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Meeting of the Parliament 29 March 2012

29 Mar 2012 · S4 · Meeting of the Parliament

Item of business

Local Energy Companies

Ewing, Fergus SNP Inverness and Nairn Watch on SPTV

We clearly and explicitly want to encourage communities to own renewables schemes. There is no dubiety about that so far as I am aware. That is the best model—in which there is ownership, and not just the receipt of a cheque, albeit a bigger cheque than used to be the case, because the tariff is now moving up to £5,000 per megawatt. The best model—the one to which we aspire—is one in which communities have a stake in the ownership, such as Falck Renewables in Fintry. We want Scotland’s communities to benefit as owners and not just as recipients of cheques, no matter that that in itself creates great benefit. Once again, Mr Harvie and I are in agreement.

Our community and renewable energy scheme will provide some £25 million over the next three years to support community and locally owned renewables projects across Scotland.

The SFT and COSLA have been working to highlight examples of public sector involvement in renewables and the main commercial structures for local authorities to take forward those schemes. We welcome that work and we will support it where possible.

However, the suggestion that local authorities should form local energy companies to enter the energy wholesale market is a different matter. It raises a challenging and complex set of issues, in which market participants take on significant contractual and financial liabilities and are exposed to significant market and financial risk. That is extremely uncomfortable territory for public sector bodies on fixed budgets, which, they tell us, are already stretched to the limit.

The market is challenging for new entrants. The vast majority—up to 90 per cent—of wholesale electricity market trading happens between generation and supply businesses in vertically integrated companies: the big six are SSE, Scottish Power, RWE npower, EDF Energy, Centrica and E.ON. The remaining over-the-counter business happens either through third-party brokerage or on trading platforms for electricity products—power exchanges—where there are membership fees and other requirements. The key point is that taking part in that market demands that challenging credit and collateral requirements are met. Market participants must be able to access and agree credit, the cost of which fluctuates proportionately to their perceived capability to manage risk. They must post collateral as security for their trading activities and must have the institutional capacity and capability to understand how the market works. They must also properly resource their risk—that is essential in protecting consumers from the unacceptable costs of short-term or irresponsible trading and from a market player going bust. It is not an attractive proposition for a local authority.

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Meeting of the Parliament 29 March 2012

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