Energy intensive industries: stakeholder workshop

This short note presents a summary of the key findings from a Scottish Government stakeholder workshop meeting on 21 July 2020.  The meeting included 12 representatives from Energy Intensive Industries (EII) from across Scotland. The first half of the meeting included a presentation from the Minister for Energy, Connectivity and the Islands. The remainder of the workshop sought to capture and assess points raised by industrial stakeholders on the following key issues:

• factors currently affecting each subsector’s capacity to apply to an incentivisation fund that would support investment in energy efficiency and decarbonisation projects in Scotland
• the nature of support that would be most valuable to progress current Scotland-based energy efficiency and decarbonisation activity

The workshop also included a presentation on the Scottish Government’s ‘Decarbonisation Pathways’ for energy-intensive manufacturing industries.

Ministerial remarks

The Minister outlined the context for the delivery of the Industrial Energy Transformation Fund (IETF) for Scotland – a potential fund made up from £26m to be transferred from UK Government, to be spread over a 4-year period (the final amount will be confirmed after a spending review). This meeting was introduced as part of a period of stakeholder engagement and discussion on the IETF to ensure that the fund is optimised to best-meet energy intensive industries’ needs as the economy restarts following the Covid-19 pandemic, whilst also driving forward ambition for a net-zero society by 2045.

The Minister highlighted the opportunity for an IETF in Scottish control to act as a foundation for a green recovery within industry. The importance of urgent feedback from industry in Scotland was outlined so that the fund can be shaped to the characteristics of Scotland’s industrial base, and to ensure that it can reflect Scotland’s pathways to a low carbon future.

Factors currently affecting sectors

Short presentations were made by three representatives from different EII sectors. This was followed by a general discussion around the current challenges facing the sectors,  their specific needs, and types of support required. 

Key points raised during this discussion are summarised below, based around some key themes. Please note that the industries that participated in the meeting were diverse, so not all issues will apply to all sectors.

Impacts of COVID-19

The COVID-19 crisis has meant that some sectors have slowed significantly. Although most are restarting, this has created an environment where many companies only have resource to deal with business-critical decisions to enable them to maintain operation, rather than new capital expenditure for long-term planning to transition to net zero. This has been compounded by reduced staff capacity due to furlough, curtailing businesses ability to apply for funding and support.

Context for Applying for IETF Funding

A key concern for many participants when considering the route towards less carbon intensive approaches was the increased costs (both capital and, in particular, operating costs) arising as a result of the current higher cost of low carbon energy and grid electricity. One respondent reported that costs for transition were currently not profitable and economically feasible. Another described any increase in costs of operation as leading to a reduction in international competitiveness, or an enforced offshoring of carbon. As described by one respondent, “if costs are not passed on to customers, someone else has to pay for decarbonisation”.

The other key challenge described by participants was around the alignment of different funding schemes and policy drivers.  It was identified that many projects and funds are interrelated, and that success in one fund will not necessarily mean overall success in terms of decarbonisation. For example, a cluster/ regional approach may be required to develop wider infrastructure (e.g. Hydrogen supply or heat networks) before individual sites can take the steps to apply for their own transitions to new energy supplies. It was also suggested that a new fund such as the IETF may need to be designed to match EII investment cycles.

Others commented on the need to shift the current context in which some policies are working against each other. Two examples described included switching to electricity to decarbonise resulting in organisations being penalised under emissions targets, and switching to using energy from waste resulting in a decrease in the energy efficiency of a site. The challenge of gaining planning consent for switching to renewables was also highlighted, along with the need to upgrade the electricity grid in remote areas to access sufficient and stable levels of electricity.

Finally, a lack of clarity on costs (and technologies) for short to medium term technology transition was also described, resulting in it being difficult to focus on capital projects, or making it difficult or high-risk for businesses to transition.

Type of support needed from the Fund

A key area of support identified by some participants was the need to ‘fast track’ energy efficiency projects, deployable technologies and feasibility and demonstrator projects; this would act to ‘de-risk’ investment for industry. Some felt that this should be prioritised ahead of earlier stage research and development.

Flexibility and accessibility was also felt to be important in a fund. It was commented that applications of any size across all EIIs should be allowed (to account for the wide range of size of operation within EII in Scotland) and flexibility in terms of application process and timings should be incorporated (given the current resource challenges arising from the Covid crisis). Others felt that Scotland should set a lower minimum grant threshold than the UK-wide IETF to encourage applications from a wider range of potential projects.

A number of participants focused the discussion on heat decarbonisation and sought clarity on what might replace the Renewable Heat Incentive (RHI) in the future and how similar support could be expanded to incentivise, for example, biomass – particularly as current gas powered alternatives are relatively cheap (both up front and operationally) and low carbon alternatives or use of grid electricity is not economically viable.

Summary

The meeting was closed by the Head of Oil and Gas and the Industrial Decarbonisation Unit at the Scottish Government, who highlighted that the meeting demonstrated that there is a support for a Scottish IETF and exploring how it can be optimised for Scotland’s manufacturing sites. He also described that the IETF can be a route to market certainty and to overcome a range of challenges facing Scottish EIIs to secure a fair and green recovery for Scotland. These included: accessing international capital to match fund projects; limited human resource to complete applications; uncertainty of trade with EU; forthcoming UK ETS resulting in potential energy price spikes; application development service to provide support, and; the need to reduce minimum grant award to widen access and impact.

Participants

EII Representatives

• Chemical Industries Association
• Food and Drink Federation Scotland
• Scotch Whisky Association
• UK Petroleum Industry Association
• Confederation of Paper Industries
• Mineral Products Association
• UK Steel
• British Glass
• British Ceramic Confederation
• Wood Panel Industry Federation
• Confederation of British Industry (CBI) Scotland (wider industry association)
• Tarmac Holdings Ltd

Scottish Government teams

• Oil & Gas and Industrial Decarbonisation
• Economic Analysis – Energy & Climate Change
• Low Carbon Infrastructure Transition Programme
• Critical infrastructure
• Onshore & Subsurface Energy Systems