Economy, Energy and Fair Work Committee

Meeting date: Tuesday, January 15, 2019

Official Report 783KB pdf

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Budget Scrutiny 2019-20

We turn to budget scrutiny. Paul Wheelhouse, the Minister for Energy, Connectivity and the Islands, is here with Sue Kearns, who is deputy director, and Neil Ritchie, who is head of energy company services, in the consumers and low carbon division of the Scottish Government. I welcome the three of you and invite the minister to make a brief opening statement.

As this is my first appearance at the committee in 2019, I wish all committee members a happy new year, if it is not too late to do that.

I am pleased to be here today to support the committee’s draft budget scrutiny. Scotland is an energy-rich nation, and its wealth of energy resource provides significant opportunities for supporting sustainable economic growth and our national wellbeing.

A successful energy system not only provides the means to deliver against the energy trilemma so that we have secure, reliable and affordable low-carbon energy sources, but makes important contributions to Scottish Government priorities including economic development, tackling fuel poverty and responding to climate change.

We have just passed the first anniversary of publication of our first energy strategy for Scotland. In the spring, we will publish the first annual energy statement showing progress to date. I intend to publish our electricity and gas networks vision statement later this month, which will take into account the latest data.

The energy strategy sets out our ambitions with regard to energy generation and use. Not all the relevant powers are currently devolved to the Scottish Parliament, but through financial support, planning policy, our wider influence and a range of devolved policy responsibilities, we have significant scope to champion the energy agenda. I look forward to updating the committee on delivery of Scotland’s energy strategy.

One strand of the strategy is the ambition to establish a public energy company. I welcome the committee’s recent constructive report and assure you that we will take your views into our thinking as we go forward. The public energy company will be at the centre of the energy strategy’s delivery. It can be a vehicle for delivering and supporting many of the strategy’s outcomes, including tackling fuel poverty, supporting economic development and contributing to mitigating the risks from damaging climate change. Through its public sector ethos, it can be a way of positioning the consumer and communities, rather than profit maximisation, at the centre of our energy transition.

We have engaged with local authorities to develop that approach; I am keen that we develop the concept jointly through partnership and co-design with our local government partners. We intend that the completed outline business case will add substance to our development of next steps and a substantive proposal for consultation. It will allow us to assess the commercial, financial and economic case, which is essential, given the recent dynamics of the energy supply market. However, given the potential outcomes, we cannot wait until 2021 to see whether the current price cap is able to deliver improvements in respect of fuel poverty, and I have concerns that it has led to unintended consequences.

To reiterate, I am grateful for the committee’s positive and constructive report, and I look forward to working with you to deliver the potential from Scotland’s considerable energy opportunities. I am aware that there are a range of interests today with regard to the budget, and I am glad to answer questions as best I can.

If the impression of members of the public is that the public energy company will be just another quango that costs taxpayers’ money, what will be your response?

I am always mindful of such concerns. Since the work that was done by then finance secretary John Swinney to rationalise the number of quangos and non-governmental organisations, we take steps to create new bodies with great care, so that we do not create unnecessary new bureaucracy.

The intention is to deliver on the twin aims that the First Minister set out in October 2017—to add value in the context of the fuel poverty agenda and to contribute to economic development. The outline business case will be critical in establishing the role that a public energy company can play in what is quite a busy landscape in terms of the number of energy providers that are available to customers.

With regard to the different role that the company will play, we want to take an approach that is not about profit maximisation, but is about delivering the best result and a good service for customers, and doing the best that we can to integrate efforts on energy efficiency. We hope that we can carve out an important niche in the market, that we can deliver improved services and that we can, by internalising profit margins, lower prices for customers.

I want to ask about energy targets for community and locally owned generators. The Government had a generation target of 1GW by 2020 and 2GW by 2030, and I understand that the next annual report of the Energy Saving Trust will say that we hit 706MW in June 2018. Is the Government still on track to hit its targets?

We have already increased the ambition in the targets for 2020 and 2030. Originally, we had a target of 0.5GW, but we exceeded it, so we upped the target. Mr MacDonald is absolutely right that, at present, we are at about 70 per cent of the 2020 target.

Although we have had a welcome 6 per cent increase in the past year, we need to increase the rate of growth of community renewables, and to do so against the backdrop of a changed UK-wide regime for feed-in tariffs. We are keen to feed in to the UK Government’s consultation on support for exporting energy from small and community generators to the grid, because we want to ensure that there are adequate support mechanisms to stimulate such activity. That is important to us and the communities that have developed generation.

We are operating against headwinds, but we are optimistic that we are on track to deliver significant growth. We are aware that there is about 882MW in community and locally owned projects in the system—under the definition, not all are community projects—which takes us almost up to 1.6GW, with the 697MW that we know about, which I hope we will soon exceed. We still have work to do to get to the 2GW target by 2030, and we are under pressure with the revised 2020 target and the headwinds that I mentioned, but we are pressing on regardless and doing the best that we can to stimulate development through the community and renewable energy scheme. It is very important to us.

In 2015, the United Kingdom Government announced that it would end feed-in tariffs, which you mentioned, by April 2019. Aberdeenshire Council has said that reductions in feed-in tariffs have meant that it is difficult to make wind and hydro projects financially viable. What impact has that announcement had on the pipeline of projects?

As with all such changes of policy, that has created a bit of uncertainty for those who have been planning projects. I know that there was great concern about it. On behalf of the smaller project and community sector, we fed into the UK Government’s work on feed-in tariffs that it would be a mistake to lose such projects. We have made inquiries into whether there is any scope for the Scottish Parliament or Scottish Government to do something of our own. We will try to discuss that with UK ministers.

The UK Government has announced plans for a guarantee scheme for revenues for local and community projects exporting to the grid, and will be consulting on it. We will feed into that consultation and try to influence the scheme as positively as we can for Scotland. There is no doubt that loss of the feed-in tariff, which was a popular mechanism that is still used in similar schemes around Europe, is potentially damaging to the interests of the community sector and will present a headwind for us. We do not have direct control over the intervention, because it is a reserved power, but we are trying to influence as best we can and to make sure that Scotland’s needs are represented in the discussions that the UK Government takes forward with the industry.

The feed-in tariff will end in April 2019. Has there been any indication of when any new scheme will come in? The trade press on renewable energy has suggested that it might not come in until 2025.

There is certainly concern about delay in implementing a successor scheme. If I may, convener, I will bring in Sue Kearns, who is close to the issue through negotiation with officials in the Department for Business, Energy and Industrial Strategy, to comment on the detail of the consultation.

The consultation has just gone live, so it is very young. We will have to take time to look at it. One important thing that has not been spoken about at the committee is the opportunity for shared ownership. That is one of the focuses that we have put into the community and renewable energy scheme. With commercial schemes still on-going and developing, we want to make sure that communities get a chance to buy in to those schemes. That is where there is a huge prize for community ownership in the future. We are working hard to encourage developers to allow communities those opportunities.

Thank you.

I will add briefly to what Sue Kearns said. We expect that by 2020-21 half of all planning applications will include a shared-revenue element. In my discussions with developers, most are looking at shared-revenue options for communities at local level. That may, for example, mean 10 per cent or more of a project being owned by the community. We would be keen to support that through CARES, through which we fund communities for feasibility work and pre-investment advice. We can potentially access funds through the energy investment fund, to support communities with the capital funding that they need to invest in projects.

The ability to have a shared-revenue element in a project increases the sense of ownership, both literally and in terms of the effect of a project on the community: it feels more satisfying from the community’s point of view and from a policy point of view. It is more satisfying for us to see projects in which there is significant community investment and, therefore, community benefit from the revenues. Discussions with developers are encouraging.

It is not always possible to find a local community group that is willing to take on a share in a renewable project. We can help, through Local Energy Scotland and CARES, to build local capacity to take that on. The committee will appreciate that, where the population is sparse or communities already feel overstretched by the various groups that they are involved with, there can sometimes be reluctance to take on such a major capital project. We will do everything that we can to support communities to take the option.

Figures that we have seen show that community energy represents a small proportion of the total, at 11 per cent. What steps are you taking to address that?

That is important, and we need to be open and honest about the figures. If the committee does not already have it, we can provide a breakdown of the total figure of 697MW that I mentioned.

Mr Beattie is right that 11 per cent of the total is community energy, so it is a relatively small proportion. There are some significant projects in the pipeline, such as Viking Energy Shetland LLP. I know that it is not universally popular—I am not pretending that it is—but it is half owned by the community, so there could be in excess of 300MW of community ownership in that one project alone, which would be a significant benefit.

We will continue to support communities, through CARES, to develop their renewable energy projects and to take a stake in commercial projects through shared or overall ownership, where it is economically viable for them to do so. We are mindful of the transitional phase that we are currently experiencing, following removal of the UK Government subsidies through the feed-in tariff, and the likely complexity of projects coming forward.

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Through CARES and Local Energy Scotland, we will continue to work as closely as we can with communities and will tailor support and advice accordingly, with a view to ensuring that they remain engaged in our low-carbon transition and meet their long-term needs and aspirations.

The fact that projects can have a really significant regeneration impact at local level is beginning to land with UK ministers, too. I am sure that members have all seen good examples of projects in which communities see investment in physical infrastructure and in the skills of local young people who have been supported. For example, in Tolsta in the Western Isles there is additional support to make it easier for students to go off-island to study on the mainland. Such projects help social and physical regeneration in communities in very practical ways.

Which technologies have the most potential to transform community energy?

At this moment in time, the answer is a combination of technologies. Wind energy is extremely cheap compared with other generation sources, which is good for the consumer who, as the buyer of electricity, gets relatively cheap electricity. However, wind is also a stable and known technology that is regarded as being relatively low risk from a finance point of view. It is therefore easier to attract finance to community projects that involve on-shore wind, for example.

Solar energy is also a good technology for communities. It has relatively good returns on investment based on the low cost of the energy. There is a ready market for energy that is keeping the overall price for consumers down. More expensive technologies, whether they are new renewables technologies or nuclear, for example, are relatively expensive per megawatt hour. Clearly we would not expect a community to have a nuclear power station, but onshore wind is a really good technology for many projects across the country.

Scotland also has almost 80 per cent of small-scale hydro projects, mainly because our topography and terrain lend themselves to such projects. We also have a strong culture of communities pursuing such projects, which have been good earners for them, particularly in the west and north of Scotland.

We are keen that the UK policy changes do not dent the very strong profile that we have in community-owned onshore wind and hydro projects.

Do you consider that the resources that are available are being appropriately targeted to ensure maximum development of the technologies.

We are doing our best to ensure that we target resources where they will have the biggest impact. Clearly we are also trying to support emerging technologies including wave and tidal power, which we believe will have particular relevance for communities in our coastal and island areas in the longer term. In combination with battery storage, projects could become viable through the concept of arbitrage.

Projects are being taken forward by Nova Innovation, which is based in Leith. In the Shetland Islands, a project is combining a Tesla grid-scale battery—the first to be installed in the UK, I believe—with a tidal project. That might demonstrate that a significant breakthrough could be made in terms of its economics. As production volumes get up to Henry Ford-level economies of scale in the manufacturing process, the levelised cost of energy—the cost per megawatt hour—will tumble as more machines are made and the capital cost of equipment drops

At this moment in time, wind, solar and hydro technologies are the mainstays of community projects, but I hope that in the future the newer technologies—tidal power, in the early stages, and wave power in the longer term—will also prove to be attractive to communities. On remote island wind, we have significant community interest in the Viking Energy Shetland project and in projects in Orkney and the Western Isles.

There is development across a range of technologies. My colleague Sue Kearns would like to come in on that point.

When it comes to future projects, we should also think about some of the innovation schemes that we are funding that involve local energy systems. Many community groups are involved in such projects, which can be quite complex. I must be honest and say that we need to look for commerciality in the different forms of such systems. We are not there yet, but they hold potential for the future.

The minister mentioned the combination of a storage scheme with marine energy. We are looking at combinations of technologies rather than at single technologies. I think that such combinations are the answer for the future; they will bring in revenue locally.

The other side is heat and energy efficiency. Some community groups that already have renewable electricity schemes have an appetite for getting involved in Scotland’s energy efficiency programme—they want to get involved in heat and energy efficiency and to find out what that could bring to their communities. It is important that we encourage that interest.

That was helpful.

I have an additional point to make, which partly answers the convener’s opening question about what a public energy company could do that is different. Although we do not have firm plans on that, I like to think that in the longer term, through progression of a project with local government, there could be scope for selling the electricity from local energy generation to our customers through the white label company process. If we develop a public energy company, providing a market for such community-owned local energy across Scotland could be a way of substituting for the lack of a feed-in tariff. However, we are at the stage of looking at whether that is a possibility; we do not have a firm answer, as we are still early in the process. I would like to find out what a public energy company could add in supporting such local generation.

You mentioned the proposal to have a publicly owned energy company. Is there anything in the 2019-20 budget for that? I realise that we are at quite an early stage in the process.

We are certainly providing support for the development of the business case, but it would be wrong to suggest that a significant funding stream for that is identified in the budget. As we take forward the answers that are developed by the consultants in the business case, we will have to provide identified funding streams to implement the outcomes of the study.

So, for 2019-20, that work would be covered by the normal cost of administration.

We are dealing with the cost of developing a business case. Until we get an answer on whether a public energy company is a viable project for the Government to proceed with on behalf of the people of Scotland, we will not identify a specific funding strand—that will probably be in next year’s budget.

So it will probably be in the budget for 2020-21, after which it might increase. Would there always be budgetary input into a publicly owned energy company, or might it be revenue neutral in the longer term?

I am aware from my on-going discussions with established energy providers that margins are pretty tight. We would not seek to operate a model that was an albatross around the neck of the taxpayer; we would want such a company to cover its costs, while operating on a not-for-profit basis, as the First Minister has set out. Instead of funds leaving the business in the form of returns to shareholders, those resources could be retained and channelled back into the company.

Through the development of a business case, we will look at whether a public energy company is a viable proposition. We would not want to land the people of Scotland with something that was a significant drain on public resources—we would want it to be able to wash its face, but in such a way that provides additional value for consumers in tackling fuel poverty.

That is fine. I just wanted to find out whether it would have an impact on the budget, and you have answered that.

You mentioned that the viability of a public energy company is still being reviewed. What timeline are you working towards in establishing whether such a company would be viable?

We are developing the outline business case. I ask my colleague Neil Ritchie, who is in charge of that, to give details of when the consultants will come back to the Scottish Government with their initial report, the findings of which we intend to share with the Parliament.

The timeline that we are working to is that we will receive the consultants’ outline business case towards the end of March. We will publish that along with a consultation to seek wider views on the conclusions of the report and our assessment, along with that of local authorities, of questions such as what the energy company should and should not do. We want to get clarity on the vision, which is a point that comes back to the committee’s report. We need to have a very clear objective for what we are trying to do.

It is worth emphasising to Mr Lockhart and other colleagues that it is not just about warm words and that we are keen to work with local government on that. Its view on the attractiveness of the idea to it and its partners will be critical to our decision on how we progress.

Based on the analysis that you have done so far, how comfortable are you that it is a viable proposition?

Obviously, we will not know in hard terms until we have the report from the consultants and, even then, we will need to seek feedback on it. However, we believe that there is an opportunity to work with local government. A number of local authorities are either in the process of or have voiced an interest in creating their own local energy supply companies. For example, Highland Council is progressing plans, Aberdeen Heat and Power is already well established and other local authorities have an interest in the issue. We are trying to take advantage of the interest in the issue in local government and to work with our local government partners to create an overarching brand that is bigger than the sum of its parts. We could work in partnership with local government to use the marketing power of a national brand to drive activity on local energy supply companies.

The concept is sound; certainly, the committee’s report seems to have determined independently that there is potentially an attractive model to take forward. However, we will not know until the consultants come back with the report. We will have to trust their professional judgment as to the commercial viability of the proposal.

We would have to acknowledge the very challenging environment at the moment for local energy supply companies. As I am sure that you are aware, a number of younger companies have gone to the wall in recent months, which is a concern to us. We understand why the UK Government has brought in the price cap in the market, although we are concerned that there may be unintended consequences, and we have raised those issues with Ms Perry and her colleagues and asked them to be mindful of the impact that the cap is having on the market. Obviously, we must take into account the impact of the price cap and other market factors at the time when we make a decision, whenever that is.

As Mr Wheelhouse mentioned, public energy companies elsewhere in the UK have struggled: Portsmouth City Council has recently decided to abandon its plans and Bristol Energy posted a loss of £8.4 million last year, which shows that such companies come at a cost. What lessons will the Scottish Government take from the challenges that public energy companies face elsewhere?

The first thing to say is that we are trying to learn from that. I know that Neil Ritchie and other colleagues in the team have been engaging with Robin Hood Energy and other companies that are up and running in the UK to try to understand the challenges that we face. We are learning a lot from our interaction with the companies in Scotland that have encountered difficulty and that we are trying to support. We have had recent issues with Spark Energy and other providers that are finding life pretty tough. Even the big six suppliers are finding some of the market conditions tougher than they were in recent years, because margins are being squeezed. We are very much alive to that.

To address Mr Lockhart’s point and Mr Mason’s point, if we proceed with a public energy company, that will be on the basis that it is not to the detriment of wider public funding commitments. That is a calculated decision that we will have to make once we have the full information before us. I reassure Mr Lockhart and the committee that we are mindful of the need to act responsibly and to take sound decisions. We will do all the due diligence that the committee would expect of us before we take any decision.

I have a brief question that picks up on what Mr Wheelhouse said earlier about community shares in commercial schemes. To be clear, is that a new element that the Government is proposing for CARES or is it an element that can already be supported?

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Mr Wightman is right to raise that. CARES is already active in that space and is advising communities, but we want that aspect to grow. We should reflect on the fact that, in the current environment, there is no proposed new pot 1 option for established technologies, including onshore wind projects, from the UK Government, which means that we have to be mindful that the financial environment has changed significantly for onshore wind developers. Although there are a number of means by which they can address that—through larger wind turbines, the length of planning consents being extended to give more investor certainty and other measures that can be taken forward—we believe that one area in which we can continue to see significant community benefit in the broadest sense from onshore wind projects is by the community taking on a shared revenue model.

That would perhaps be a more attractive alternative for the developer, but there is a sharing of risk for the community involved, and we have to be careful to give communities the best advice possible so that they do not unnecessarily take on risks that might damage their interests. Assuming that that is a positive position for a community, it could be supported with projects that allow it to co-invest with a developer. I hope that, in many cases, communities will do the entire project. We have seen great examples of that across the country. There will also be circumstances in which a community will co-invest with a larger developer or landowner in the local area. We would be keen on that.

We are currently consulting on revisions to the good practice principles that we have established, which are largely associated with the figure of £5,000 per megawatt, which members may be familiar with. We also have a community register so that developers can post what community benefit they provide to communities. We believe that a shared revenue model may be an attractive model for developers rather than the traditional means of supporting communities through community benefit payments.

I wanted to ask a question about fuel poverty, energy efficiency and the warmer homes Scotland scheme, but I am aware that they are not in your portfolio. I get frustrated that energy is split across portfolios. Warmer homes Scotland has a £3 million budget cut, from £27 million to £24 million. In the context of a broader budget that is increasing, I wondered why that was the case.

Obviously, the detail of that will be for Mr Stewart. We regard energy efficiency as a very high priority so, across the piece, we are spending half a billion pounds in total on energy efficiency measures. I appreciate that that does not deal with the specific issue that Mr Wightman has raised.

I will raise it with Mr Stewart.

That would be more appropriate, as he is responsible for that.

I think that you indicated earlier that the next annual report on CARES is due to be published imminently. Is that next month or in two months?

I ask Sue Kearns to talk about the publication date.

To be honest, I am not sure about that. You are probably right that it is imminent. We certainly have the figures.

I had difficulty in getting hold of data from the Energy Saving Trust, but I eventually got a table of all the recipients in the schemes. Will that table be routinely published?

You probably had difficulty because of data protection. Some of the information has to be redacted, as individuals own some of the schemes. That was probably the issue, but I will look into that for you to see what can be published.

Thank you.

In a report by the Energy Saving Trust entitled “Community and locally owned renewable energy in Scotland at June 2017”, the definition of “locally owned” in relation to farms and estates is that it is

“where the person or organisation listed as the applicant in the planning application gives their address as being in Scotland.”

The report goes on to say:

“Estate ownership is often difficult to establish, but where possible publicly available information has been used to establish whether estate owners are normally resident on the estate where the installation is to be built.”

From looking at the data, I found a company that is owned by an offshore company, an estate that is owned by a family in the Netherlands, quite a large farm that is owned in Lincolnshire, another estate that is owned by someone who lives in Lancashire, and Leicester was mentioned. How rigorously do you explore whether organisations are locally owned?

I do not know the answer to Mr Wightman’s question on the definition. I take the point entirely. I know that Mr Wightman has a long track record of being very good at digging into that data, so I entirely trust what he has said as being accurate.

On farms and estates, I think that 280MW in total is assumed within the 697MW that I mentioned. That was at December last year in Energy Saving Trust figures. I am not sure whether that will be updated to 706MW, which was referred to earlier.

I take Mr Wightman’s point entirely. Obviously, the definition of “community and locally owned” is quite broad in that it does not focus purely on people who live locally and are in the community on a day-to-day basis. It is clear that we need to have a look at breaking that down further, if we can, to show the extent to which there is maybe a loss of revenues out of the country, if that is the point that Mr Wightman is making.

The definition of eligibility says that, normally,

“the person or organisation listed as the applicant in the planning application gives their address as being in Scotland.”

However, the applicant in a planning application may not bear any relation to the owner. Also, the definition implies that information is

“used to establish whether owners are normally resident”.

I am wondering why there is a discrepancy between the definition and some of the recipients, and whether you will tighten up either the process of assessing eligibility or the definition, or both.

I am happy to come back to Mr Wightman on the important point that he has raised. We do not want the policy intention to be undermined in any way by poor policing of that point. I am not saying that there is poor policing, but I will look into that and see whether we can come back to the committee on it, as it seems to be of interest.

Obviously, our intent is to generate projects that benefit the local community and from which we see the returns on the investment having the desired impact on economic development in the local community. If that is not happening or is being undermined in any way by the point that Mr Wightman has raised, I am keen to look into it. I will be happy to discuss the detail with him so that we can dig into it.

We can liaise with the Energy Saving Trust over how to record the information to ensure that it is accurate. That is not to criticise the people who are involved in those projects in any way, but we want to ensure that the policy intent is being delivered. To an extent, if there is an overseas landowner who has a local agent who appears as the local person in the process, as long as the benefits come back to the community, that would deliver the policy intent. However, rather than come up with an inaccurate point relying on the high-level statistics, we can drill down into them and try to identify whether there is a problem that needs to be solved.

Can I ask for clarification about the organisations that Mr Wightman identified? Are they CARES applicants or are they just on the EST list as farmers or estates that have developed schemes? If they are just on the list because they are on the overall register as being within the 700MW, they may not be recipients of CARES support.

It is under CARES that organisations have to show that they are resident in Scotland, and farms and estates have to provide a very high level of community benefit in order to qualify for that support. However, if they are not getting any support under CARES and are just developing their own scheme, it is up to them where they live. I am asking for clarification about whether it is an issue under CARES.

It is not clear whether they are all CARES applicants. I concede that point. I am using a database called “COLO Map Extract”, which is data that the Energy Saving Trust is collecting.

Yes—that is the full data. We would have to double-check whether those particular schemes got support under CARES. If they did not, we have no control over whether they are developing schemes and where those people live; that is a planning matter. However, if they apply for CARES support, that is when the requirement comes into effect.

I take that point, which is a useful clarification. Nevertheless, in a few cases, regardless of whether they get CARES support, the definition seems to be at odds with some of the categorised installations on that list. That is a data-capture issue, never mind the CARES point.

We will happily look at that and see whether we can come back to the committee with any detail.

My final point is whether there is any evaluation of the needs of the applicant in terms of receiving CARES support. Are they assessed as to their independent wealth?

I will refer that point to Ms Kearns.

There is an additionality section in the applications. Applicants have to say whether they will be able to progress the scheme if they do not get the support. Obviously, they are meant to answer that honestly. I am not sure how much probing goes into it, but the applicant is meant to answer that section to provide information for the assessment of additionality.

Minister, you and Susan Kearns have mentioned innovation. The projects in Shetland have been mentioned, and I know that you visited Surf ‘n’ Turf in Orkney. The storage aspect is increasingly important. Is that importance reflected in the budget?

Absolutely. As Sue Kearns said, we are keen to promote more integrated projects. I am familiar with the Surf ‘n’ Turf and BIG HIT—building innovative green hydrogen systems in isolated territories—projects. We have supported projects in the Orkney islands involving storage, because of the grid constraint issue, which we hope will be overcome. There has also been an opportunity to explore areas such as hydrogen as a storage option for the development of hydrogen ferries.

It might be a subtle point, but we have rebranded the renewable energy investment fund as the energy investment fund. We have moved away from a focus purely on renewables in order to allow for storage to be included and for more integrated projects to be supported. The EIF is now available for projects that integrate generation and storage. As Sue Kearns said, under the low-carbon infrastructure transition programme and through other routes, we have been trying to support more integrated projects. In the Orkney islands and elsewhere, heat batteries have been used. Sunamp, a Scotland-based manufacturer, is taking forward a project with Castle Rock Edinvar Housing Association in Lothian and Midlothian that combines solar power with heat battery storage. It also has a control group that is just using solar power alone, so that the impact of heat storage arrays can be evaluated.

You are right to identify that storage is an important factor. As I said, although it might not have the high profile that some other projects have, the investment that Nova Innovation and Tesla are making in their project in the Shetland Islands is interesting from the point of view of finding a way of allowing electricity that is produced by relatively high-cost generation technology—which is high-cost technology at the moment only because of the manufacturing volumes—to be sold through arbitrage at the point when it can be sold in the market at the best price, which allows the generator to avoid a reliance on the wholesale price.

Storage can play a number of roles, not only in that sense but in terms of balancing the grid. We are keen for it to be developed. As the energy strategy sets out, we are keen to develop local energy supply-and-demand relationships, and I know that the regulator is considering that issue with regard to how it can use its influence to try to support the development of a clearer local supply-and-demand relationship across Scotland and the rest of the UK.

At the moment, the scheme is part of integrated schemes and projects that are coming forward. In this year’s budget or in future budgets, will there be a greater focus on dedicated storage as an independent area of innovation rather than as something that is tied to integrated systems?

If I understand your point correctly, the answer is yes. I should stress that Scottish Enterprise and Highlands and Islands Enterprise are active in supporting research and development around storage, and that the power networks demonstration centre in Cumbernauld, a research institute, is trialling battery technology with support from enterprise companies and the Scottish Government.

We consider storage in its own right, but we see its particular value coming when it is integrated as part of a wider solution. Of course, we are looking at low-carbon transport options, with the batteries in the vehicles helping to balance the grid at peak periods when plug-in vehicles are connected to the grid. There are a number of ways in which storage can play an important role as we develop a more whole-system approach to our energy system.

That concludes this part of the meeting. I thank the minister and his officials for attending.

10:28 Meeting suspended.  

10:31 On resuming—