Scottish Energy Advisory Board minutes: January 2022

Attendees and apologies

Members in attendance

• Rt. Hon. Nicola Sturgeon MSP, First Minister (co-chair)
• Professor Sir Jim McDonald, Principle Professor and Vice Chancellor, University of Strathclyde (co-chair)

• Michael Matheson MSP, Cabinet Secretary for Net Zero, Energy and Transport
• Brian McFarlane, Co-chair, Scottish Offshore Wind Energy Council and Head of Projects, SSE
• Claire Mack, Co-chair, Renewables SLG and Chief Executive, Scottish Renewables
• Professor Keith Bell, Co-chair, Energy Networks SLG and Committee member, CCC
• Melfort Campbell, Co-chair, Oil & Gas & Energy Transition SLG and CEO, IMES Group
• Lewis Shand-Smith, Chair, Energy Consumers Commission
• Jane Morrison-Ross, Chief Executive, South of Scotland Enterprise
• Adrian Gillespie, Chief Executive, Scottish Enterprise
• Stuart Black, Chief Executive, Highlands and Highlands Enterprise
• Rozanne Foyer, General Secretary, STUC
• Deirdre Michie, CEO, Oil & Gas UK
• Andrew Jamieson, Chief Executive, ORE Catapult
• Keith MacLean, Founder and Director, Providence Policy
• Ian Marchant, CEO, Dunelm Energy
• Dave Pearson, Director, Star Renewables
• Fintan Slye, Director, National Grid ESO
• Ronnie Quinn, CEO, NECUSS
• Matt Sykes, Managing Director, Generation, EDF
• Jim McColl, Founder and CEO, Clyde Blowers
• Colette Cohen, CEO, Net-Zero Technology Centre
• Charles Hammond, CEO, Forth Ports
• Frank Mitchell, Chair, Skills Development Scotland
• John Morea, CEO, SGN
• Alistair Phillips-Davies, Chief Executive, SSE

Apologies:

• Keith Anderson, CEO, ScottishPower. Hazel Gulliver to attend on his behalf and present the item on the Energy Task Force.

Scottish Government:

• Kersti Berge, Director of Energy and Climate Change
• William Black, Deputy Director for Onshore Electricity Policy, Strategic Co-ordination and Consents
• Sue Kearns, Deputy Director for Heat in Buildings
• Andrew Hogg, Deputy Director for Energy Industries
• Mike Palmer, Deputy Director for Marine Planning and Policy
• Jamie Macleod, Team Leader, Consumer Policy and Interventions
• Madeleine Plater, Secretariat
• Katy Rankin, Secretariat
• Michael Reilly, Secretariat

Items and actions

Welcome and introduction

Minutes from 31 October 2021 meeting of SEAB approved with minor amendments.

Opening remarks from the First Minister.

Action: SEAB secretariat to update 4 October 2021 SEAB minutes with changes and publish on the Scottish Government website.

Cost of living - energy price rises

The Cabinet Secretary provided the opening remarks:

• consumers could be paying around £2,000 per year for energy from April 2022, all within the context of wider pressures on household incomes. This could move a further 211,000 households into fuel poverty and 235,000 fuel poor households into extreme fuel poverty
• the Scottish Government (SG) are continuing to use all powers and resources available, including investment in energy efficiency, Home Energy Scotland advice, support on housing costs, the Winter Support Fund, including a £10m Fuel Insecurity Fund, Child Winter Heating Assistance and welfare and debt advice services
• the Cabinet Secretary has written to the UK Government (UKG) to reiterate the previous calls for urgent action to support energy consumers. However, SG have not had a clear steer from UKG and have asked for a meeting to take this further

Lewis Shand-Smith, chair of the Energy Consumers Commission (ECC), followed-up:

• UKG is not removing VAT, but there are other levies which could be considered
• there is concern regarding levels of fuel debt, as well as concern about the unregulated sectors, such as heating oil, coal and bottled gas
• the ECC are concerned about what SG are planning to do to replace the Warm Home Discount (WHD), which could have a knock-on effect on the trusts that provide funding to many organisations and is due to end in April 2022

Discussion

Rozanne Foyer said she would like to understand what more the devolved powers could do in lieu of UKG, and asked if there is a way to speed up the green retrofitting of homes.

Alistair Phillips-Davies said that short-term support is important, but a VAT cut is not the best option. He said that while it is important to have the wholesale market working well with continuing investment, taking away some levies supporting green investment would be a concern to suppliers. SSE found that there could be over £9 billion in CfD payments by the end of the decade, so home-grown energy should be a priority.

Hazel Gulliver said there is an ongoing issue with the regulatory and policy framework, which needs to reflect the true cost of energy supply; everything has built up to such a degree that costs are going back to the consumer at the one time. The issue of failing suppliers and bail outs also needs addressed now.

National Grid ESO have begun a review of the wholesale balancing market, whilst another project is looking at what the right long-term market design is to support net zero, looking at the mechanisms in place and asking what will enable the transition.

It was noted that UKG is looking to reform the WHD, but this would have made it more difficult for Scotland to take part. UKG has confirmed that SG will not be allowed to combine WHD and Energy Company Obligation. SG will now push BEIS very hard to ensure there is no gap in service for the remainder of WHD duration.

The First Minister said that the position of UKG on WHD needs bottomed out. Despite being valuable, WHD is not really able to help in this situation. SG can provide funding, but face a constraint in the availability of resources and so cannot significantly mitigate the situation without the intervention from UKG.

Frank Mitchell said that the mechanics are still carrying on whilst things are being thought through, such as network charges, which are being published to reflect supplier failures. Without intervention before 1 April, then this will be applied to consumers’ bills.

Deirdre Michie said that consumer impacts and inflation are also concerning for the supply chain in terms of short-medium outlook and competitiveness. While this is a global gas price issue rather than supply, there are some mitigations which can be taken, such as optimising Scottish production. She stated that windfall taxes should not be considered as it will detract from investment, and that supporting local production can ensure this crisis does not become a security of supply issue.

Keith Bell said efficiency measures and smart meters should be targeted. If there was access to smart meters by those in fuel poverty, the penalty of having a pre-payment meter would be removed and there could be more data showing where people are off and under-heating their homes.

Ian Marchant said that since the last fuel crisis, prices have been too low, then suddenly too high; the incentives are completely wrong. Businesses have been seeing these effects for months now. How some of the most vulnerable people in society, such as those in care homes, are shielded by business accounts must be considered.

Lewis Shand-Smith said that the retrofitting of homes may not currently be an easy option, as households could be discouraged by the high costs. He also warned about smart meters, saying that those who are fuel poor often switch them off as they are concerned about the high costs they can see.

Dave Pearson said CfD is set by the prevailing price of gas, so it seems there must be significant surpluses. It is not permissible by Ofgem to have flexible tariffs across the country, there are pricing anomalies that we need to understand better. We need to get to grips with electricity reform and we need to have the capacity to consume the power generated by our renewables – such as ScotWind.

The Cabinet Secretary summed up by saying that households are going to face significant short-term pressures, and direct intervention is required, while UKG must recognise that short-term measures do not eliminate the need for further reform. This also demonstrates the need to have more resilience within our domestic market.

Action: Sir Jim McDonald to reflect on this discussion and consider if there is a communication that can be sent from SEAB members to flag the areas we believe should be prioritised.

Scotwind

The Cabinet Secretary provided an update on the recent ScotWind announcements:

• 17 bids were selected out of a total of 74 applications. 11 of the successful projects will use floating technologies, making ScotWind the world’s largest commercial leasing round for floating off-shore wind
• It will generate £700m in option fees to be used for public spending. There are also enormous supply chain benefits, with initial indications suggest that projects will secure at least £1 billion in supply chain investment for every gigawatt of capacity
• developers have made further commitments, including upgrading our ports and harbours, set up supply chain development funds and bring future skilled jobs to the Scottish economy
• developers are due to sign their Lease Options Agreements at the start of April and start the planning and consenting process. a “Team Scotland” needs to be adopted to enable collaborative working

Discussion

• Ronnie Quinn asked if now is the time to start the conversation about the co-existence of offshore wind and carbon storage, so that both technologies can be optimised
• Keith Maclean asked what scope there is for SG to influence the changing legislation around State Aid that is being considered. Furthermore, onshore work requires consideration when thinking about planning and consents, rather than just offshore alone
• Brian McFarlane stated that the capacity is more than expected, which is going to require more collaboration to ensure the system can cope. What is required are annual CfD auctions, an increase to the floating wind target, the tackling of consent and licensing barriers, the acceleration of technology development and reform to user system charges. Skills must also continue to be developed while ensuring a diverse workforce. Skills and consenting can be discussed at SOWEC and brought back to the board
• Frank Mitchell asked how the supply chain opportunities for Scotland can be maximised. As there is a skills shortage it is important to understand the competing demands from other areas and get the pipeline of skills ready. Consenting is also a concern, with a plan needing to be laid out in a way that does not undermine local communities
• the Cabinet Secretary agreed that this is not just about offshore, but also about ensuring that we make the best of technologies and demonstrate a holistic approach. Regarding State Aid, caution must be exercised due to legal concerns, however SG will do what they can to influence positively. There is a disadvantage to Scottish projects with CfD and Ofgem is reviewing the pricing structure, while bespoke measures must be put in place to maximise skills. SG is looking at its structures around consenting and would like to work with the sector to maximise the potential
• Deirdre Michie stated that OGUK members have the skills and expertise to and understand the transition, with good examples of collaboration across oil and gas which can be adapted
• Andrew Jamieson said that success relies on solutions towards planning, grid, supply chain and skills. He asked that innovation services already available are used. INTOG also needs to succeed
• Colette Cohen said that innovation is needed as the technology is not there yet, particularly for floating wind; young companies need the opportunity to succeed. Combined opportunities in which there is collaboration with larger companies to allow deployment of technology are very important, and so regulation capabilities must be enhanced to allow for deployment in two to three years rather than five to seven years
• Rozanne Foyer agreed that the potential for extending State Aid is something SG should explore. She would like the opportunity to speak to the winning bidders. A skills pathway must also be created to allow for people in the traditional parts of the system to move to other highly-skilled jobs
• Alistair Phillips-Davies pointed out that are other projects due before ScotWind and it must be ensured that these are achieved, as scale is what creates jobs; looking at additional resources is critical
• Charles Hammond stated that the private sector is now moving ahead with developing port infrastructure for ScotWind. Port capacity for manufacturing must be ensured and land release for schemes for developing deep water quayside. Factories’ high running costs means the order book must be smoothed out to avoid a glut and subsequent job losses
• Melfort Campbell emphasised enterprise investment, asking how capital spend can be captured. Engagement is required to understand what the sector is going to invest in, whilst serious work is needed to have foresight of where opportunities for investors are going to appear. Academic and scientific research is crucial, and there is a need to create centres of excellence to allow investors to have the knowledge to get into the sector
• Fintan Slye emphasised the requirement of a whole systems approach, with the integration of ScotWind into the network design being critical. The ESO is ready to work with SG to ensure there is a route to market for the electricity coming on system that is economically viable
• the Cabinet Secretary said that for those who want to transition from oil and gas to renewables, this provides an excellent opportunity for a just transition; not just in off-shore, but other areas such as hydrogen. ScotWind must be used as a launch pad for the future sustainable long-term supply chain in Scotland

Action: Brian McFarlane to use SOWEC to consider opportunities for supply chain collaboration and coordination.

Action: Scottish Government officials and William Black to circulate a note to members explaining some of the finer points of the discussion.

Energy Task Force update

The Cabinet Secretary provided the opening remarks:

• the Energy Task Force was set up in 2020, with a clear objective of green recovery and reducing the barriers to the energy sector. It is a collaborative effort between private and public sectors
• the Task Force met with Secretary of State, Kwasi Kwarteng, and Ofgem CEO, Jonathan Brearley, on 30 November to raise and agree priorities. It is hoped a further meeting will be held in February or March

Hazel Gulliver, deputising for Keith Anderson, CEO of Scottish Power, said that the Task Force is pleased to have progressed with BEIS and Ofgem and look forward to the business plan being published. The barriers have been identified, and each has been picked up with an owner, who will progress and report back monthly.

AOB

There were no items raised under AOB, and the chair closed the meeting.

Summary of action points

Action owner: Secretariat

Action: Update 4 October minutes and publish on the Scottish Government website.

Due: February 2022

Action owner: Sir Jim McDonald

Action: Consider if a communication can be sent from SEAB regarding energy prices to flag the areas which should be prioritised.

Due: February 2022

Action owner: Brian McFarlane

Action: Use SOWEC to consider opportunities for supply chain collaboration and coordination.

Due: April 2022

Action owner: William Black/SG Officials

Action: Circulate a note to members explaining the finer points of ScotWind discussion.

Due: April 2022