity generation industry they provide significant numbers of high quality jobs which are essential to the Scottish economy.

The decommissioning of the nuclear power stations will lead to a loss of jobs, if there is no decision taken to replace those currently operating. Likewise, any run-down of coal-fired plants could also jeopardise the number of jobs required. Renewable energy is being heralded as creating jobs, but these will mainly be in the construction industry, and will not replace the amount of staff required to run the large power stations.

Energy efficiency and the problems of fuel poverty are also inextricably linked to this issue and have a particular impact on UNISON members' and their families. UNISON's response to the Fuel Poverty Strategy has argued for stronger powers and resources for local authorities to promote energy efficiency together with greater co-ordination of services. There also needs to be more ambitious targets particularly for new buildings.

However, it is doubtful that energy efficiency and renewable energy can completely bridge Scotland's looming generation gap, at least in the medium term. Actual capacity is very low and whilst there are exciting possibilities which should be supported, security of supply must be our highest priority. This means that we have to support proven technologies that are consistent with sustainable environmental and economic objectives.

There are sufficient gas supplies in the North Sea supplemented by secure European supplies to sustain gas generation in Scotland at current levels for the foreseeable future. Coal plant has already significantly reduced sulphur dioxide emissions and CCT could enable Scotland's coal stations to operate at around existing capacity well into the future.

We recognise that Scotland is over dependent on nuclear power and with appropriate support renewables should begin to replace that capacity. However, we see no prospect of renewables being able to generate 50% of Scotland's current capacity by the time Hunterston and Torness are likely to close in 2016 and 2029 respectively. This means that Hunterston C should be built in time for the closure of Hunterston B. By the time a decision has to be reached on a replacement for Torness we should be able to judge the actual generating capacity of renewables more effectively. Any new build will also have to be conditional on resolving the issue of nuclear waste.

The above mix of generation sources coupled with a renewed drive to reduce demand through energy efficiency would provide a sustainable and balanced energy policy for Scotland.

Conclusion

The electricity industry is vital to Scotland both as a provider of essential power and as a contributor to the wider economy. In this paper we have sought to explain some of the often difficult choices that face us in the context of UK energy policy and Scotland's unique position.

We have reached certain conclusions based on the practical alternatives that are available to replace the existing generation mix. We do however recognise that the debate is still fluid and new options will become available as the technology and market circumstances change.

UNISON Scotland also believes that government policy should be based on key principles including balanced generation, security of supply, environmental sustainability and a recognition that market liberalisation is no substitute for a planned energy policy.

For further information please contact:

Matt Smith, Scottish Secretary
UNISON Scotland
UNISON House
14, West Campbell Street,
Glasgow G2 6RX
Tel 0141-332 0006 Fax 0141 342 2835

e-mail matt.smith@unison.co.uk

www.unison-scotland.org.uk