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A funding load to bear in event of Yes vote

We need to keep on the lights, heat our homes, and fuel our factories.

That can be taken as a given. What cannot be taken for granted is a constant supply of energy, in either Scotland or the UK, without radical intervention, matched by major injections of funding. Scotland, as part of the UK, benefits from the shared opportunities of a single energy market so it would be brave, if not foolhardy, to consider breaking it up.

Myths prevail about a separate Scotland's potential contribution to the energy needs of England, Wales and Northern Ireland so it may be timely to say that England, Wales and Northern Ireland will neither be dependent on Scottish energy nor be obliged to buy it if Scotland decides to go it alone. And if there was any doubt about that, the European Court of Justice emphatically decreed this week that no government must pay subsidies to renewable generators in another country.

 

Scotland has huge potential in terms of renewables, and the sector could bring great economic benefit to Scotland if it remains part of the UK. If the UK is broken up there will be no certainty at all. Exploiting renewable resources is expensive and, without a magic wand to wave it onto the grid, someone has to pay. Wherever we live in the UK, a proportion of our energy bills supports renewables so costs are shared amongst the UK's 26 million households. Of the money collected, Scotland receives around one-third though it has only 8.3 per cent of the UK's population.

If Scotland breaks away, 2.6 million households would have to bear the funding load: either energy bills would rise dramatically or Scotland's Government would have to find the funding from the taxpayer's purse. To maintain existing renewables, far less fund its renewables target, the Department of Energy and Climate Change estimates an increase of £189 on consumers' bills.

Also, the UK Government intends to support the electricity transmission projects in Scotland to the tune of £6 billion over the next seven years; spend around £92 million to supply gas to remote Scottish communities; and, quite rightly, spend around £54m to protect 690,000 domestic consumers in the north of Scotland from the high costs of distributing electricity to sparsely populated areas. Some nationalists insist nothing would change; cross subsidisation would continue. It is difficult to understand why this would be so, or even why it should be. Consumers in England, Northern Ireland and Wales already so object to the cost of energy so much that it is high on the political agenda. The Scottish consumer cannot expect hard-pressed English, Welsh or Northern Irish consumers to fund a subsidy when paying their own bills is a struggle, and it would be an interesting politician who made such a case.

Energy suppliers, making commercial decisions, will follow the price and, if they can buy it cheaper from continental Europe, they will. One foreign country will be the same as another in the boardroom and neighbourly sentiment will count for nothing if it drives down the share price.

England already has 10 times more interconnection capacity with the rest of Europe than it does with Scotland and, since there is nothing special about Scottish low carbon power without the benefits of the single market, there is no earthly reason to believe the status quo would prevail.

The only way Scotland would maintain and improve its market position would be to drive down the cost of its energy, and that would mean diminishing returns. England and Wales import more energy from France and Holland (5 per cent) than they do from Scotland (4.59 per cent) and they are growing ever closer links with Belgium, France and Norway, on course to double the English-European capacity by the end of the decade. The competition for Scotland would be fierce.

The National Grid's latest Transmissions Quarterly Connections Update says England and Wales in theory can meet their renewable emissions targets without any contribution from Scotland. So who would buy Scottish renewables?

It is reasonable to ask how Scotland's renewables industry could flourish outwith a single energy market. And it would be good to have an answer based on fact, not supposition.

Contextual targeting label: 
Finance

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