Work Programme
Some of our witnesses attended the earlier discussion. This is a reasonably informal opportunity to engage with the committee on the subjects into which we will conduct inquiries over the next year. I am happy to hear from members or witnesses who catch my eye. If you want to engage with some of the issues that were brought to our attention by the people who were here earlier, by all means do so.
Malcolm Webb (Oil and Gas UK):
Do you want me to start?
I will let an MSP have the first go this time. I will come to you after that.
In order to get the discussion going, will Dr Smith repeat some of the stuff that he said to us at our away day? It was thought provoking and probably fits in with what we are discussing.
I am sure that he will be happy to do that. We will give him a couple of moments to gather his thoughts.
However, I notice that one of our guest witnesses is volunteering to contribute. Malcolm Webb is here on behalf of Oil and G—
Gas UK.
Oil and Gas UK. I almost got there.
Yes—it is not the other name any more.
You invited comments, deputy convener, on the previous discussion. I was very encouraged by it because I found myself agreeing with so much. I am encouraged that the discussion focused on total energy demand rather than just on electricity generation. A great deal of the energy debate has focused just on electricity generation and not on total energy demand.
Discussion of the need for efficiency and demand management is a progressive way to think about the issues, as is discussing the deployment of smarter technology across the piece. I was impressed that speaker after speaker talked about the long-term gain: I agree that the gain will be in the long term and that there are no quick fixes. We have to keep our feet firmly on the ground when we discuss these issues.
We have to remind ourselves that today we are, in essence, a petroleum economy. In the UK, 74 per cent of primary energy demand is met by petroleum. The Government's projection is that that will increase—not decrease—to 79 per cent by 2020.
Is that because of increasing use of gas for electricity generation?
It is to do with decreasing use of coal and nuclear power and increasing use of gas. Demand for oil is predicted to be more or less flat; it is on the gas side that demand is going up.
Petroleum production is hugely important—you would expect me to say that—and we must not forget the UK's extremely important global position as the 12th largest oil and gas producer in the world and, interestingly, the fifth largest gas producer. However, we are also a mature oil and gas province. We know that, which is why a number of the issues to do with efficiency, for example, are important for the nation.
We must maximise the ultimate recovery of the UK's offshore reserves. We have produced the equivalent of 36 billion barrels of oil and gas to date, and we believe that there could be upwards of 25 billion barrels yet to be got. We have to maximise that recovery because we are going to be importing petroleum, oil and gas. We will have to import every barrel that we do not produce. Maximised recovery is a national imperative.
While I have the microphone, I would like to say another thing about my industry. This is not simply a UK domestic production story: the UK oil and gas industry is a huge engineering success story, the UK supply chain is a world beater, and the UK is a centre of global excellence in offshore engineering and a global leader in subsea engineering. We know that the industry turns over about £11 billion a year in the UK, because that is what is spent by the oil companies in the UK and the UK continental shelf. Exports also account for £4 billion; we have a significant industry that exports oilfield goods and services around the world. The industry, of course, has a significant presence in Scotland; for example, the global subsea fleet is controlled out of Aberdeen. The north-east of Scotland is an important hub for the industry.
As to what the committee should be considering, you should reflect on the importance of the production side of the industry and on the importance of the industry's engineering and export potential for the UK economy and the Scottish economy.
How could existing energy businesses successfully diversify into other areas? I am thinking in particular of the engineering side and of the use of facilities at which production might be finished.
Some of the technology is definitely transferable into marine offshore and the like—I think that that is happening.
I want to ask questions similar to those that I asked earlier but with a different slant. What are the people round the table doing to support sustainable cuts in demand? How are you engaging with consumers? Today, we have heard a lot about the competitive market that you are in. How does that affect your decision making in respect of renewables and achieving cuts in demand?
I presume you are throwing that question out to all of our guests.
That question is the crux of the matter, for me.
Do you want to pick up on that issue, Mr Armour?
Robert Armour (British Energy):
The question is probably best addressed by those who supply direct to the customer.
In that case, perhaps Mr Thoms would like to pick up the challenge.
Grant Thoms (Scottish Renewables Forum):
I will not pass the buck any more than others already have.
I am not 100 per cent sure where Ms Livingstone is coming from but, essentially—as Malcolm Webb said earlier—there are a number of transferable skills that can come over to the renewable side, particularly in relation to offshore marine energy. However, we are talking about a market that is quite expensive at this early stage. Already, we are reaping benefits from some of the first stages of demonstration projects in terms of answering questions about the feasibility of deepwater offshore wind and in terms of demonstrating the fact that those projects will be world beating. We have an infrastructure base that will enable us to take marine energy further.
Of more interest, however, is what is happening in our energy networks with regard to power, heating and transport, which was covered more broadly in the first session today. There are challenges there that the committee might want to consider in more detail. For example, in relation to the development of alternative fuels, how will we move from the gas grid to an off-gas grid? How should we link the fuel poverty strategy to a change in the energy sources that people are used to? Earlier today, the committee discussed an elaborate district heating system using waste to reduce the need to use other fossil fuels to heat homes. That idea has been around for decades—many communities that used to live on mines were well used to using that form of heating as a way of generating heat for their homes. Maybe we need to go back to the future, as it were, and to consider previous solutions to the questions of how we create affordable heating for homes and ensure that we help lower-income communities as we do it.
The debate is wider than that, but I do not want to hog too much time just now. I am sure that I will be able to come back in later. Perhaps Scottish and Southern Energy or Scottish Power would like to contribute.
Dr Smith, are you ready to respond to David Whitton's challenge?
Dr Brian Smith (Scottish and Southern Energy):
Things should all point in the same direction. In that regard, I would ask whether climate change is the number 1 issue that is facing us and, if it is, whether all of the things that are concerned with climate change point the same way. That issue impacts on wider policy areas, including directives from Europe such as the birds and habitats directives. Are they out of date? Are they consistent with the challenges of climate change? Is friction being created between policies that have been around for a while and do those policies need to be updated in the light of this new challenge?
At the centre of the matter is the eternal triangle—I mentioned it at Pitlochry—which touches on a number of things that have been talked about today, including energy efficiency. That eternal triangle is the link between prices, security of supply and the environment. Security of supply concerns the need to ensure that there is enough capacity and fuel to feed the power stations. That costs money, as assets need to be replaced.
Environmental aspects cost money because they require clean-up equipment to be fitted onto existing assets or, in the case of carbon capture and storage, they require transport infrastructure to be developed to move gas to a storage site, and the acquisition of that storage site in the first place. On prices, one of the focuses of the UK Government has been affordable energy, but I would say that the challenge is to do with the fact that energy is too cheap to be efficient. How can we deal with that?
In the middle of that eternal triangle is demand reduction. If it was possible to reduce demand, people could afford to pay a bit more for their energy and still end up with the same annual bill. They would still be relatively happy with the price but would get all the other benefits. However, if you are going to address demand reduction, you will get into the territory of social engineering, as you will have to convince people to change the habits of a lifetime. Price is one of the ways in which that can be done. I drive myself mad trying to convince my teenage daughters to turn the lights off, so I give up—energy is too cheap and my bill is not big. That issue relates to combined heat and power systems and so on.
Could a generating company saying that we should not reduce demand be seen as speaking from self-interest?
I am saying that we should reduce demand and that the way to do so is to increase the price—people will use less if it is more expensive. There is a difficult balance to be struck and I agree that my suggestion might look like self interest on the part of a generator, but the fact is that, if something costs more, one is more careful about how one uses it. Under those circumstances, if people use less, we will supply less but our income will remain the same, so we should be indifferent to that because such a move would bring about benefits arising from the need to supply less energy, build fewer power stations and consume less fuel.
Social engineering is difficult territory to get into. However, I must point out that the Government's affordable energy policy is not consistent with climate change and energy efficiency. That needs some careful thought. You might arrive at a conclusion that is different from mine, but that is the challenge that you need to think about.
I agree, in part, with Brian Smith. I will come at the issue from an electricity viewpoint, although that will slightly rankle Malcolm Webb.
I think that people will look back at the period from 2006 to 2008 as the tipping point at which business had to focus on climate change, the environment and low carbon emissions as factors in decision making that it did not previously have to take into account in the same way. More and more businesses are looking towards carbon neutrality and so on. That leads me to question whether, if we are 74 per cent dependent on hydrocarbons, we should be moving further down that road of dependency. Another dash for gas is starting in the UK. Is that the right way to go? The tipping point and the fact that businesses have to consider a much wider range of issues than they did previously—they are being forced to do so by the provisions of the Companies Act 2006—leads us to question whether the regulations that we must deal with fit with that model.
We are good at micro questions, such as whether a particular wind farm affects a particular group of birds, but we are poor at addressing the question of whether climate change will affect that whole species and how we can factor that consideration into our decision making about onshore wind infrastructure, about the grid and about other aspects of the situation that have to be addressed if we are to meet the challenges that face us and tap into the renewable resource that exists, particularly in the north-west.
Yesterday, I was up at the Arnish yard in Stornoway. It is producing wind turbine towers for Turkey and Canada and has 13 bids out for work for countries across Europe, but it has not one bid out for work in Scotland. That is partly because of the rate at which we are managing to get consents and development through. If we are to achieve our aims, the committee has to consider the constraints that are slowing down that development.
The other issue that the committee should consider is whether we are going to be able to achieve the desired balance. Are we, perhaps, heading down a route that places a great deal of faith in untested solutions that might well be high-cost solutions? Brian Smith pointed out that high costs might well have impacts in relation to energy efficiency because they might affect consumer behaviour. There is no silver bullet that will deal with affordability, security, climate change and so on, but we have to consider the balance that we are able to strike and the affordability of the solutions, whether they involve renewables, CCS or nuclear power. We have to think about what solutions will put us in a competitive position at the end of the day.
If we go down the route of rationing by price and there are issues of affordability, will the regulator have a role in helping with that policy shift through price regulation and direction to generators? What influence does the regulator have in relation to a shift in the mix? Some recent decisions have been controversial because they appeared to be in consumers' interests but not in the interests of the environment and the long-term future. Am I being unfair, Mr Gray?
David Gray (Office of Gas and Electricity Markets):
Indeed. [Laughter.]
Okay.
I will answer your two questions briefly and come back to you with further information, if that is okay. You asked whether we have a role to play in price regulation. The answer is that we do not—we do not regulate prices. The only aspect of the industry in which we directly regulate charges or prices is the use of transmission and distribution networks. We have no role in manipulating or influencing the final price to consumers.
Although regulation of the transmission and distribution networks does not have a direct effect on prices, it certainly has an indirect effect. You do not tell British Energy what prices it can charge, but you regulate access to the networks, which has an effect on the price to consumers.
To put transmission charges in context, in Great Britain they account for about 3 per cent of the total energy bill, so our regulation of transmission charges will not, on average, have a significant impact on the price to consumers. We have no duty and no tools to influence end-user prices.
Secondly, you asked whether we have a role in the shift in the mix of generation. Again, the answer is that we do not. The UK Government's policy on generation and supply is that we have a competitive market in which the best solution will come to the fore. We do not have a role in directing attention to any particular type of regulation and I do not believe that we should have such a role. However, we do have a role, to which you alluded, in protecting consumers' interests.
I return to what Brian Smith said, because he encapsulated our dilemma and the policy dilemma pretty effectively. The Government has objectives—and has therefore given us duties—in relation to security of supply, sustainable development, fuel poverty and so on. The implications of what it wants to be done in those areas are mutually inconsistent. Measures to protect the environment cost more money and have a direct impact on the price to consumers; in particular, they have an effect on fuel-poor consumers because of the proportionate impact on their bills.
At the heart of energy policy is a series of difficult dilemmas. Our role is simply to make decisions within the context of a set of duties that pretty accurately reflect those dilemmas, and to make decisions that are in the best interests of consumers in both the short term and the long term. Before anybody accuses me, that does not mean that we focus only on price; I accept that environmental benefits are also benefits to consumers.
Our approach to our duty is, first, to ensure that we do not inadvertently get in the way of Government measures. For example, in recent years we have taken considerable steps to ensure that funding for transmission development for renewables is not a problem. It is not a problem and neither is availability of money for companies to build assets. We dealt with that in the past few price controls and through the transmission investment for renewable generation mechanism, which we introduced three years ago to ensure that there is no unnecessary delay.
Secondly, within our framework of duties, we do what we can to ensure that environmental measures are delivered at the lowest cost to the consumer. That seems to be a way of squaring the circle of discharging our duties and protecting consumers' interests while also having sustainable development duties. It seems to me that our duties mean that we should support measures to protect the environment and try to ensure that they are achieved at the lowest overall cost.
I would like to follow up on Mr Gray's points. I suspect that some would dispute the contention that Ofgem's role has no impact on projects in some parts of the country, not least the part of the country that we are now in.
I said that in relation to prices.
Okay—but I think that there could be a lively debate on the issue. I do not expect this today, but perhaps you could provide the committee with a little more analysis, which would help us to reach a full understanding. I can think of people, including some round the table, who might dispute your claim.
Today in Parliament, there will be a debate on the proposed Beauly to Denny line, of which you and others have intimate knowledge. I suspect that the member who lodged the motion does not really want the development to go ahead at all. Is he right?
Ofgem does not have a view on that. Our role in respect of the Beauly to Denny proposal is specifically to assess whether it is sensible and in the interest of consumers to fund it. We last considered the proposal in 2004, when we were doing the transmission investment in renewable generation project that I mentioned. We did that because we were under pressure from generators in Scotland to ensure that funding was available so that renewable projects could go ahead. We considered whether it made sense to build the line, given the cost relative to the amount of potentially available generation. Our view was that it made sense. The project has now gone to a public inquiry. Depending on the outcome of the inquiry, I imagine that a somewhat different project will come back to us, which we will then consider on the same basis. However, it is not my role to express a view on whether the project should go ahead, per se.
I suspect that some of the points that you have made might not find a lot of favour with members round the table or with some of our other colleagues. I ask Grant Thoms to give a view from the perspective of the renewables industry on what our colleague from Ofgem has said.
On the points that David Gray made in answer to Tavish Scott, the Beauly to Denny line is a key infrastructure development that would release renewable electricity development, primarily in the north of Scotland, but also offshore. There are marine and tidal energy devices that are at an early stage and that are being tested to try to get them up to commercial scale. Those projects are dependent on a strong power line that goes to where the consumers are. The Government's watchdog—the Sustainable Development Commission—has today released a report that backs our industry's view that the grid infrastructure for electricity is based on our current and older generation systems and that we need to consider it strategically, taking account of where future sources of generation will be. Those sources will not necessarily be where the current large-scale generation plants are.
Ofgem has failed to think more strategically and has tended to react to what the market suggests the developments will be. As has been proven by the Beauly to Denny proposal, Ofgem takes case-by-case examples of how certain parts of the grid need to be upgraded, but it lacks a longer-term strategic view of Scotland and the UK's energy needs and how our infrastructure will fit into European structures. The renewable energy industry is completely frustrated with that situation, which is one of the three major blocks to developing our industry in Scotland and therefore to giving Scotland not just the economic and social benefits, but the environmental benefits from reduced carbon emissions: 600,000 tonnes of carbon could be saved every year if the Beauly to Denny line was built, because it would release new sources of electricity generation in the north of Scotland.
Stuart Haszeldine (University of Edinburgh):
I come at the problem from a climate and energy supply point of view, because in my day job I am a geologist and environmental scientist. We need a strategic view about the direction in which we will point in the long term. Even for Scotland, the climate change imperative will become much more apparent as a result of flooding, rise in sea level or storms. We are seeing only the start of the process. We need a strategic view of how we will develop low-carbon forms of energy, whether that happens through renewables, continuing with nuclear, or my speciality, which is carbon capture and storage—decarbonising the fossil-fuel power stations.
I am concerned that we seem to have no strategic view or signposts that show which way we want to go. Commercial companies and organisations come to me to ask advice on the Scottish perspective, what will be done and how the skills in our offshore industry will be bolstered or used for carbon capture and storage. There are several key options in Scotland that we could deploy, but as far as I know, there is no strategic view. The train is standing at the station, the passengers are on it, the engine is about to start, but Scotland is still buying its tickets.
The First Minister and others have made public announcements but, as far as I know, we have no delivery mechanism. Some of the big power companies are interested in timescales. A third of Scottish carbon dioxide emissions could be decarbonised as a result of two or three big decisions. That is one of the biggest hits that we could have. We should, by all means, continue to reduce demand, invest in renewables and promote efficiency through reorganising transport, but big quick hits could be made. My pitch is that we need an overall plan to evaluate how we can put Scotland into the piece as part of the UK. Otherwise, Scotland will be totally bypassed by UK developments.
You are suggesting that we ought not to leave things to the market. Rather, we ought to direct matters centrally.
I am suggesting that we must enable the market to invest in Scotland, because Scotland has huge access to storage resources. Carbon dioxide can be put in the rocks deep beneath the North Sea. We could bring in money if we play our cards correctly by disposing of not only Scottish or English carbon dioxide but European carbon dioxide from France and Germany, which have much greater storage problems. We can show the way if we make it possible to build a pipeline grid and fossil-fuel power stations with the appropriate technology fitted on to them. We have been rebuffed for one economic reason or another, but I have talked to people in the Executive and I think that there are regional levers that Scotland can pull to encourage investment here.
I may be being unduly defensive, but I get a sense from two or three things that have been said that there is a desire for somebody to take charge and do things, and that that somebody should be Ofgem. The desire may be entirely understandable, but there is no mechanism for Ofgem to do that. We do not have a duty to run the industry. Our list of duties is set out in legislation. Once proposals come to us from the industry, we have clear duties to perform, but we work within a framework. In essence, the UK Government has said that there is a market system. The renewables obligation and renewables obligation certificates are its strategic measure for promoting renewables. We work within that strategy. Nothing in that strategy requires us or gives us the ability to say, "Here's our plan for designing transmission" or "Here's our plan for designing where generation should be" or whatever.
I turn to the role of the Economy, Energy and Tourism Committee. An important question is, if such strategic planning is needed, how can it be made to happen within the market structure? If everybody simply looks at Ofgem and complains because we are not planning in such a way, I am afraid that nothing much will improve, because we do not have any plans to do that.
And we do not have any power to make you do that, unfortunately.
Stuart Haszeldine raised CO2 storage issues and the potential for a major new market for Scotland. I invite Malcolm Webb to respond to what he said.
If we can crack carbon storage, it has the potential to benefit hugely our society's sustainability. However, the problem is that the economics of carbon capture and storage do not quite work. Therefore, the market needs help. However, carbon storage has great potential in general and for Scottish industry, because Scotland has the technology and the holes in the ground.
To Robert Armour, I say that I was not trying to say that 79 per cent petroleum dependency in 2020 was a good or a bad thing. I am saying that that is more or less a fact: nothing will turn it around. I am sure that, in the long term, the figure will decline—personally, I hope that it will decline—but it is a fact that that is what is coming at us. I am making a plea for a sense of proportion in deciding what we need to do in the next couple of decades, at least. In 2020, we will not be able to produce all the UK's oil, as we are doing at the moment; we will be down to about 65 per cent self-sufficient. So, there will be a big importation of oil, which will grow. That is why it is important that we maximise indigenous production.
It is important to bear in mind the history of carbon capture and the point that it has reached. When I wrote "Fool's Gold: Story of North Sea Oil" in 1993, Alex Salmond handed me a memo from Donald Bain in which he pointed out the practicability of carbon capture. That memo was written in 1992. We may be late for the train, but the train has been somewhere down at the bottom of Africa since then. The Norwegians have experimented with carbon capture technology. Would it not be much easier to get in on their development, rather than reinvent the technology for ourselves?
I agree that the concept has been recognised for a long time. However, realising it requires a change in economic mood, the tipping point to which Mr Armour alluded and the slight price increase to which Brian Smith alluded. If the extra cost was passed straight on to the consumer without any extra profit for generators, it would add on only a few tens of pounds per household per year to the wholesale cost. It would not be a big cost, and a lot of people would be willing to pay it if it was badged as their helping to prevent climate change.
As you said, the Norwegians have been developing carbon capture technology. That is because they have had a carbon tax, which has encouraged them to do that. The UK has a rather different mechanism and the first carbon capture plants will need some sort of state aid. The competition for that state aid is being run by the Westminster Government and Scotland can play into that, although it is unclear how many projects there will be in the first competition. If there is even one project, I still think that Scotland can reconfigure some of its assets to make a sound bid for that project. Luckily, we have section 36 consent for one of ours, so we can develop it straight away, which could be a key point in rapid delivery.
The Norwegian example is not fully joined up. Here, we are trying to link power stations to transport and to storage facilities where the carbon can be kept safe and secure for very long periods. The Norwegians are, in effect, just saving pollution from their offshore oil rigs.
As has been said, we have a giant opportunity. Viewed with hindsight in 20 years' time, it will be inconceivable for coal or gas power stations to emit carbon dioxide. It will also be inconceivable that we sat around wondering what to do at this stage of the game.
Alan Mortimer (Scottish Power):
I agree that Scotland is uniquely placed to gain economically from carbon capture and storage because of its technical conditions and its oil and gas industries. There should be a fairly strong strategic interest in ensuring that Scotland gets the train moving. It is not too late; there is time, but it will be important to get the early demonstration projects going here.
I agree with much of what David Gray said about transmission, but as far as funding for upgrades is concerned, the chicken-and-egg effect is being ignored. Grid upgrades can take 10 years to deliver and that frightens away development; therefore, there is no development to justify the grid upgrade and we cannot move forward. That is what is happening just now, and the situation needs to change. A transmission access review is under way, which is welcome, but our message is that the change must be radical if it is to take effect. What is required is a reforming of the rules by which Ofgem and National Grid plc are governed.
Given that Mr Gray has told us that transmission costs account for only 3 per cent of the total energy bill, is it worth Ofgem's while interfering in the market at the margins when it might not provide any consumer benefit, which I understand is the main reason for Ofgem's existence? Would it not be better to allow the producers to make their own decisions on how best to hook up to the grid?
Transmission is not just left to the market at the moment—as David Gray pointed out—but is regulated. The issue is how it is regulated. As we can see from other European countries and as a report earlier this week highlighted, regulation can be carried out in a different way that allows a more strategic view to be taken and allows upgrades to move ahead earlier. That would give people in the renewables sector the confidence to follow.
As David Gray said, Ofgem has a remit. Its remit is defined, and it is not to run the industry. I think that, just as the remit of companies and others is changing, in due course the remit of the regulator will change. Expectations on the regulator will change because it will need to factor in a variety of things that create incongruities between one policy and another. A greater role may well be given to sustainability, development or energy security, for example. The committee might want to think about recommending how the role of the regulator might be changed to achieve some of the policies and developments that the committee would like to see.
As far as the Scottish Parliament is concerned, the committee has responsibilities for the economy, energy and tourism. Although not all those functions are devolved, that does not prevent the committee from making recommendations to the Scottish Government to engage with Westminster on those issues. We will need to balance out what we will do relative to our remit, but we will not be absolutely constrained by that. We will certainly need to consider issues such as Ofgem's role; we cannot discuss energy without discussing that issue.
Are there any views on how we might address the balance that is needed in electricity generation? Should we leave that issue to the market or should we be more actively engaged through things such as renewables obligations? There is a debate on that, so our committee perhaps has an opportunity to consider the issue.
I want to add to the deputy convener's question. We have heard a lot about transmission, although no one who is here today deals specifically with transmission. For example, Elaine Morrison talked about the need for city transmission systems instead of feeding stuff down the national grid and Tavish Scott asked whether the Beauly to Denny transmission line is really necessary. Such issues have implications for transmission. It would be a huge shift to move away from a national grid and transmission lines towards locally produced energy and electricity. That is a fascinating issue for discussion, so I would be interested to know more about transmission costs and that kind of stuff.
Mr Haszeldine suggested that we should flag up the fact that now is the time for action on carbon capture and other big projects. Part of our role might be to consider such issues.
Correct me if I am wrong, but I rather think that Scottish and Southern Energy and Scottish Power still have an interest in transmission. From what I remember, they are still integrated companies. It would certainly be open to us to engage with National Grid plc, which also has a role. Am I correct in saying that both SSE and Scottish Power still deal with transmission?
Under the terms of our regulation, there is business separation. I am on the generation side of the business rather than on the wires side—
That is what I meant.
I wanted to encourage folk to address Malcolm Webb's point that we have gone from 74 per cent dependency on hydrocarbons to 79 per cent dependency. Everybody is shouting about renewables, and there is a debate about nuclear power. We have an opportunity to make our pitch as we decide what to do over the coming year.
I want to ask a slightly strange question to the other participants. I am interested in the extent to which the power companies can guarantee a supply of electricity after 2011. By my calculation, it all depends on Mr Armour's power station at Hunterston. If that power station is shut off in that year, unless we very quickly develop a big renewable resource that we can switch on, we will be quite close to not having enough electricity at peak load, by my arithmetic. That would be compounded if Scottish Power decided to repower or renovate its equipment at Cockenzie or Longannet, because some of that capacity might not be available for a year or two at a time. Has anybody taken an overview of the whole Scottish situation—and not just from their own company's view? What is the level of guarantee of peak-load electricity delivery from 2011 to 2015 and onwards?
Hunterston A is scheduled to finish its life in 2011, and Torness in 2023, unless we life extend. We have said that we will make a decision on life extension by the end of this calendar year, and we will see where we are then. At the moment, we are continuing with our studies. We do not see a technical issue that would stop us taking forward Hunterston for perhaps another five years.
Any generation asset is finite. We must factor in the fact that the major assets—Cockenzie, Hunterston, Peterhead, Longannet and Torness—will come off the system, and we must consider how to replace them. That takes us back to the question that I posed earlier. If we continue down the current route, we will be relying heavily on renewables. The bulk of renewable energy production at this point is still from hydroelectricity and there are issues of cost with that level of reliance.
The amount of energy that we produce from marine and tidal sources and offshore wind, which are seen by some as the key future options, must be questioned. Do we go down that route, which is essentially untested in terms of the competitive electricity mix, or do we need to assume a robust mix that inevitably includes some gas and which inevitably requires us to make progress on CCS while also relying on some of the present stalwarts? If we decide to rule out some of those sources, for whatever reason, we should evaluate the costs of that, which we must bear as an economy, as well as dealing with the impact on our energy security.
To respond to Stuart Haszeldine, it is inconceivable that either of the two energy companies in Scotland would do anything that caused the lights to go out. That would have significant political repercussions, as well as customer repercussions. We value our customers, so we would do nothing to cause an impact in that respect. That is a high-level answer. The more technical answer is that we have an integrated network in the UK, with an interconnector. Power flows in both directions. We even have an interconnector over to Ireland, although most of the energy goes towards Ireland. It is inconceivable that either of our companies would do anything to put the lights out.
Reflecting on the flavour that I have picked up from this morning's discussion, I return to my first point, which was on the need for the committee to identify the main challenge. I assume that you will come up with climate change. Logically, we must then ask what we must do to tackle the problem. That will involve either doing things directly on planning consent for renewable energy projects or flagging up any policy issues that are hampering progress—such as regulatory aspects or directives from Europe—even though you may not be able to influence them. The committee could usefully address those two matters.
It is clear that things are shifting on the electricity mix. When Sarah Boyack set the renewable electricity targets for 2010 back in the early part of the millennium, many people in the Parliament laughed at the possibility of going anywhere near generating 18 per cent of electricity through renewables by 2010. We surpassed that in 2005 and, as of last year, generate 20 per cent of our electricity renewably. In three years' time, a third of our electricity will be produced renewably.
That is not toytown economics for the electricity industry: it has been proven in other countries in Europe. Scotland is progressing well but can go further. The Scottish renewables forum released a study last year that considered the possibility of being able to generate roughly 60 per cent from renewable sources by 2020.
Political will has developed much of the renewables sector of the electricity industry and can help it to go further if it wishes to. That requires action on planning, infrastructure and finances for some of the other developing technologies that are not yet near commercial viability. If the committee takes a longer-term, strategic view of our power supply in Scotland, it might want to examine those matters.
However, heat and transport are big issues in energy—far more so than electricity. Mr Armour mentioned that in his introductory remarks. Parliament and the Government need to get to grips with that fact. We keep talking about power, but heat and transport produce far more carbon emissions so, if climate change is the number 1 issue, we should be talking about what we can do differently on heat and transport fuels.
We keep looking for big projects to solve all our problems but many of the solutions, as Elaine Morrison tried to indicate, are about localising generation as much as we possibly can. However, in some areas, it will never be possible to fulfil all our energy needs locally, so we need the national grid as well. For example, it will never be possible to generate all of Edinburgh's energy from within the city. That is just not going to happen, but the City of Edinburgh Council carried out an excellent decentralised energy study. Every local authority in Scotland should do something like that and should have an understanding of how it can minimise its energy use. In England and Wales, 86 local authorities are doing that, but not one in Scotland is doing it. That is a huge gap, and Scotland needs to play catch-up. We have led in many other areas, but that is one area in which we could do a lot to help reduce demand.
Is that one of the mechanisms that your industry would suggest the Government ought to adopt?
Absolutely. It was in our manifesto for the elections that councillors and parliamentarians should consider what can be done locally. Most of our utilities started off as municipal companies, so perhaps local government ought to consider how energy is generated and supplied in local authorities, working in partnership with the structures that we have in the marketplace.
As nobody has anything further to contribute, I draw the discussion to a close. I invite you all to think about what has been said and to tell us the main thing that you would like us to consider and into which we should hold an inquiry in the time that we have available over the coming year. Some interesting and challenging ideas have been advanced. It is a moot point how realistic it is for us to cross the boundaries of our remit, and it would not be a good use of our time to duplicate what the Government will do, but I assure you that we will have uppermost in our minds what we will do about energy. We might couple that with what we do on the economy. If you care to write to us, it will help to inform our decision in the next few weeks and, if there is something that you wish you had said, by all means put it in writing and send it to the clerks. Thank you for attending; it is much appreciated.
Meeting suspended.
On resuming—