A “yes” vote on 18 September would create uncertainty over the future of the integrated UK power market and over support for renewable energy in Scotlan. A vote by Scotland in favour of independence from the UK would be likely to damage clean energy investment, at least in the short term, as developers and banks are gripped by uncertainty over the future shape of the power market and incentives for renewables.
Research from analysis company Bloomberg New Energy Finance, published this week, concludes that the negotiations between Scotland and the rest of the UK over energy – after any “yes” vote on 18 September – would be complex, involving tough bargaining, and would be likely to extend over a period of many months, if not longer.
Kieron Stopforth, analyst at Bloomberg New Energy Finance and author of the research, commented: “During this period of negotiation, with oil, power and renewables support under discussion as well as the currency, defence and national debt, clean energy investors would feel less than confident about future prospects, and decisions will inevitably be delayed.
“These delays could hit projects in the whole of the UK for a time, but the longer-lasting effect would be on those in Scotland if they are unable to compete for support under the Renewables Obligation or Contract-for-Difference schemes.”
The Contract-for-Difference, or CfD, support scheme is currently being phased in, and in April the 664MW Beatrice offshore wind project in Scottish waters, costing an estimated $3.4bn, was selected by the UK Department of Energy and Climate Change (DECC) for an early contract underpinning the price it will receive for its electricity. DECC is due to hold its first full CfD auction in October. It has declined to say whether this might be delayed by a “yes” vote in the referendum.
Bloomberg New Energy Finance found that England and Wales have limited dependence on Scotland for power. In 2012, they imported less than 4% of their net electricity consumption from Scotland, compared to 4.7% from Europe. With lower absolute generation levels and less interconnection capacity, Scotland may be more reliant on England and Wales as a customer than they are on Scotland as a generator.
Michael Liebreich, chairman of the advisory board at Bloomberg New Energy Finance, said: “The number one priority for Europe’s energy sector is to achieve higher levels of market and technical integration, to balance variable renewable generation. Any change that threatens that, especially if it creates a long period of uncertainty, is a step in the wrong direction. A ‘yes’ vote would be likely to slam the brakes on the Scottish renewable energy sector.”
UK clean energy investment hit a record $13.1bn in 2013, up from $11.6bn in 2012 and the second highest figure for any country in Europe, just behind Germany’s $14.1bn. Scotland, with its unusually good wind power resources, contributed to this UK total with a number of big asset finance deals such as $271m for the 117MW Fred Olsen wind portfolio in the north east, $158m for the Samsung Heavy demonstration offshore wind farm in Fife and $78m for the 37MW Clashindarroch wind farm in Aberdeenshire.
Scotland has set out its stall to be a strong force in renewable energy. In 2013, its renewable generation (mainly from onshore wind and hydro-electric) was equivalent to 47% of domestic electricity consumption, and the Scottish government in 2011 published a target for this to reach 100% by 2020. It has since become clear that this target is unlikely now to be met, because of delays to several large offshore wind projects in Scottish waters. Scotland is also home to much of the world’s activity in the fledgling technologies of wave and tidal stream.
In April, Scottish First Minister Alex Salmond made a speech at the Bloomberg New Energy Finance Summit in New York, highlighting Scotland’s “potential to become the intellectual powerhouse of green energy”, benefitting from its natural resources, the excellence of its universities and a long-term approach to investment.
Angus McCrone, senior analyst at Bloomberg New Energy Finance, said: “Scotland has indeed been a firm supporter of renewable energy, under the current Scottish National Party administration and its predecessors. No doubt, in the very long term, many new projects will be developed there, whatever the result on 18 September.
“But our concern is that in the event of a “yes” vote, there could be a loss of momentum as investors worry about the likely price and market for electricity their projects could generate. One leading renewable energy developer, Infinis Energy, has already said that it will not make an investment decision on two wind projects in Scotland until the outcome of the referendum and its effects on energy policy are known.”
Bloomberg New Energy Finance figures show that Scotland has 4.7GW of commissioned wind farms, with another 900MW financed or under construction. There are a further 5.7GW permitted and 11.3GW at the announced or planning-begun stage. The permitted category alone could be equivalent to more than $12bn of investment.