Energy strategy: position statement

Support for Industries and Sectors cross the energy landscape

This section will explore how the Scottish Government is supporting the specific industries and sectors across the energy landscape in responding to the economic crisis and as we continue in our journey towards net zero. While this chapter looks through a sectoral lens; our policy development, in collaboration with public and private sector partners, remains underpinned by both the previously mentioned principles in Scotland's Energy Strategy and the green recovery themes as per our Programme for Government.

Onshore and Offshore Renewables

The continued growth of Scotland's renewable energy industry is fundamental to enabling us to achieve our ambition of creating sustainable jobs as we transition to net zero.

The Scottish Government is committed to supporting the increase of onshore wind in the right places to help meet the target of Net Zero. In 2019, onshore wind investment in Scotland generated over £2 billion in turnover and directly supported approximately 2,900 full-time equivalent jobs across the country. We continued to make good progress last year, with Scotland's renewable electricity generation having grown to such an extent that it was able to meet the equivalent of 90% of Scotland's gross electricity consumption – making 2019 another record breaking year for the sector. In 2018, there were 23,100 FTE jobs in total across low carbon and renewable energy in Scotland.

In October 2020, we also described the importance of offshore wind to Scotland's economy when we published our Offshore Wind Policy Statement and Sectoral Marine Plan for Offshore Wind Energy in Scotland. These key documents set out how, using the powers available to us, we will grow our economy through green job creation by seeking to improve market outcomes for renewable activity.

We recognise that the supply chain in Scotland has been missing out on lucrative offshore wind manufacturing contracts. This has been a challenge for some time, but has reached a point that has led to great frustration within Government, Parliament and across civis Scotland. For our part, we have been clear that developers and their Tier 1 contractors have a responsibility to support domestic suppliers throughout the construction of projects. Though Scottish Ministers continue to have no control over the all-important Contracts for Difference auctions and the Supply Chain Plans within them, and have urged greater recognition of projects' ability to add value, we remain committed to using all the levers within our devolved competence to support companies across Scotland and to retain employment in the offshore wind sector. It is, for these reasons, why we announced last year that applicants to ScotWind Leasing Rounds will be required to submit a Supply Chain Development Statement that sets out the anticipated level and location of their supply chain commitments. This, if engaged with by industry in the correct spirit, will go a long way in providing Scottish suppliers with the clarity of a future pipeline of contracts, thereby enabling them to hire and train more people in good, green jobs. However action from the UK Government on reforming the Contracts for Difference mechanism is imperative to supporting the domestic supply chain and holding developers to their supply chain commitments.

It is evident that significant investment in our supply chain's infrastructure will be necessary if Scottish suppliers are to have the capacity and the capability to fabricate and service the offshore wind projects of the near future.

That is why the Scottish Offshore Wind Energy Council (SOWEC) has initiated a Strategic Investment Assessment of the offshore wind sector in Scotland which will identify the strengths and weaknesses of our entire supply chain, and allow the sector and government to target investment where it is needed most. The assessment is due to conclude in the coming months and Ministers are committed to considering all recommendations directed towards the Scottish Government.

We welcome the majority of BEIS' proposed changes to the Contracts for Difference mechanism, in particular the inclusion of onshore wind, the provision of a separate pot for floating offshore wind, and, indeed, the commitment to strengthen the Supply Chain Plans element of auctions. These changes are long overdue and their exclusion from previous rounds has undoubtedly harmed the Scottish supply chain. Scottish Ministers eagerly await the introduction of these changes later this year and are cautiously optimistic that a reformed auction will allow Scottish projects, and their related supply chains, to prosper.

The Scottish Government has been engaging closely with Ofgem over recent months to highlight the vital role that energy networks will play in meeting Scotland's more ambitious decarbonisation and net zero targets. We have highlighted that certainty over the availability of baseline funding during the next price control period (RIIO2) is going to be critical to maintaining confidence in the renewable sector – for example, to the progress of new onshore and offshore wind developments. We also need to know that the huge investments which will be coming through Ofgem's "uncertainty mechanisms" will be processed and responded to as quickly as possible.

Ensuring and enabling early progress and investment on the major and vital upgrades to the east coast interconnectors and onshore infrastructure – including new and upgraded connections across the Scottish border – will have a profound effect on developer confidence, as well as forming an essential component of our progress to net zero. These network investments and projects will also create huge challenges for our planning and consenting processes, which we must be ready to meet.

Network regulation as a whole faces huge and complex challenges. It needs to deliver infrastructure capable of delivering net zero, recognising and rewarding the impact of efficient, timely investment on our economy, on the development of skilled jobs, and the development of a dynamic supply chain, while ultimately providing a good deal for energy consumers. The Scottish Government's view remains that the regulator's remit and approach needs to explicitly incorporate and reflect the need to achieve net zero in this way – especially now that the UK Energy White Paper has come to the same welcome conclusion.

As we set out in our Climate Change Plan Update (December 2020), the transition of our energy system to net zero presents Scotland's businesses with many opportunities to create a competitive advantage whilst creating jobs. The Committee on Climate Change (CCC) has highlighted the importance of innovation in delivering our statutory targets and our recent inward investment plan identified energy transition and transport decarbonisation as two areas of strength in Scotland for attracting investment.

We continue to build on our reputation as home to the Deepwind supply chain cluster - the globally leading offshore wind supply chain cluster for deep water solutions for both fixed and floating offshore wind renewable technologies. Creating a hub of competitive companies who have embraced increased productivity, strong collaborative working and creative innovation is at the core of both DeepWind's and the Forth and Tay Offshore clusters' objectives. Supported by our enterprise agencies, these clusters have become a natural conduit for supply chain engagement for national forums such as the Scottish Offshore Wind Energy Council, the Floating Wind Centre of Excellence and the Offshore Wind Industry Council.

We also have a strong track record of support for innovative low carbon technologies which is illustrated by our marine energy sector maintaining its world-leading position in the development of technologies such as wave and tidal energy. We have invested nearly £50 million since 2014 through our internationally recognised Wave Energy Scotland programme and, in 2019, we awarded £5 million to Scottish tidal energy projects through the Saltire Tidal Energy Challenge Fund.

In 2020, we announced eight winners of our 'Floating Wind Technology Acceleration Competition' and the eight technologies will receive a share of £1 million from the Scottish Government to address key industry challenge areas in the deployment of innovative floating offshore wind technology.

To date we have made over £85 million of commercial investments in the energy sector through our Energy Investment Fund. This has supported innovative technology companies to develop ideas and deliver projects, alongside support for community energy projects.

Oil and Gas Sector

The oil and gas industry contributes significantly to the Scottish Economy and currently provides for the majority of Scotland's and the UK's primary energy needs. and the sector and its supply chain will play a crucial role in the energy transition required to move our economy and society to net zero greenhouse gas emissions.

The scale of the challenge presented by the COVID-19 pandemic to our energy sector and its supply chain is significant, but there is an opportunity to build long-term prosperity in Scotland based on new, net-zero investments, to maximise national and global opportunities. We must harness the considerable skills and talent in the oil and gas industry to deliver a just transition to net zero and ensure everyone can access those opportunities and good, green jobs.

A focus on transitioning workers in high carbon areas, such as oil and gas, to activities consistent with delivering our net zero emissions target is fundamental to a Just Transition and, indeed, this is a key priority of the Scottish Government and the independent Just Transition Commission. The Scottish Government are fully aware of the key role the oil and gas sector has to play in Scotland's energy transition. The sector has a wealth of skills and expertise to offer in support of key aspects of decarbonisation including Carbon Capture, Utilisation and Storage, Hydrogen, floating wind and marine energy.

We know how important a sustainable future is for those who work in the oil and gas sector and its supply chain. That is why our £62 million Energy Transition Fund, announced in June 2020, was designed in partnership with industry, through the work of the Oil and Gas and Energy Strategic Leadership Group, to help protect existing jobs and create new jobs across Scotland by opening up opportunities through energy transition and harnessing private sector funding as companies transition from oil and gas to low carbon and renewable investments.

Scotland's 2017 Energy Strategy already identifies a crucial role for the oil and gas sector in the energy transition that is required to move to an economy and society that generates net zero greenhouse gas emissions and we are already working to maximise those benefits through private and public sector partnerships such as the Energy Skills Alliance, a newly created and cross energy collaborative group established to develop an integrated skills strategy for a vibrant, net zero energy industry.

The ESA brings together leaders from across oil and gas, renewables, nuclear and refining industries, as well as representation from regulators and trade unions, and has devised four key work programmes. These task and finish groups have been designed to create an integrated skills strategy for a net-zero UK energy industry:

• Future energy skills demand and supply
• Integrated STEM programme
• Delivery of an integrated all-energy apprenticeship scheme
• Development of a roadmap for aligning training and standards.

Hydrogen

Global interest in hydrogen as a future driver of decarbonisation and economic growth is developing rapidly. International partnerships are already being established with shared ambition, co-ordination, collaboration and pace. The role of hydrogen in our Energy Strategy refresh will recognise the momentum hydrogen is gathering domestically and internationally and the potential that Scotland has to be a leading Hydrogen Nation.

Hydrogen is not only key in our transition to net zero in terms of decarbonising industry, power generation, energy integration, heat, and transport; it also presents significant opportunities for the economy. This was made clear by our Scottish Hydrogen Assessment, carried out throughout 2020.

Scotland's abundant natural resources, skills and supply chain offer the potential for large-scale production of sustainable hydrogen from offshore wind to meet both domestic needs and for export. Global interest in the area of hydrogen is rapidly growing and the development of a hydrogen economy in Scotland, with a strong export focus, therefore offers the opportunity to support the creation and protection of jobs through the growth of a sustainable local supply chain as well as capture the benefits from the growth of a hydrogen export market.

Last year, we became the first country in the UK to publish a Hydrogen Policy Statement, informed by last year's assessment, which sets out our vision for Scotland to become a leading Hydrogen Nation in the production of reliable, competitive, sustainable hydrogen.

In it, we set out our ambition to achieve 5GW of installed capacity for the production of low carbon and renewable hydrogen, by 2030, and we committed to making hydrogen a key element of Scotland's decarbonisation plans. This scale of ambition is the same as the installed capacity target set by Germany, a much larger country with a much larger industrial base. Our analysis tell us that, thanks to our vast offshore wind resources, skills and company base, Scotland is in a strong position to not only produce enough hydrogen to meet our domestic needs, but to support an export market to the rest of the UK and mainland Europe.

The statement will be followed by our Hydrogen Action Plan later this year with input from our enterprise agencies, which will set out how we will implement our hydrogen policies and will be accompanied by £100 million investment, from within our new £180 million Emerging Energy Technologies Fund, to support its delivery over the next five years.

Carbon Capture Utilisation and Storage (CCUS)

The Scottish Government supports the development of a Carbon Capture and Storage (CCS) network that can utilise the vast storage potential presented by the geology of the North Sea. It is clear that CCUS will play an important role in helping us to reach net-zero emissions; advice from the Committee on Climate Change describes CCS as a "necessity, not an option" to achieve this goal.

CCS will play a central role across the decarbonisation strategies of key sectors such as heat, industry and power, underpinning the production of low-carbon hydrogen and developing negative emissions technologies, such as bioenergy with CCS (BECCS) and direct air capture and storage (DACS), that the committee for climate change that the Committee on Climate Change and our own Climate Change Plan describe as essential to meet net zero in 2045.

Last year, alongside publication of our Climate Change Plan update, we announced the aforementioned Emerging Energy Technologies Fund to support the development of hydrogen and CCS, and which will add new impetus to the development of NETs. Projects supporting the development of CCS and NETs can access £80 million of the overall total of £180 million in the fund, with the direction of funding being supported by work in 2021 to undertake a NETs feasibility study and a CCUS economic impact assessment.

Utilising legacy oil and gas infrastructure, skills and knowledge, CCUS projects have the potential to secure existing jobs as well as delivering new ones, in a developing supply chain. If successful, existing industries, which are currently some of Scotland's largest carbon emitters will be able to move to a sustainable business model actively supporting and reducing Scotland's emissions.

We will work with our agencies to develop projects and proposals for carbon capture and utilisation (CCU) through our £5 million Carbon Capture and Utilisation Challenge Fund, that will boost early stage work and innovation that will capture and create value in CO2, reduce emissions and develop new income streams for Scottish businesses. Priming a utilisation market supports the acceleration of carbon capture in the industrial sector by supporting innovation and cost reduction as well as providing new carbon markets.

Highlands and Islands Enterprise is also supporting the creation of 143 high-value jobs at the Port of Cromarty Firth with funding of £7.75 million towards a £31 million project which will increase the Port's capacity to accommodate more work on renewables, oil and gas rig decommissioning and other shipping-related activity. The project, due to complete this year, is also expected to generate a £6 million increase in turnover for the Port.

A further place-based approach can be found in our establishment of the Grangemouth Future Industry Board (GFIB) - in recognition of the economic strength of the cluster, and its role as Scotland's foremost concentration of industrial and manufacturing activity. GFIB will coordinate public sector initiatives to help futureproof this key industrial hub for net zero, and help support a vibrant and sustainable future for the locality; one that can deliver a significant impact on Scotland's just transition to net zero.

Heat and energy efficiency in Buildings

Creating jobs is a key driver in our work to decarbonise our homes and buildings. We have committed to investing £1.6 billion of Scottish Government funding over the next 5 year term of the Scottish Parliament to transform our homes and buildings, tackle poor energy efficiency as a driver of fuel poverty and create new opportunities for jobs and growth. This investment is anticipated to support up to 5,000 jobs in each year by 2025-26, with further growth beyond that date. The scale of the challenge in improving the energy efficiency of Scotland's building stock and transitioning it to zero emissions heating is unprecedented, with an estimated whole economy cost in the region of £33 billion by 2045. Clearly, the investment required to meet that challenge is huge and cannot be borne by the public purse alone. That investment presents very significant opportunities to develop both a highly-skilled workforce and a strong supply chain. Investment in heat and energy efficiency is a critical part of our green recovery, and we expect the wider heat and energy efficiency market to grow rapidly, building upon the direct job creation supported by our investment.

Our recently published Climate Change Plan update includes a commitment to double zero emissions heat installations each year with over 120,000 homes in Scotland converted to a zero emissions heating system by 2025. We expect the £1.6 billion investment to support at least 3,000 jobs in the first year and grow by a further 2,000 by 2025-26. It is also our aim to ensure these opportunities extend to people who have unfortunately lost their jobs as a result of the COVID-19 pandemic. We will support retraining and upskilling in heat and building efficiency through our £25 million National Transition Training Fund.

Transforming our buildings by making them more energy efficient and converting them to zero emissions has the potential to make a significant economic contribution and represents a sizeable opportunity for Scottish businesses over the next 24 years. The actions set out in the draft Heat in Buildings Strategy provide a clear set of signals to the market, helping to give confidence to companies to invest for the transition. Overall, we estimate that as investment in heat and energy efficiency ramps up towards the late 2020s, as many as 24,000 jobs could be supported each year in Scotland by the roll out of zero emissions heat. To underpin our investment and provide long-term certainty to the sector and home owners, landlords, owners of non-domestic premises and the public sector, we propose the introduction of new regulations to set standards for zero emissions heating and energy efficiency, where it is within our legal competence, between 2023 and 2025.

Heat pumps will be a strategically important technology in the decarbonisation of heat and we have established an expert advisory group to provide recommendations on the scope of a potential heat pump sector deal for Scotland. This will aim for the Scottish Government, its agencies and the private sector to work together to maximise the opportunities for deployment, employment, innovation and skills in Scotland's heat pump sector and help ensure that our economy benefits from the substantial investment required to decarbonise heat in our buildings.

We will use this to leverage wider investment in the transition including from the private sector. Alongside the £33 billion required to convert our building stock to net zero emissions by 2045, further investment will also be required to upgrade our energy networks and ensure sufficient energy generation capacity.

In addition to the significant public sector investment to kick start this transition Private investment will be critical to drive progress and the role of the regulator in creating an attractive investment environment cannot be overstated.

We will also establish a new Green Heat Finance Task Force and will work in partnership with the private sector to leverage the scale of investment needed for energy efficiency and heat, and to develop innovative approaches to financing the heat in buildings transition.

We want to see the right level of investment in our energy infrastructure over the coming decade, to enable delivery of the heat transition and ensure communities can access affordable zero-emissions heat.

That is why we are working with partners to develop and deliver a number of energy efficiency measures to support the acceleration of the shift to low carbon, local energy solutions within our £120 million Heat Transition Deal. This includes our £50 million Low Carbon Heat and Energy Systems Funding Call delivered by the highly regarded Low Carbon Infrastructure Transition Fund (LCITP), to accelerate the delivery of large scale low carbon heat infrastructure projects, including heat pumps and heat networks, and a £20 million Funding Call to support installation of low carbon heat solutions in Social Housing, also delivered by the LCITP.

As the current LCITP programme draws to a close during 2021, we will consider how its successor will continue to support low carbon energy infrastructure projects including the deployment of low carbon heat at scale, coordinating our support for the roll out of heat networks and heat decarbonisation infrastructure.

As well as continuing to support householders to transition to renewable heating sources through our recently launched domestic cash back scheme and our Home Energy Scotland loan, we have now secured safe passage through Parliament of our vital Heat Networks (Scotland) Bill which provides a strong legislative framework for ensuring that heat networks are properly regulated, and supporting the heat network sector to grow and contribute to providing high-quality, local jobs. Regulation and guidance in support of the development of the comprehensive regulation and licensing required for heat networks will now be completed through secondary legislation over the period to the end of 2023 in parallel with development of Local Heat and Energy Efficiency Strategies for all Scotland's 32 Local Authority areas.

Preparing Scottish businesses for future growth and promoting collaborative working within industry as we move forward in our journey to net zero is a key priority for the Scottish Government and our enterprise agencies. An example of this is the Heat Supply Chain study currently being carried out by Scottish Enterprise, Highlands and Islands Enterprise and South of Scotland Enterprise which will result in the development of a framework for the three enterprise agencies to support the low carbon heat industry by promoting collaborative working and assisting in its growth.