Hansard

I introduce David Rennie, Colin Imrie and Sue Kearns. Jamie Hume will undoubtedly be here—I suspect that the vagaries of ScotRail have snarled him up.I welcome the opportunity to contribute to the committee's energy inquiry. As members will have discovered, this is a complex area. I am grateful for the debate and data that the committee has generated to date. I apologise for the length of my statement, but it is vital to have it on the record. As members know, the issue is heavily nuanced and involves a great deal of detail.I have read much of the evidence that has been presented to the committee and am aware that it has had a lively and well-informed discussion on Scotland's energy future. I hope that, at the very least, the committee and the Government agree on the importance of the subject to Scotland's future, to our energy-led economic recovery and to our world-leading low-carbon ambitions on climate change.Energy is vital to keeping Scotland's businesses, hospitals and schools running and, in the case of businesses, competitive; to heating our homes; and to transporting goods and people. The energy sector is vital to Scotland's economy not only in terms of jobs, current production, security of supply and consumption but in providing Scotland with opportunities to develop and deliver the energy technology and systems that will help to meet worldwide climate change and energy security challenges. We do not underestimate the scale of the opportunities that exist, which are enormous.As the committee knows, Scotland has remarkable renewable energy resources—up to 25 per cent of European offshore wind and tidal resources and 10 per cent of European wave resources. Overall, Scotland has the potential to deliver up to 60GW of renewable electricity resources. As members know, Scotland is already a net exporter of electricity, and it has the potential to become a major exporter of renewable electricity to the rest of the United Kingdom and further afield. That is not to mention the fact that we are exporting oil and gas. Our remarkable renewable resource can be harnessed, along with associated technology and research and development gains, to stimulate both economic growth and recovery.In addition, with some 5.5GW of renewable capacity currently installed, consented to or under construction, Scotland is already well placed to exceed the 2011 target for 31 per cent of gross consumption to come from renewable resources. As the First Minister was pleased to announce at the beginning of May, Scotland is well placed to lead the UK and Europe on the development of carbon capture and storage, with the northern North Sea as Europe's largest potential carbon store. The list that I have given is not exhaustive, but it is vital that industry, Parliament and Government work together to seize the opportunities and to address some of the significant challenges, so that we realise the shared ambition of a vibrant, diverse and sustainable energy sector that contributes to our objective of achieving sustainable economic growth while meeting renewable energy targets and addressing climate change.We recognise the importance of Scotland working in partnership with our neighbours in the rest of the UK, Ireland and Europe to take the agenda forward. We have much to learn from other countries, but also much to offer in resources, skills, knowledge and technology. We are aware that, for Scotland fully to meet its ambitious low-carbon energy targets, it must play a full and active role in the UK and the European Union. The saltire prize and the new Scottish European green energy centre are examples of our readiness to lead international developments in sustainable energy.Despite the difficult times that are affecting us all, our aim remains unchanged. Energy will play a central role, not only in delivering sustainable economic growth, but in driving our economic recovery.As the committee will be aware, on 2 February the Cabinet Secretary for Finance and Sustainable Growth outlined 10 pledges on energy policy, to deliver a succinct and clear agenda for the sector. Today, I have published a detailed road-map for delivery, and have set out in detail how we will deliver each of the 10 pledges in a key sector report that has been sent to the committee.The pledges give a clear, targeted and coherent approach to addressing the main energy issues in Scotland, and they give focus to the efforts of Government and its agencies. The pledges are focused on addressing both short-term and longer-term opportunities for Scotland to develop a competitive advantage and thereby contribute to economic recovery and growth and to addressing climate change. Together, the pledges represent a key component of the Scottish Government's economic recovery programme.The key issues that are addressed in the pledges include: implementing action plans on renewable energy, renewable heat and energy efficiency; supporting clean fossil fuel technologies; the development of subsea grids; developing our oil and gas sector; and leading in green energy through the saltire prize and the Scottish European green energy centre. The overall aim is to deliver a low-carbon economy with a high-growth approach, which will have the potential to create thousands of green jobs in Scotland. We are already working to lay the foundations for economic success by investing in Scotland's natural capital and in our world-leading skills base for a greener future—a greener deal for Scotland.I have outlined the opportunities, but I also mentioned significant challenges that we are trying to address. In addition to the 10 pledges, I therefore want to focus today on three key issues: transmission charging; the energy opportunity; and, finally, how we see the delivery of energy efficiency in Scotland.We acknowledge that we face challenges in realising our energy potential. One challenge lies in ensuring that our existing and future transmission grid infrastructure is fit for purpose, with fair charging and balancing systems, and with a regulatory approach that encourages the development of a balanced mix of generation. There will be a significant emphasis on encouraging renewable energy in Scotland, which will be essential if we are to meet Scottish, UK and, indeed, EU renewable energy targets. In our view, the charging systems for electricity generation need to reflect the priorities of today and the future, rather than the priorities of yesterday.I know that the committee shares some of my concerns. The committee will be aware that the current application of locational charging for grid access levies higher charges on the generators that are furthest from the main centres of demand. The committee will agree that that represents an in-built bias in the UK regulatory system against Scotland-based generation. It does not reflect fundamental shifts towards having more generation from renewable sources, setting renewable energy targets, and addressing climate change by means such as carbon capture and storage. Accordingly, we have made the case for an alternative transmission methodology that is based on a flat-rate charge for all generators, irrespective of where they connect. We will continue to press that case, and we invite the committee to support the Government in that regard.The committee is also aware of current proposals to introduce a locational approach to balancing constraints, and specifically to target constraints costs on Scottish grid users. The proposals have been instigated by the Office of Gas and Electricity Markets and they seek a fundamental change in the costs of addressing constraints in the grid system.I have seen the committee's letter to Ofgem of 7 April, setting out members' concerns about the proposals to alter the arrangements for balancing charges. The letter says that Scottish generators should be able to provide balancing services on commercial terms, rather than—as proposed—at an administrative rate. In my letter to the convener of 17 April, I echoed the committee's concerns and set out the Scottish Government's firm belief that Ofgem should work to deliver a regulatory framework that promotes a fair and equitable electricity market, protects the interests of the consumer and encourages, rather than discourages, renewable energy generation in Scotland and the rest of the UK.We are raising our concerns directly with Ofgem, and are inviting it to reconsider its approach. I am also engaging with UK ministers on how the proposed raft of regulatory changes fits with UK Government policies on renewable energy and addressing climate change. My officials are actively working with the energy sector to develop arguments against such changes. They are also working with the sector to develop proposals on how to achieve a regulatory regime that is genuinely fit for purpose, reflects the current and future energy generation mix in Scotland and the rest of the UK, and encourages the delivery of Scotland's energy capacity, instead of having one that jeopardises the delivery of renewable energy and climate change targets, discourages investment in Scotland and adversely impacts on our overarching aim of achieving sustainable economic growth for Scotland. I invite the committee to work with the Government to achieve that aim.Far from there being an energy gap in Scotland, developments in renewables and clean fossil fuel technologies show that there is a substantial energy opportunity. There has been real and sustained progress in the deployment of renewables in Scotland in recent years, with consent given for more than 20 renewable energy projects since May 2007, including Siadar, the first commercial wave power station in the UK. We have a strong pipeline of renewable projects in the planning and consent system. We have every confidence that our interim target of 31 per cent of electricity consumption from renewable sources can be met by 2011, and we are on track to meet the 2020 target of 50 per cent.Fossil fuel technology projects that are in the pipeline will provide back-up to renewable generation and base-load where necessary. We welcome the recent statement by the UK Secretary of State for Energy and Climate Change about his plan to incentivise the development of carbon capture and storage. We will work with the UK Government to develop a framework that recognises the potential of developing demonstrators in Scotland as well as elsewhere in the UK. National planning framework 2 identifies sites for clean fossil fuel development, as well as the existing sites. We are consulting on planning guidance for applications to construct thermal power stations, including proposed requirements in relation to carbon emission reductions. We will make clear our final position on that in the next few months.As I have already said, earlier this month the First Minister launched the findings of the first comprehensive study of carbon capture and storage to be undertaken in the UK. That research was supported by the Scottish Government. The report signals a milestone in Scotland's energy policy, and underlines just how vast Scotland's potential in carbon capture is. The next step is to publish a road-map, which will set out the key milestones for the development of carbon capture and storage in Scotland. The road-map is due to be published this summer.We recognise that there are huge opportunities to improve the efficiency of our energy use, and we see that as a key element of our economic recovery plan. We have recently been accused of treating energy efficiency as the Cinderella of the energy debate, but I do not believe that that is the case. The Climate Change (Scotland) Bill will ensure that the energy efficiency action plan will be given the priority that it deserves by this Government and by future Governments in Scotland. We intend to publish the plan by the end of the year, following final consultation in the summer. That does not mean that we are not taking action now. We have a dedicated budget for this year and next of about £18 million for energy efficiency and microgeneration advice and support for the domestic, business and public sectors. That is in addition to the funding that is being provided for the energy assistance package and the new funding that was announced in the budget for the area-based home insulation scheme. In the past year, we have aligned the delivery of those programmes more closely to achieve more cost-effective delivery and to remove any unnecessary overlap or competition between those separate but cross-cutting policy objectives.Much more can be done through schemes such as the carbon emissions reduction target and the community energy-saving programme to help meet our energy, climate change and fuel poverty targets. Earlier this month, I responded on behalf of the Scottish Government to the UK Government's consultation on its heat and energy-saving strategy. In my response, I outlined that, although we are supportive of the strategic approach that the UK Government is proposing, we believe that, as currently designed, the schemes will make the achievement of the objectives and targets challenging in Scotland. We are concerned that the current least-cost approach has failed to take into account the social and environmental factors that make Scotland distinct.We have called on the UK Government to work with us to define a long-term heat and energy-saving strategy. Therefore, we support any move to create a co-ordinating body to take forward CERT beyond 2012, but the UK Government must recognise that we approach the matter differently in Scotland. We have already integrated and streamlined our fuel poverty and energy efficiency programmes and, through our Scottish CERT strategy steering group, we work closely with energy companies to boost CERT activity in Scotland. Therefore, Scotland must have a separate co-ordinating body that undertakes the work. That would guarantee that the funds that we spend on energy efficiency, fuel poverty and microgeneration were integrated with CERT-type activity. We also acknowledge that any increase in the level of such activity would increase energy prices. Governments need to ensure that there is an accompanying strategy to minimise the impact on households that are vulnerable to fuel poverty. We expect close integration of social spend and carbon reduction activity that is undertaken by energy companies or by a co-ordinating body on their behalf to achieve that in future. That would fit with the approach that we have taken in Scotland of integrating our energy efficiency and fuel poverty programmes to maximise the impact of our spend and delivery.The Minister for Housing and Communities shared those views in his response to the UK Government's recent consultation on CERT and CESP. The Scottish Government wants to ensure that Scotland gets its fair share of CERT and CESP activity—fair in relation to not only population but the other challenges that we face. Scotland is different: it has more rural and island communities, which are more costly to reach; it is also colder and has a larger proportion of harder-to-treat properties. For those reasons, energy suppliers are less likely to invest in Scotland and, if they do, a voluntary partnership is unlikely to deliver CERT or CESP in rural and remote communities such as those in the islands and Highlands of Scotland. We have suggested that the simplest way to achieve at least a pro rata level of activity in Scotland would be for the UK Government to ring fence CESP and CERT in Scotland and for legislation to be put in place to ensure that CERT and CESP activity in Scotland is directed by the Scottish Government through a co-ordinating body of its choice. Our forthcoming energy efficiency action plan will outline that approach in more detail.I hope that these introductory remarks are helpful to the committee and I look forward to discussing the various points that committee members wish to raise. The transition to a low-carbon economy will be central to Scotland's future economic prosperity. Indeed, that approach is being supported by the EU, where energy is at the heart of economic recovery proposals. Significant sums of money are potentially available to carbon capture and storage, offshore wind and offshore grid projects in Scotland that are recognised as being of European significance.I hope that my remarks demonstrate Scotland's energy potential and the progress that we have already made in many areas. Although we have powers over many areas that relate to energy, we do not have the responsibilities in some others that we would wish for. In any event, we realise that progress relies on engagement and on working with a range of partners. We must not only be able to work with them on areas of agreement but be prepared to issue challenges and stand up for Scotland's interests where necessary.I hope that that is a useful summary of our approach to energy, and I look forward to discussing the issues in more depth with the committee.