Annual energy statement 2019

4. Key Developments in the Sector 

Introduction

• On 20 December 2017, Scotland's first Energy Strategy set out the Scottish Government's vision for a flourishing, competitive energy sector, delivering secure, affordable, clean energy for Scotland's households, communities and businesses.
• It is ambitious about what we can achieve in Scotland; the social, environmental, economic and commercial benefits of our approach will depend on the involvement of all stakeholders in the transition.
• Achieving our aims will involve a variety of policy levers, and a combination of reserved and devolved powers. It will require us to collaborate across public, community and private sectors - building upon our existing partnership approach.
• The Strategy established six strategic priorities, along with a range of actions, which place a focus on the areas which we are able to affect. Our focus is on the near term, in preparation for the major medium and long-term decisions we will be required to make in the next decade.
• The Strategy committed the Scottish Government to publishing an Annual Energy Statement in order to monitor delivery of the Strategy and to report on the latest energy statistics and sector developments.
• Published alongside this Statement is an Annual Compendium of Scottish Energy Statistics (ACSES), which replaces the previous annual Scottish Government statistical publication: Energy in Scotland.
• ACSES summarises the key Scottish statistics under each of the Strategic Priorities of the Strategy to track progress, including a number of new data sources.^[4] A summary of the key aspects of this publication is included within this Statement.

Context

Climate Change Ambitions

• Scotland's emissions have almost halved since 1990, and we continue to outperform the UK. The Scottish Government will always strive for the most ambitious, credible, climate targets.
• The Climate Change Plan published in February 2018 set out our ambitious decarbonisation plans to 2032. The first annual monitoring report was published in October 2018 and set out the baseline against which future assessments of progress will be made.
• The Intergovernmental Panel on Climate Change (IPCC) Special Report on Global Warming of 1.5C. underlines the need to increase action to tackle climate change globally, highlighting that the world is not on track to meet the temperature goals of the Paris Agreement. The Scottish Government is committed to playing our part to limiting temperature rises in line with the Paris Agreement.
• We have acted quickly in response to the Paris Agreement, the IPCC Special Report and the latest advice from the Committee on Climate Change - immediately introducing amendments to our Bill to set a net-zero target for 2045 and increase our targets for 2030 and 2040. Scotland will have the most stringent statutory targets in the world.
• Our high ambition will be matched by delivery. We will update the Climate Change Plan within 6 months of the Bill receiving Royal Assent.
• Meeting Scotland's existing climate change targets will require the near complete decarbonisation of our energy system by 2050, with renewable energy meeting a significant share of our needs.
• The Energy Strategy's targets are compatible with our existing climate change targets, and give us flexibility to respond to changes in the energy sector in years to come, and to pursue all low or zero carbon options.
• We will review our existing energy targets upon the passing of the Climate Change Bill, alongside a wider review of targets and policies across each of the key sectors in the Climate Change Plan, to ensure consistency.

Offshore Wind Sector Deal

• The Offshore Wind Sector Deal, a partnership between industry and UK Government, was formally announced on 7 March 2019.
• The deal has the potential to transform the future of offshore wind in the UK, with industry commitments out to 2030 including the creation of 27,000 jobs, £48 billion investment in infrastructure and £250 million for a new Offshore Wind Growth Partnership to boost the UK supply chain.
• The Scottish sector has played a key role in the development of the deal, ensuring that Scotland is well placed to gain long term benefits as the delivery phase progresses.
• We have set up the new Scottish Offshore Wind Energy Council (SOWEC), with a clear focus on maximising the returns to Scotland from the Sector Deal.
• The Scottish Government recently convened an offshore wind supply chain summit with developers and Tier 1 contractors to improve Scottish and wider UK supply chain content.

Oil and Gas Vision 2035

• The oil and gas sector will remain an important element of Scotland's energy sector, helping maintain affordability and security of supply.
• The Industry has developed Vision 2035 to ensure Scotland meets its energy demands from domestic production while expanding the opportunities for the supply chain at home and abroad.
• This Vision is compatible with the energy transition. The oil and gas sector is a platform for developing technology and expertise which are transferable to alternative energy sectors, particularly CCUS and Hydrogen.

Economic Development Activity

• Our Enterprise agencies, Scottish Enterprise and Highlands and Islands Enterprise, are working alongside the Scottish Government to support the delivery of Scotland's Energy Strategy - putting in place the support needed to maximise the economic opportunities that our transition to a carbon neutral economy presents.
• There has also been very strong endorsement of the proposal that the new Scottish National Investment bank's mission should include a focus on supporting the transition to a carbon neutral economy.
• We are working together with partners in the public, private and academic sector to support innovation, develop expertise and infrastructure, and to facilitate international collaboration in developing renewable and low carbon solutions.
• The energy sector supply chain in Scotland has developed many strengths through its long history in oil and gas production, and in more recent years through the growth and maturation of the renewable and low carbon sector. New clusters of expertise and supply chain capability, in offshore wind and in the marine energy sector, present valuable opportunities in the decades to come. There are also emerging industrial opportunities through the establishment of CCUS systems in Scotland, and the continuing development and use of Hydrogen in our energy system.
• We are committed to ensuring that we capture the long lasting value of this activity for the Scottish economy; creating the conditions for significant inward investment, maximising the total economic value of the generation and supply of clean energy in Scotland, and growing our export capability.
• On 2 May 2019, the Cabinet Secretary for Finance, Economy and Fair Work chaired an offshore wind supply chain summit, alongside the Minister for Energy, Connectivity and the Islands, looking at how our indigenous supply chain can secure larger contracts during the build-out phase. Ministers used the summit to make clear that the industry needs to make significant investments if it is to achieve its 60% UK content target as set out in the UK Offshore Wind Sector Deal. We are reviewing our application processes, and will be using every lever at our disposal to secure a sustainable future for our indigenous supply chain across the energy sector. Industry representatives agreed to take action which ensures that Scottish companies can compete for and secure offshore wind contracts.
• We are also using our own funding to support the Scottish supply chain and deliver socioeconomic benefits. In our £10 million Saltire Tidal Energy Challenge Fund, and our £60 million Low Carbon Innovation Funding Invitation, launched in January 2018, we made it a requirement for projects to demonstrate their potential to have a positive and significant social and economic impact on Scotland.

Islands Connection

• SSE Networks submitted three "Strategic Wider Works" applications ("needs cases") to Ofgem during 2018, to build subsea cable links from Orkney, Shetland and the Western Isles to the mainland transmission network.
• Ofgem is minded to approve the proposed links to Orkney and Shetland, subject to certain conditions being fulfilled, including projects successful in securing Contracts for Difference, through the option process directed by the UK Government. However, Ofgem is minded to reject the proposed 600 MW link to the Western Isles in favour of a smaller 450 MW link. Scottish Ministers continue to support the construction of a 600 MW link, given the huge potential for the Western Isles to generate sustainable energy.
• The Scottish Government remains committed to unlocking this vast renewables potential, and to overseeing the export of clean, renewable energy from the islands in support of Energy Strategy and Climate Change Plan objectives.
• We continue to liaise closely with SSE Networks (the network operator for the north of Scotland), island energy developers and stakeholders, and with Ofgem to ensure the best outcomes for Scotland's islands.

Energy Price Cap

• Energy prices are beyond the Scottish Government's control but we continue to call on the UK Government to deliver a fair market.
• In addition to the prepayment meter price cap, in place from April 2017, Ofgem introduced a cap in February 2018 on charges for customers on default tariffs who receive the Warm Home Discount. This has since been superseded by the default tariff cap which came into force on 1st January 2019 and aims to protect all consumers on Standard Variable and default tariffs. This is a temporary Ofgem measure which is due to come to an end in 2023.
• We support any measures which help to create a more equal energy market and protect vulnerable consumers from being overcharged. However, we see price caps as a short-term fix in a market that is failing consumers and we are concerned about the impact on competition and consumer engagement, with the price cap having been cited as having made access to finance more difficult for some smaller suppliers.
• Five of the big six suppliers announced price rises of 10% in response to Ofgem's announcement that the price cap would increase from 1 April 2019.

UK Government White Paper

• The UK Government has confirmed that it intends to publish an energy white paper during summer 2019, the scope and content of which is yet to be clearly and fully established.
• The Scottish Government will ensure that it engages fully with the UK Government and other key stakeholders as this process unfolds, and that Scotland's energy policies, priorities and ambitions are clearly recognised and acknowledged.

EU Exit

• The consequences of EU exit will be amplified in Scotland's energy sector because of the important role that energy plays in our economy, both as a significant employer and for the sourcing of affordable energy supplies.
• Legally-binding EU renewable energy and energy efficiency targets have played a defining role in stimulating the huge growth seen in Scottish renewable energy and in generating significant inward investment.
• Scotland's success to date in decarbonising its energy system has been supported by relevant EU Directives and Regulations. These include the 'Clean Energy for All Europeans' package (which incorporates the Renewable Energy Directive; the Energy Efficiency Directive; the Effort Sharing Regulation; the Emissions Trading System and the new Governance Regulation for the Energy Union and Climate Action).
• EU funding that encourages collaboration, supports energy infrastructure projects and furthers research and development has supported a range of low carbon technologies across Scotland, such as offshore wind, marine renewables, district heating and integrated hydrogen solutions.
• Over the last decade, the European Investment Bank has backed infrastructure investments in our gas networks, electricity networks and renewables projects. EU exit puts these investments and benefits at risk.
• Our energy sector, like many others within the Scottish economy, relies upon the contribution of skilled individuals from throughout the EU. Restricting this supply could result in higher cost operations, impeding our infrastructure development and progress.
• The Scottish Government continues to work within the devolved levers available to us to manage the significant risks EU exit presents for the Scottish economy, energy sector and consumers.
• That includes making the case for: continued access to the EU Emissions Trading System either through continued membership, or a linked UK ETS; continued membership of the EU internal energy market, including EU-wide collective effort to create an Energy Union, supported by the Renewable Energy and Energy Efficiency directives; and continued access to vital EU funding for collaborative research and innovation in the energy sector.
• In line with the overwhelming vote in Scotland to remain in the European Union, the Scottish Government has consistently been clear that the best option for the future wellbeing and prosperity of Scotland and the UK as a whole is to stay in the European Union. For more than two years now the Scottish Government has also put forward a compromise of Single Market and Customs Union membership, if it was not possible to remain as a full EU member.
• Our proposal to establish a Citizen's Assembly is driven in part by the need to consider how to overcome the challenges arising from EU exit, as well as others facing modern Scotland.
• Recognising the benefit and importance of collective international efforts in energy and climate change, Scotland will continue to work and cooperate with our EU partners, in spite of EU exit.
• The Scottish Government will also continue discussions with the UK Government and other devolved administrations to develop future governance frameworks for energy and climate change after EU exit - to ensure that we continue to cooperate both domestically within the UK, and internationally with our EU partners, whilst at the same time ensuring proper accountability for our collective progress to devolved governments and legislatures.