Economy, Energy and Tourism Committee, 10 Sep 2008

Meeting date: Wednesday, September 10, 2008

Official Report 285KB pdf

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Energy Inquiry

The next item of business is an initial evidence-taking session in our determining and delivering Scotland's energy future inquiry. I draw members' attention to the late papers that have been circulated.

I welcome David Wilson, who is the director of the Scottish Government enterprise, energy and tourism directorate; Jane Morgan, who is a deputy director and the head of the energy and telecommunications division; and David Rennie, who is the head of the energy policy unit.

The purpose of today's session is to hear evidence from the witnesses in order to set the scene for our energy inquiry and to understand what current Scottish Government policy is and what its future policy will be. A new document, "Energy Policy: An Overview", which was published yesterday, has been circulated; the witnesses will give a presentation on its key parts. I think that David Wilson will start.

Jane Morgan will begin. She will give an overview of energy policy in her presentation.

Good morning. As the convener said, "Energy Policy: An Overview" was put on the Scottish Government's website yesterday and sent to the committee then. I realise that members have had a rather short time to read it. I will give members even more of an overview of energy policy than that document does. Obviously, I cannot talk about everything in the document, but I will give a brief context for members' questions. I realise that those questions will go into much more detail than any presentation that we can give.

The first key point to make is that the energy policy is designed to fit clearly with the Scottish Government's overall purpose of securing sustainable economic growth. We have two headline objectives—to ensure that the energy sector contributes to economic growth, and to ensure that it does so in such a way as to meet objectives to reduce carbon emissions.

I will briefly remind members of some of the existing targets towards which we are working. The first is perhaps the best known; it focuses on a subset of energy—electricity. As members can see on the slide, we want 50 per cent of the Scottish demand for electricity to be met from renewable sources by 2020, with an interim milestone of 31 per cent by 2011. The continued growth of renewables will contribute towards meeting an 80 per cent reduction in carbon emissions by 2050.

Since those targets were set, the European Union has set a target of 20 per cent of energy to be met by renewable sources by 2020. The slide says "2050" but that is wrong—I apologise. That energy target covers electricity, heat and transport. The United Kingdom has been allocated a target of 15 per cent by the EU, which takes account of the UK's wealth and of its starting position—which, overall in the UK, is low. The Scottish Government wants to go further and to hit a target of 20 per cent. Also, as I have said, we obviously want the growth in renewables to help us to hit our gross domestic product targets.

Ministers have a number of guiding principles in promoting energy growth and clean energy in particular. The principles are shown on the slide I am showing now. I will not go through them all, but it is worth noting both the wish for a strong commercial sector and the wish for community involvement and benefit, especially in the growth of renewable and decentralised energy.

There is an increasing push to play a leading role in Europe—contributing to European policy development and promoting the growth of our energy sector through working with European partners. To that end, the Government is working to set up a Scottish European green energy centre.

The two sides of the next slide deal with slightly different issues. The left-hand side reflects the point that I made earlier—that energy can be regarded as being composed of heat, transport and electricity. The objective is to become cleaner in all three. The right-hand side gives some idea of the current contribution of the energy sector to the overall economy. However, it is important to point out that the 3 per cent figure shown reflects quite a restrictive definition of the energy sector. If committee members wish, we can go into that in more detail later.

The next few slides deal with production and then consumption. It is important to note that the Scottish Government is focusing on the contribution to the economy of the production side and on the cleaner agenda, but it is also focusing on consumption, which offers a clear way of reducing carbon emissions. Focusing on consumption also offers clear economic opportunities.

On the production side, the slide shows a number of bullet points, first on electricity. Clean energy can come from a range of renewables technologies. The focus to date—in terms of what is contributing to installed capacity—has been on onshore wind and hydro. The objective is to have a much wider mix involving offshore wind, marine and biomass in particular.

As members will be aware, there was much debate yesterday at the conference organised by the Scottish Council for Development and Industry about the Scottish Government's view that nuclear energy is a very costly way of generating electricity and is not needed as part of the mix. The view is that market incentives will lead to new investment in thermal generation. In the UK, we have a system of market-led development, which gives incentives to new investment. One can expect to see new investment as much in thermal as in renewables.

I will mention heat again, to make the point that electricity is not the whole picture. At the moment, gas and oil dominate the way in which we heat our homes, commercial buildings and so forth. Part of the objective must be to move away from that dominance to renewable sources.

The push for cleaner energy is driven partly by European Union trading schemes. At the moment, such schemes affect generators and intensive users, but we need to do more than that: I am thinking of incentives for carbon capture and storage, to get that sector going. Towards that end, the Scottish Government has been pressing the UK Government hard to make speed in its funding of a CCS competition. For Scotland, CCS is not only an issue of carbon savings but an economic opportunity. Scotland has a strong research capacity in carbon storage and, indeed, engineering capacity in companies such as Doosan Babcock.

Where fossil fuel is the prime source of generation, we have a real opportunity to use it more effectively. In saying that, I am referring to the use not only of electricity but of combined heat and power. There is also the important issue of capturing waste heat, particularly from large industrial complexes such as Grangemouth; such work is really only beginning to be done. We do not want to pretend that we have looked into the matter extensively, but it is firmly on the agenda for the next few years. The oil and gas sector is hugely important to Scotland in terms of production and the supply chain. In that regard, our colleagues in Scottish Enterprise play an important role in helping companies to grow and internationalise.

I will stay with production but look briefly at renewable energy. We are seeing significant progress towards the interim target of having 5GW installed by 2011, which by our reckoning equates to 31 per cent of demand. As the minister announced yesterday, given that 5.5GW of projects are either installed or consented, the figure for installed capacity by 2011 would seem to be a justifiable expectation.

The main, but not the only, lever for promoting renewable electricity is the renewables obligation. Recently, we consulted on the introduction of banding to the renewables obligation, which would enable more support to be given to emerging technologies such as marine and offshore wind. We are taking a range of other actions to promote those emerging technologies. The committee may wish to ask us about that later in the session.

On infrastructure, I highlight support for the European Marine Energy Centre in Orkney, the carrying out of strategic environmental assessments to guide future development and the provision of grant support for technology development. The committee will be aware of the Scottish Government's announcement of the Saltire prize, the aim of which is to grow Scotland's profile in renewable energy, particularly in marine energy. Indeed, the aim of the prize is to help the sector to grow.

Around the end of this month, the Government will publish a renewable energy framework that covers power, heat and transport and shows how Scotland will address those three areas and contribute to the EU target. We will set out in that document our proposed targets for Scotland and those for the three sectors. We are considering different scales of generation, including microgeneration, the funding for which has already been trebled. For the future, we want to give further consideration to decentralised energy more generally.

One potential constraint on the growth of renewable energy is the operation of the grid. The currently proposed grid reinforcements allow for the 8GW of renewable electricity that is required to meet the 2020 target, but some of the bigger issues are about current access to the grid. Along with many in the industry, the Scottish Government believes that the recent proposals by the Department for Business, Enterprise and Regulatory Reform and the Office of Gas and Electricity Markets as part of the transmission access review do not go quite far enough. Officials are participating actively in that review. As members will know, the First Minister has made a strong case that transmission charging is not fair and, to a degree, disincentivises investment in Scotland.

The future export potential of renewable electricity from marine and offshore wind is huge. We are carrying out studies into the development of offshore grids with partners in Northern Ireland and Ireland, and we are seeking partners for studies on a North Sea grid. The aim is to make the commercial case for investment in an offshore grid. We are not talking about the Scottish Government investing in the grid; we are trying to demonstrate to the wider interest that a commercial case can be made for that investment.

I will move rapidly on to consumption, which is the other side of the picture and provides opportunities to reduce carbon impacts on the environment. There is a carbon imperative to act to reduce energy consumption, or at least to increase energy efficiency, but the rising prices that we have seen of late give that action added focus. Some powers in the area are reserved to the UK Government, but the Scottish Government has responsibility for the promotion of energy efficiency. Building standards are increasingly being ramped up to achieve better energy efficiency for new buildings. Advice and information for householders and businesses is funded through the energy saving Scotland advice network, which is run by the Energy Saving Trust and, for larger businesses in the public sector, the Carbon Trust. Loans are available to small businesses to take energy efficiency measures.

There are many available measures, with pretty good uptake, but we envisage a continued push on that. The intention is to develop further the services that the Energy Saving Trust provides. As members may be aware, a lot of attention is currently being given to making existing fuel poverty measures better focused on the most vulnerable. There is also a lot of focus on CERT—the carbon emissions reduction target. I do not know whether members are familiar with that, but it is a requirement on energy suppliers to fund energy efficiency measures for their consumers. Its predecessor was called EEC—the energy efficiency commitment, but the current version is called CERT. A group has been set up with ministers to consider how we can get the most out of the CERT requirement for Scotland.

I will continue to rush rapidly through my presentation—I apologise if I have rushed too rapidly. The key opportunity is to exploit our strengths. As ministers have made clear, Scotland has a big competitive advantage in energy: we have natural resources; a strong research base in our universities; and knowledge and skills, particularly in the oil and gas sector, that can be transferred to the renewables base to allow Scotland to become a leader in clean energy. That is a huge opportunity that must be exploited.

We have to ensure that UK frameworks—for example in relation to the operation of the grid—do not restrict growth and that the growth that can be secured benefits individual communities. It can act as a driving force for wider community regeneration, as it has in the Scottish islands where communities have been involved in renewable energy projects.

Finally, there is the challenge of dealing with the impact of rising energy prices.

I see that there are no questions from members at this point. The document to which you referred is called "Energy Policy: An Overview". Is the intention to develop that overview into a more detailed strategy? If so, how will that happen and what is the timescale?

The document's principal purpose is to give an overview—as its name suggests—and to draw together the wide range of different activities to explain how everything fits together. We do not intend to develop it into a specific, detailed, single, energy strategy as such.

As Jane Morgan said, there are many detailed areas—the renewable energy framework is an example of how we are driving forward renewable energy—and a number of other components to do with energy efficiency. It is an overview, but there will be more specific action plans and frameworks on individual components of it.

I was astonished to read in the document:

"The main objective as far as Energy is concerned is to progressively increase the generation of renewable and clean energy, to migrate Scotland away from a dependence on nuclear energy."

That seems different from the main energy objectives of every other country in the developed world: price and affordability, security of supply and the reduction of carbon emissions.

Let us imagine—many experts say that this is not possible—that we completely replace nuclear with renewable and clean energy. What would be the consequences in the short and medium term for carbon emissions, for security of supply and for price and affordability?

Gavin Brown has just outlined the purpose of our inquiry.

I am happy to answer the nuclear question in more detail, but will you clarify your initial point about the main objective?

It concerns me that instead of saying that our main objectives are to ensure that we reduce carbon emissions, provide affordable energy to people throughout Scotland and ensure security of supply—which are universally accepted as main priorities for just about every other country—we say on page 1 of the document that our

"main objective as far as Energy is concerned"

is to move towards clean energy and away from nuclear. Why is that our main objective?

I would not underestimate the fact that we make objectives around security of supply, affordable electricity and energy for all very clear in the document. It tries to make clear that we seek to draw together our energy—and in particular our electricity—approach to drive an electricity mix that can enable renewables as a key objective and a vision for how we want to take electricity forward in Scotland.

There are huge technological challenges around that, in relation to CCS and everything else, but we want it as a key objective of policy. That is not to say that any of the other things that you mentioned are unimportant; nothing in the document suggests that.

It does. It suggests that the main objective is to do exactly what it says on the tin. If that main objective is achieved—if we replace nuclear with renewables—by how much will we reduce carbon emissions, for example?

That is a wider question of—

Just give me a ballpark figure.

Our target is to reduce carbon emissions by 80 per cent by 2050. Electricity generation, by definition, has to make a significant contribution.

I know what the figures say, but in replacing nuclear with renewables, by how much are we reducing carbon emissions? Will you give us a ballpark figure?

That depends on an assessment of the life-cycle emissions of nuclear power.

Ballpark figure?

That is not an entirely understood—

Ballpark figure?

I remind the member to put questions through the chair.

I apologise.

One issue that we want to explore further—it is certainly part of our overall assessment—is to understand better the life-cycle carbon emissions of nuclear power, ranging from the mining of uranium to full decommissioning. One key point in the Government's response to the UK Government's consultation on the future of nuclear power is that our assessment of the life-cycle CO2 emissions of nuclear power is significantly greater than most people's. For that reason, we are deeply concerned about the carbon emissions of existing nuclear facilities and any new facilities. That is one of the many reasons why we do not support nuclear in Scotland.

I apologise to Mr Wilson and to you, convener, for not going through the chair. I have just a quick follow-up question.

The answer seems to be that we do not know what impact there will be on carbon emissions if we go from nuclear to renewables. What impact will there be on price and security of supply?

There is also a detailed question about the costs of nuclear. To make that assessment, we would need to include the full historical costs of the nuclear stations in Scotland. As the member will know, there have been substantial debt write-offs of nuclear stations through the privatisation process and everything else. The full assessment would be difficult to make.

The key point about renewables policy is that the Scottish Government and the UK Government recognise that, to incentivise renewable electricity, we need financial mechanisms such as the non-fossil fuel obligation. That additional cost is passed on to consumers as a mechanism that is widely supported for incentivising renewables. Ofgem has estimated that, across the UK, it currently costs us 8 per cent.

I have a question about nuclear futures. The German coalition Government also wants to withdraw from nuclear generation, although there are differing views in the Christian Democrat party. On the ground that the Germans still have an industrial quotient of gross national product above 25 per cent—ours is roughly half that—that seems to me, having lived there for 30 years, a sensible policy.

What constraints would be put on any form of generation future by the fact that when we went into North Sea oil in 1970 we had an industrial quotient of gross domestic product of upwards of 30 per cent, whereas it is now lower than 14 per cent? Can we make the necessary adaptations? If we currently cannot, what changes to our technology, labour force and training network will be necessary?

Is that to make a nuclear future possible or—

No, to make possible any form of future involving considerable new construction.

It is widely understood and accepted that the technological challenges that face just about any electricity generation mix are considerable. For nuclear technology they are considerable and, in our view, probably insuperable. For renewables technology, challenges and important technological issues will have to be addressed to release the massive renewables potential that we have in Scotland, onshore and especially in our seas.

We recognise that carbon capture and storage as a technology will require technological, scientific and skills base development. There is no easy challenge in any of those options.

The key point, in answer to your question and the previous question, is that making progress on renewables and clean energy requires us to have some priorities. The priority is around renewables and clean energy. We are keen to work through Scottish Enterprise and related development organisations such as Skills Development Scotland to ensure that we have the skills that enable us to build the sort of investments that we need to make. That is already happening—for example with flue gas desulphurisation at the likes of Longannet—but more will need to happen. I would not underestimate the considerable will and push that will be required for renewables and clean energy. One of the key points that we are trying to make is that we will need to mobilise opinion and our economy to respond to that potential.

Like Gavin Brown, I will start with first principles. On opening the document, I had expected to read that the main energy objective was to promote renewables to reduce carbon emissions and that the secondary objective was economic growth. However, I read:

"The main objective as far as Energy is concerned is to progressively increase the generation of renewable and clean energy, to migrate Scotland away from a dependence on nuclear energy."

Can the officials confirm that that has not been written in error? Is that the main objective of Government energy policy?

That is what the document says.

The secondary objective given is to maximise economic benefit through the maximisation of energy exports. What is the reasoning behind the adjustment in the target for renewables? I support the new level, but previous Government targets referred to the amount of electricity generated from renewable sources as a proportion of electricity generation in Scotland. The new target refers to renewables as a proportion of electricity demand in Scotland, which is a very different thing. In the debate in the chamber in January, the view of ministers seemed to be that Scotland ought to produce enough electricity for Scotland's needs rather than for export, as happened in the past. What is the reasoning behind the shift from a target in which renewables was given as a proportion of generation to one in which renewables is given as a proportion of demand?

My understanding is that the previous 40 per cent target was for renewables as a proportion of demand. That target was established by the previous Government and the forum for renewable energy development in Scotland. In changing the target to 50 per cent, we have also made a technical change, in that the target is now for gross demand rather than net demand. That means that we have taken into account the losses that occur in transmission and we will aim to meet net demand plus the losses. That is why the target refers to gross consumption. However, the 40 per cent target related to consumption, not generation. The target has been made harder not just by the increase from 40 to 50 per cent, but by adding an amount for the losses.

Essentially, the target is a higher percentage of a higher total.

Yes. To reiterate, the new target is more challenging. It also assumes the intention of maintaining the current level of exports and potentially expanding that further. That is why we have had discussions about grid developments and everything else. It is a very ambitious agenda.

I want to ask about a couple of things that came up at yesterday's conference—several committee members attended it—and which are closely related to points in the energy policy overview that has been presented to us this morning.

Scottish Power's estimate for installed capacity of renewables is that, by 2020, onshore wind will amount to 14GW but offshore wind will amount to some 25GW—the figures are for the whole of the United Kingdom, I hasten to add—and the UK's installed capacity of marine renewables will amount to 1GW to 2GW. Are those figures recognised and accepted in the development of the energy policy that we are hearing about? Do you accept the view of ScottishPower Renewables that, although close to half of the UK's onshore wind power will be generated in Scotland by that time, only around 10 to 12 per cent of the UK's offshore wind power will be generated here and that, therefore, up to 2020, onshore wind power will continue to be the main driver of the renewables targets that have been set for Scotland?

Ministers will set out a lot of that in the renewable energy framework, which will come out at the end of the month, so I am a little cautious about giving you precise figures now. Nevertheless, I can say that we recognise those figures. We will present a range of figures for onshore wind power generation, which will include that figure of 50 per cent of 14GW. We have already said that we are aiming to produce 8GW from onshore wind power by 2020. We do not expect hydro power to grow considerably bigger than it is now, so you can expect that we might be talking about 5GW to 7GW.

The figure that you cite for marine wind power seems reasonable. It is worth saying that there is huge potential for that in Scotland and that we are in the lead in developing marine energy. Where it will be at by 2020 is difficult to say. There is a general expectation that most of the development will take off from that point.

In the document that we will produce towards the end of the month, we will set out estimates for how we think that the 8GW could be made up.

Lastly, I seek guidance on a matter for which I looked in vain in the overview document. At yesterday's conference, Jim Mather said that he and the First Minister had pressed the UK Government to consider a windfall tax on energy companies. Are the consequences of that being built into the consideration of Scotland's future energy economy and economic opportunities?

The First Minister and Mr Mather have made it clear to the UK Government that a windfall tax should be considered. There are a lot of detailed issues around what a windfall tax could cover and how it would be taken forward. However, it is certainly something that should be on the table and should be considered by the UK Government.

Such a tax could have fiscal impacts on a range of electricity producers, oil producers and distribution companies.

Who it might affect would depend on the detail, which would need to be considered.

The windfall tax is one current issue of debate. The overview document also mentions the discussion about how resources from the oil sector could contribute to the growth of the economy.

That is a good point. It is difficult to assess the significant additional taxation that the Treasury will receive this year as a result of high levels of oil production and, in particular, high oil prices. Obviously the majority of the tax year is yet to come, but it could amount to something of the order of £4 billion to £5 billion in additional taxation—although the price of oil is uncertain, so the number could be different. That is additional money that will be received by the Treasury through the existing taxation system, and the First Minister has pressed for that money to be used in a way that supports the overall energy channels that we have.

That is distinct from the issue of a windfall tax, which would be a new tax on electricity suppliers and others. The First Minister has made it clear that he believes that such a tax should be considered as well.

Let us be clear. The extra £4 billion to £5 billion of revenue that the UK Treasury will receive this year could be described as a tax on the windfall resulting from the high price of oil. However, you are saying that the First Minister is pressing for a windfall tax in addition to that.

The key thing about the tax on high oil prices is the fact that it is a tax on oil producers. The First Minister has also called for consideration to be given to a new, different tax on electricity and other suppliers.

I very much welcome this energy policy overview and recognise that it is a work in progress. I understand from what you have said that by exploiting Scotland's strength in natural resources we can become a leader in clean energy. I would have thought that, to avoid some of the trenches that are very quickly being dug with regard to some of the existing means of energy generation, it would be a good idea for the committee to take an overview of the matter. How do you think that the energy policy document will develop in light of what is happening in Europe with regard to the Turmes report, which is to be discussed this month and agreed next month by the European Committee on Industry, Research and Energy and opens up considerable prospects for development of offshore wind and marine energy in the North Sea?

We are engaged in many of those debates in Europe but obviously any discussions on policy must happen through and alongside the UK Government. We have certainly been very engaged in discussions on unbundling, which might have an impact on the Scottish electricity industry.

We are keeping our eye on discussions on marine and offshore wind energy. With the establishment of the new Scottish European green energy centre, for example, we are trying not only to build Scotland's profile but to ensure that Scotland takes a much more active role in many European Union-funded research programmes such as Interreg. Although the centre is only in virtual form at the moment, it has already promoted a number of applications. Over the next few months, the key task will be to establish its physical base in Aberdeen so that it can pull together academics, the industry and the public sector and allow them to work more proactively. As I said, we are also very engaged with the UK Government on policy deliberations, the agreement of directives and so on.

So you want to send a distinct message that, with regard to locating and constructing new methods of energy gathering, many parts of Scotland might develop industries that they have not been able to develop before.

Very much so. The potential for marine energy is greatest along the north and west coasts and in remote areas that will certainly benefit from increased activity. We have conducted—and need to develop further—a strategic environmental assessment on marine energy, which focused on the north and west coasts of Scotland.

I am well aware of that. I would be interested in being kept up to date with developments in Europe, because they might well benefit Scotland's contribution. The Turmes report is only one aspect; the Environment, Public Health and Food Safety Committee is looking at other measures that might well highlight certain issues that the inquiry needs to take on board.

I very much agree. We are happy to provide more detail on our activities in Europe and on what is happening with EU energy policy in general.

As someone who used to be responsible for marine and fisheries policy, I emphasise a point that the committee might well have heard people like me make before: in Europe, we are considerably important as a key player in developing not only the various debates, but the mechanisms and policies for addressing those debates.

I am always careful not to use the term "best practice", but our improvements in planning consents and our overall mechanisms and decision-making processes are very much influenced by European directives, such as the habitats directive, and are increasingly considered by Europe as being extremely useful. We are grappling with industry and economic development arguments linked with energy as much as anyone else is. In particular, we are grappling with marine energy. There is fabulous potential around Scotland, which we should be immensely proud of. We can learn and benefit hugely from the overall European policy developments, but we also have a significant amount to contribute to those developments. That is why it is important that we further establish and enhance our profile and influence at European level, not only alongside the UK Government but in addition to it.

So, part of what you have to report on is a new generation that can provide energy security in a different way from how it has been defined before.

I would happily agree.

The reduction in carbon emissions and, in particular, the development of renewable electricity is being hindered by grid connection charges, which will be higher for any developments in the north of Scotland. It could be argued that that is the effect of transport costs. Do the consumers who are furthest away from the supply end pay more because of those additional transport costs?

Two to 3 per cent of a consumer's bill—quite a small proportion of the overall cost—is a result of the transmission charging system. The vast majority of the charge is paid for by the generators. However, as the First Minister and others have pointed out, the signal that that sends out—to the renewable electricity sector and, importantly, with regard to replacement thermal generation—is such that the charge is a disincentive to locate in Scotland compared with other parts of the UK.

Is the 2 to 3 per cent applied equally to consumers throughout the UK?

Yes. It is an average.

So even people in the north of Scotland, where the power comes from, pay the transport cost element. I am thinking of a related scenario, in which the situation is reversed. In the Highlands and Islands, one of our biggest problems is that if we order goods from companies in the south of Scotland or, in particular, in England, massive transport surcharges are added on. People in the north, the islands and the Highlands end up paying massive extra amounts. The companies do not absorb the cost and charge a proportion to their customers in the south. However, it would seem that the reverse does not hold true. We in the north will pay 2 or 3 per cent more for our electricity as a result of transport costs that should fall on the shoulders of those in the south.

The electricity market is considered to be a UK market. I do not want to get too technical, but the way in which the transmission charging system works is that there is a notional centre of demand, which is just north of London. The further away from that one is, the more the generators pay. That is the current system in a nutshell. It is what the First Minister and others have talked about.

It is a double whammy. Not only is the charging system a disincentive for development, jobs and work in the north, but people in the north have to pay an extra 2 or 3 per cent. I presume that people in Europe, including in the UK, pay more for the gas and so on from Russia because it is being taken from Russia, and that Russia, which is supplying the energy, can make a market charge. It strikes me that the grid charging system is totally anomalous and ridiculous, and that it penalises people, especially in the north of Scotland.

We cannot say that consumers in the north of Scotland pay 2 or 3 per cent more—2 or 3 per cent of the bill of consumers in the UK generally is made up of transmission charges.

That includes people in the north, who are next door to where the power is produced. Normally, supply and demand and the market would mean that the folk who were closest to the supply would pay a bit less.

I want to be clear on this point. We will give the committee a note that breaks down the figures. Transmission, which refers to the large-scale movement of electricity around the country, accounts for a small proportion of the overall bill that an electricity consumer pays. Most of the cost relates to generation. There is little differentiation between consumers in respect of transmission system charges. Strictly speaking, it is not a postage stamp system, but it is like that. However, there is a substantial locational incentive to generators. Peterhead's SSE plant pays very substantially more than an identical station in the south-east of England—in fact, such stations are paid to connect to the system. That washes out in the financial benefit to the generator of the location of its electricity station, and in its profit and loss and its decisions. The charge directly to consumers tends to balance out. It is a technical issue on which we will give the committee a note. We are not suggesting that there is a substantial additional charge for transmission use in the north of Scotland, compared with the south-east of England. We must be careful to make that clear.

Thank you. I look forward to receiving your note.

Jane Morgan mentioned the Scottish European green energy centre, which is being developed in Aberdeen. Will that rival the centre—I cannot remember its name—that has been established in England to pull together innovations in renewables? I spoke to some people last week who mentioned that centre, which will help people who are developing new methods of offshore wind installation, for example. Will SEGEC be able to assist people who have new patents and new ways of installing offshore wind generating capacity, so that they can develop businesses and new production methods in Scotland—from my point of view, preferably in the Highlands and Islands? Where do innovators from the north go at the moment for Government support to get their proposals off the ground?

The first stop for essential support for companies in that area is Scottish Enterprise and Highlands and Islands Enterprise, which can direct companies to more specific support—for example, in relation to intellectual property and the issues that surround it. Those are the key organisations that work directly with companies—the Scottish Government does not do that directly.

You asked whether there is any overlap between SEGEC and the centre that was mentioned to you. I am not entirely sure what the person to whom you spoke was referring to in UK terms. There are organisations, such as the intermediary technology institute, ITI Energy, that fund research into energy. ITI Energy is trying to increase Scotland's intellectual property in the area by creating intellectual property that can be licensed.

The committee has previously considered in detail the UK Energy Technologies Institute, which you might be thinking of—

No.

Okay. I am not sure whether there is anything similar. SEGEC is trying to build Scotland's profile in Europe and to forge partnerships, which might be with England or English regions as much as they might be with Norway or Ireland. SEGEC's purpose is not to provide direct support to industry but to help people to work through European mechanisms and funding streams, which usually requires a mixture of partners in industry, academia and Government.

I was not thinking of the ETI; I was thinking about a means of helping people at the post-research stage to develop proposals that have gone through the basics and been accepted, so that we get jobs on the ground. How can we ensure that benefits such as employment go to the yards at Nigg and Arnish and to the Highlands?

I think that the development agencies have tried to establish a pipeline of support for the research and development process, from initial grant funding to prototypes—that includes mechanisms that are operated by the Scottish Government. There is a range of mechanisms, which are not necessarily specific to industry but are generic and support the R and D and deployment process.

It very much falls to HIE and Scottish Enterprise to do more detailed work with companies and to provide mechanisms and advice that companies can tap into. Substantial UK Government support mechanisms are available, and Scottish companies should be encouraged to tap into such mechanisms and maximise the benefits that they can bring. It is right that the enterprise organisations should pursue the points that have been made about economic development—they are actively doing so.

I realise that work is in progress but I am concerned that there will be no overall strategy. In your answer to Dave Thompson you talked about developing the industry in Scotland and about Scottish Enterprise and HIE. However, the enterprise agencies are no longer responsible for skills and development—Christopher Harvie referred to the need for skills. If there is no overall strategy, who will pull together all the strands as the big changes that the witnesses describe take place?

Gavin Brown and Lewis Macdonald talked about security of supply and cost. Massive forward planning is needed and we must have the right skilled workforce. I am not convinced from your answers that discussions have taken place with the sector skills council and Skills Development Scotland. The Scottish Further and Higher Education Funding Council is taking over a big review of funding to sectors. Who is pulling all that work together?

There have been delays in the planning system because we do not have enough planners. If there is no strategic overview of work across departments and the skills sector, what assurance can you provide that you will be able to consider the objectives that you set out in your paper?

Thank you for giving me the opportunity to correct any misunderstanding that might have arisen. I hope that I did not say that there is no overall strategy. We have increasingly recognised that so many different initiatives must be taken that a single strategy document that tried to draw together everything, with the detail that committee members would rightly expect, would be unwieldy. We propose to produce exactly the sort of clear action plan on renewables development that you would expect us to have, which will draw in wider issues about skills and so on. That raises somewhat different issues, such as the huge number of issues around the oil and gas sector and clean coal technologies. We are trying to achieve exactly what you suggest in relation to joining up activities. I was saying that the document is slightly more modest, just to draw the picture together.

Who will be in charge? What department will take the lead and who will draw all this together? That was not all that clear.

One of the reasons why we are slightly cautious in relation to the renewable energy framework is that we are considering how to draw together those things. There are a number of minister-led and industry-led groups. We are considering how to ensure that everything is fit for purpose to meet the overall challenges that you were right to raise.

On the industry developments, there is a move, which is clearly led by the Scottish Government and Jim Mather, to draw together the economic development challenges, such as those around renewables. We already have the FREDS group. There is a recognition that skills are critical to that. I know that these issues were discussed in detail on Monday at the strategic forum, which is chaired by John Swinney and Fiona Hyslop. On the key sectors that are identified in the Government economic strategy, such as energy, we need to be clear that the various activities of Government are working together closely. I know that the Cabinet Secretary for Education and Lifelong Learning and the Cabinet Secretary for Finance and Sustainable Growth are aware of that and want to have the systems in place for doing it. I agree absolutely with your overall intention—I just wanted to clarify that I was not disagreeing with that in any sense.

I take it that you will have discussions with the construction industry.

Construction is critical to all this, in terms of renewables and everything else. I know that a number of activities are going on, such as discussions between Government and the sector skills councils, to ensure that the processes work well. We have a number of mechanisms for dealing directly with the construction industry. This is one of the issues that we keep under review.

The renewable energy framework will come out as a draft document and there will be a consultation process over a number of months, which we hope will involve our not just waiting for written comments, but engaging actively with the relevant sectors. The construction sector has probably gained most from the development of wind farms in recent years. One of the challenges is to get the benefit into other sectors. The consultation process will be active.

Thank you. I chair the cross-party group on construction. I was interested to hear what dialogue was going on with the industry and what you would be doing in the future.

The overview document, under "Supporting actions: Protecting the environment" on page 19, says:

"Our commitment to renewable energy and sustainable economic growth needs to be balanced against environmental and social considerations."

We have all seen examples of that. Although changes have been made to the planning process and there is obviously a need to recruit new planners, are you confident that you can balance those considerations? You talked about the west coast of Scotland and marine development. How confident are you, moving away from nuclear energy, that you can achieve your goals? Members of this Parliament have seen many renewables developments overturned because of environmental, community and social issues. How confident are you that the new framework will allow these policies to be moved forward?

I do not know whether the committee has heard directly from the chief planner on wider planning skills issues, but we fully recognise the importance of ensuring that planning departments in local authorities have the right people with the right skills and the right degree of recognition that the overall objective is sustainable economic growth. That view is increasingly endorsed by local authorities as well as the Scottish Government, and must be taken into account fully as part of the planning process.

Many improvements in the mechanisms are being made. Jim Mackinnon, the chief planner, is probably better able to tell you about those in detail. You might have heard about this directly from one of the ministers, but John Swinney and Jim Mather have had detailed discussions with a number of directors of planning to talk through exactly those issues, and found an increasingly enthusiastic recognition of the need to ensure that planning departments are fit for purpose.

There is increasing confidence in the ability to deliver on the improvements that you—and we—are pressing for, and an increasing mindedness to do so.

I should emphasise one point. In preparation for my appearance here today, I looked at a number of the decision letters that people involved in my area of responsibility and the minister have issued recently. We should not underestimate the challenge in terms of making the decisions and balancing the wider objectives of economic growth and the encouragement of renewables with the conservation interests that are increasingly important. The balancing process must take place in the context of the habitats directive and the birds directive in particular. This is a challenging area to work in. It requires fine judgments and it involves important evidence and scientific input. There have been significant improvements in the way in which we and key local authorities are dealing with the decision-making processes.

We can be confident, but we should not underestimate quite how much work needs to be done.

It is worth emphasising that we are also taking steps to be ready to deal with more applications on the marine side by getting involved with our environment colleagues in marine spatial planning, so that we can help people identify where they might develop their devices. With wind development, we suffered from the fact that there was not a high degree of location guidance from the very beginning, although it is now developing. We are trying to take anticipatory measures on the marine side.

It is a pity that we did not have this paper before today. It would have been handy to have had sight of it before yesterday's energy conference at Murrayfield, which several of us attended. It would have helped to inform the discussion that we had.

There were points in the presentation about nuclear energy being costly and unnecessary. As it happens, Scottish Power's control centre is in my constituency in Kirkintilloch. I was there on Monday, which was a day not unlike today. I was looking at the control panels with the man who is in charge of making sure that all the lights stay on, and I asked him to explain what was on the screen in front of him. He showed me the output humming along nicely from Torness and Hunterston. I looked down a column that had a reading of zero and asked what it represented. He said, "That's the wind farm generation." There was no generation of electricity from any of Scotland's wind farms on Monday morning and I expect, given the weather, that there will be no generation today either. I therefore fail to understand how any sensible Government that is going for a balance of power generation can completely rule out the source of power that provides the base-load in Scotland on any given day.

I assume that the assertion that nuclear power is costly and unnecessary is the result of a political direction that you have been given and not something that a sensible official would offer as advice. Am I correct?

That is one of those particularly challenging questions that we relish.

To be clear, this Government has set out its views about nuclear power. I do not know whether members have seen the Scottish Government's response to the UK Government's consultation on the future of nuclear power recently. I suggest that they look at it again, as all the arguments to do with nuclear power are clearly and crisply set out in it.

There is something seductive—if I may use that word—about the argument for a balanced energy policy. Who on earth would disagree with the view that there must be a balanced energy policy? Who would want an unbalanced energy policy? However, there is a particular set of challenges with nuclear power. Over the past 20 years, it has been a substantial component of Scotland's overall electricity supply; indeed, it is arguable that it has unbalanced the electricity system for many years. The clear argument that the Government's note relays is that a mix of different types of renewable energy, some of which are variable—we all know that wind energy is variable, but many types of renewable energy, such as some forms of tidal power, are not—alongside continuing fossil and clean energy capacity, which we are confident will be invested in in Scotland, can meet the needs of Scotland's consumers and continuing export needs. There is a clear view that a balanced mix, over time excluding nuclear, can easily provide both security of supply and a balanced supply. I am sure that the people in Kirkintilloch recognise that.

That is an interesting answer. I do not know whether Mr Wilson was at yesterday's conference.

I was not.

At the end of it, the 200-odd delegates voted on whether nuclear power should be included in any energy mix for Scotland. Mr Wilson may be surprised—I dare say that the ministers will be surprised—that the vote was in favour of including nuclear power in Scotland's energy mix. The room was chock-full of experts—I am not an expert on the matter by any means. Given the experts' view, is it not a bit remiss that you have not included nuclear energy in your considerations?

For the reasons that the Government has given and which I gave earlier, we think that there is an energy future in an electricity mix in Scotland without nuclear that builds on our huge comparative advantage with renewable energy and on the potential for clean energy sources to provide the electricity supply that we want while we meet our CO2 emissions targets. It is becoming increasingly clear that if the UK Government or any Government wishes to pursue a nuclear policy, a successful nuclear policy—if there is such a thing—must involve a major power station programme. In the UK, for example, Sizewell B was designed to be part of a whole programme of stations, but it ended up being the only station that was built. For that reason, there were considerable cost overruns. If there is to be a successful nuclear policy, a lot of nuclear power stations are needed. The risk is then run of diverting technological activity, skills, research and development, and the push that must take place to progress renewable and clean energy. There is a major opportunity cost to having nuclear as part of a policy. The Government wants to focus on clean energy and renewables, and, as I said, big challenges are involved in doing so. It will be difficult to focus on all those sources of energy at the same time.

I will not follow up on nuclear power, convener. David Wilson has talked about clean energy, but we have not mentioned coal much. I think that an announcement was made last year or about then on the possibility of a new deep mine at Canonbie. I do not know whether anything happened on that, but it is clear that opportunities exist for Scotland in the application of clean coal technology and carbon capture and storage technology. How important is Longannet power station with respect to the energy balance? How important is it that that power station is chosen as the place for developments in clean coal and carbon capture and storage?

I am not aware of the particular example—

I understand that the choice is between Longannet and Kingsnorth.

I was referring to the deep mine.

Given the oil price and energy price developments, coal is being reconsidered. We support that and want to examine the options.

Does that include sinking new shafts?

We want to consider coal, but I am not proposing what you suggest. There is a new dimension. New investments are being made in opencast and deep mining. As is consistent with what we have said, if we are to consider clean energy and using fossil-fuel supplies to provide a medium or long-term solution or maintaining the position in Scotland, we must look hard at enabling the likes of Longannet, Peterhead and other stations to continue as fossil-fuel stations.

Throughout the UK, interest is growing in the possibility of new deep mines, rather than reopening existing mines. We have had initial discussions with the Coal Authority, which licenses coal operations in the UK, about the possibility of a development in Scotland. One or two possibilities have been mentioned—some previous mines in Fife, for example, present challenges. We are in the early stages of discussions with the Coal Authority.

I am sure that my friends in the National Union of Mineworkers will be delighted to hear that.

A couple of members have supplementary questions, which I ask them to keep brief.

We have discussed renewable energy targets. I thank the Scottish Parliament information centre for clarifying some of the background to past targets. The previous Government originally set targets for generation, but from 2005, the targets were for installed capacity. The target that was described for 2011 is 5GW of installed capacity.

The target is 31 per cent of demand, which we expect to equate to 5GW.

But that is not 31 per cent of installed capacity.

It is 31 per cent of gross consumption.

What percentage of installed capacity will 5GW represent?

I would have to go away and look at that. In renewables, we work against a load factor of about 30 per cent, whereas for thermal generation, one assumes a higher capacity factor. Those two percentages must be taken into account and added together. Unless David Rennie has the answer at his fingertips, we will have to come back to you. We have the total consumption figure.

My principal aim is to be clear that the targets that are set acknowledge and reflect the difference in the load factor.

Yes. [Interruption.]

The percentage of installed capacity for renewables needs to be a good deal more than 31 per cent if renewables are to meet 31 per cent of demand.

A load capacity of 30 per cent is assumed. The load capacity in Scotland tends to be higher than that in England, but 30 per cent is taken to provide a means of making the calculation.

Having a note on that would help.

My other small point relates to the discussion that Dave Thompson raised about the consumer costs of transmission and distribution. It would help if the paper that you are to prepare on that included an estimate of the cost to Scottish consumers if we were not part of the British electricity trading and transmission arrangements. Mr Thompson suggested that Scottish consumers pay a penalty for those arrangements, but I suspect that, on balance, we benefit much more than we pay a penalty. If you could provide figures for the benefit and cost to Scottish consumers of being part of those arrangements, that would help.

So if we had a separate Scottish transmission pricing system—

Yes. Mr Thompson asked for the additional cost. I am interested in your including in your response the additional financial benefit to the consumer of being part of the wider transmission arrangements. In other words, there is a small subsidy from the north of Scotland to the south of England on hydro, but is there a vast subsidy from central Scotland to other parts of Britain from nuclear and coal? I want to understand the overall costs and benefits of the shared transmission and distribution arrangements.

In technical terms, I am happy to give it a go, but we will need to spell out clearly what we are doing. We are talking almost of a technical assessment—

Issues such as connection to the grid, charges and capacity will be examined in greater detail in the inquiry. Other people may be better placed to provide the detailed answers that the member seeks. However, any information that officials can provide will assist us in asking the right questions of the right people at the right time.

I understand the point, convener. It is important that the cost to the consumer is part of that report.

Yes.

On that point, we should look not only at the current situation but the future; it is the future that is in jeopardy.

We need to know where we are before we move on to working out where we are going.

In terms of energy consumption, the pie chart shows 44.5 per cent coming from heat and 29.3 per cent—

What page are you referring to?

The pie chart in the slides.

It is well known that British housing is notoriously badly insulated. We do not even meet level C on the EU scale of adequate housing insulation. Germany has a programme of passive housing, which is a form of housing that takes no heating whatever—in essence, the houses heat themselves. What sort of gain are you looking to factor in from a domestic insulation programme? Such insulation is relatively low tech and highly labour intensive.

Two issues are involved. The first is new builds for which the building standards are increasingly being ramped up towards that model. The plan is for regular ramping up of those standards. The member may be aware of the recent work in the Sullivan report.

The second issue—existing housing—is not so tractable. However, a range of actions are being taken; ministers are actively considering the issue. Government provides advice and information to householders and there is also the CERT obligation, which I mentioned earlier and which requires utility companies to invest in energy-saving measures, including insulation. We also have programmes for the fuel poor.

A large range of activity is under way. For example, we are looking to see how Scotland can get more out of CERT. A range of ministers including the Cabinet Secretary for Health and Wellbeing and the Cabinet Secretary for Finance and Sustainable Growth have had considerable dialogue with the utility companies; dialogue that will continue. I cannot say too much more today other than that the matter is actively being looked at.

The German example is very interesting and the Energy Saving Trust is looking specifically at the German energy efficiency experience to see what we can learn. In the past, the UK took a slightly different approach from that which was taken in Germany. There is therefore the potential to learn from experience in that country. Perhaps it would be useful for the committee to chat to the Energy Saving Trust.

We have one final question, which I will put. The committee has received a letter from the minister on the situation at Vestas in Campbeltown, which includes a briefing from Scottish Development International. [Interruption.]

A key problem that Vestas faced was the lack of an offshore market on the west coast. What is the Scottish Government doing to develop such a market? I am thinking not only of the west coast of Scotland, but neighbouring areas such as Ireland, Wales and the north-west of England, all of which could provide a market for the facility at Vestas. [Interruption.]

I owe the committee an apology. It is my phone that has been ringing. A colleague has now removed it from the room.

The emerging market that we are aware of on the west coast is in marine energy. Much of what we are talking about relates to natural resources—the physical circumstances of waves, tide and wind. Certainly, at present, the industry's interest in offshore wind generation relates very much to the east coast of the UK because of the natural resources that are to be found there. There is nothing in particular that we can do to change that.

There is interest around the Solway Firth, where Robin Rigg is already under construction. Marine power is a key interest; Vestas is already involved in offshore wind generation. I am not entirely clear about what we can do in relation to Scottish waters. There is potential development elsewhere, but it brings with it some of the transport issues that have been highlighted.

I thank David Wilson, David Rennie and Jane Morgan for their attendance this morning. The meeting has highlighted a number of issues. You have agreed to provide the committee with additional information, which will be gratefully received, on the grid and European energy policies. I have no doubt that we will see you again in the next few months.

We intend to bring the written evidence for our inquiry before the committee at its next meeting, so that members are aware of what has been received. We will consider a report on the committee's approach to the inquiry at our meeting of 24 September; hopefully, that will take us on to the next stage. I remind members of the seminar that has been organised by the Transport, Infrastructure and Climate Change Committee for the afternoon of 30 September, which is mentioned in paper EET/S3/08/16/3. The seminar will look at the greenhouse gas regional inventory project scenario planning tool. That will be of particular interest to us, as it illustrates what happens to the environment if we mix energy in different ways. I hope that members will be able to put the seminar in their diaries and to turn up for it.

While I was talking, the officials managed to do a quick changeover, so we can proceed straight to the next item. They have the technology to change over; that requires some integration in Government, which might not happen.

I am sure that I read somewhere that we have received 70 written submissions to date.

Yes.

I may have missed this, but have we been given all the submissions?

Not yet, but they are publicly available. We have been photocopying them and compiling them in folders for members. I apologise if they have not yet been circulated.

They have not. I was confused, because paper EET/S3/08/16/3 states that the submissions

"are now online and have been circulated in hard copy".

I wondered whether I had missed them.

No. My intention was to circulate all the written submissions before today's meeting, but we have been caught up with production of the rest of the committee papers. I apologise for that; we will get the submissions to you as soon as we can.

The submissions are available on the energy inquiry web pages, so we can see them online.

To save Stephen Imrie photocopying and circulating the submissions, shall we just download them ourselves?

It will be easier for members if you let us circulate them, because we will collate them, arrange them in alphabetical order and put them in a nice folder for you, so that you or your staff do not have to download them. We will get them to you as soon as possible.

There are 70 written submissions, so we are talking about the destruction of large forests. We must be careful when deciding whether we need to print out all the submissions—we can read what is online without producing paper copies. Perhaps it would be better for the clerks to circulate a summary of the proposals. We are talking climate change, as well as many other issues. Perhaps we should try to practise what we preach.

If individual members do not wish to receive paper copies of the submissions, they should let the clerks know, and the clerks will not produce paper copies for them. Some members may prefer to receive paper copies.

Reading too much stuff on a computer screen is the reason why I wear glasses today. I appreciate the point that Mr Gibson makes, but I would much prefer to receive paper copies of the submissions—to save my eyesight, as much as anything else.

I agree. I have not yet found a way of highlighting text on a computer screen.