Energy and the Scottish referendum – do we know the result yet?

Ian Marchant

Ian Marchant FEI, President

Energy has always played a key role in the Scottish economy. In the 18th and 19th centuries it was coal; in the 1950s and 60s it was hydroelectricity and power from the glens; from the 1970s onwards North Sea oil has loomed large and made Aberdeen one of the world’s premier energy cities. Finally, in this century, Scotland has played a leading role in the low carbon revolution both in renewables and in carbon capture and storage.

With this rich heritage, it is no surprise that energy became one of the key discussion topics leading up to the September referendum. The energy issues raised have, however, not been really settled by the vote and this would have been the case regardless of the outcome.

There are two issues worthy of comment. Firstly, there is the debate over the level of recoverable reserves in the North Sea. I have seen figures ranging from 15bn barrels to 24bn. I suspect that even the bottom end will require really significant investment and technological advances but we have to get the regulatory and fiscal regimes right and stable to even get close to this range. There was momentum behind implementing the recommendations of the Wood Report earlier this year and I hope that momentum is regained now the big constitutional issue is behind us.

Secondly, the low carbon revolution I mentioned earlier is stuttering. There are many causes behind this but political uncertainty is certainly one of the biggest. The referendum created a large shadow over investment and innovation in the renewable industry in Scotland and I sincerely hope that good progress can be made before the UK general election creates its own shadow. We need to see projects, both large and smaller community-owned ones, reach financial close and we need to see the climate of innovation and entrepreneurship return to both the corporate and education sectors.

The Scottish referendum has opened the Pandora’s box that is the UK constitution and, as the debate about things like devo max and home rule continue, I am sure energy issues will emerge that have to be sorted. These need to be addressed quickly, clearly and rationally if we are to avoid further delay and disruption or, to use a good Scottish word, a guddle*, in the two halves of the energy industry that are so important to the Scottish economy.

*guddle [verb. to catch fish by groping with the hands , as under stones or along a riverbank; noun. a muddled affair; mix-up; confusion.]

One thought on “Energy and the Scottish referendum – do we know the result yet?

  1. Hello Ian
    I agree with a lot of what you’re saying here. Ian Wood had been predicting recoverable oil reserves of “up to” 24 Billion barrels for a number of years. It was a surprise that the number fell overnight to 16Bn. The 24Bn was predicated on politicians making good choices and listening to the industry. Perhaps the reduction followed the decisions made on bareboat chartering and rising costs? Perhaps it also reflects his view on future Brent price trends having to be adjusted for US prices falling due to the fracking boom? In the short-run we are likely to see an increase in output as temporary interruptions in a number of fields are being sorted and a number of new developments come onstream:
    http://www.slideshare.net/LoudenDW/uk-oil-output-50-percent-higher-by-2018
    My report above identifies where at least in the short-run the increase will come from. Since E&A activity is currently very low, it is unclear for how long the up-turn can be sustained.
    I also agree with many of your comments on renewables. There has been a slow-down from the already slow rate of deployment of offshore wind, of wave and of tidal power. Hopefully the Inner Moray Firth wind project near the Beatrice Field will proceed soon. The MeyGen tidal scheme can also be a catalyst for further deployment when it proves successful. We can also look to energy storage, the “missing link” in our renewables story as another possible area for progress. Developments at Glasgow University might provide a breakthrough here.
    In both Oil & Gas and in Renewables developments can only take place when funding is in place. There seems to be a shortage everywhere. Oil & Gas remains a risky business, perhaps the Government could look again at extending EIS relief to investors in E&A wells? Perhaps Pension Funds could re-consider investment in onshore wind which offers a stable return over the long term. This would be particularly welcome for community schemes on a larger scale where support can be hard to find. Delays in connection to the grid remain as serious a problem for communities as they have been in the past. Could greater local utilisation of power help here?
    In terms of the politics, Lord Smith of Kelvin has to pick from one of two choices, he can either ignore the decision by Mr Cameron after the result of the vote was announced to “re-adjust” the Barnett Formula down and plough on with minimal devolution – the right to put income tax up to compensate for the Barnett cuts – or he can do what people in Scotland want which is “devo max” with control of all taxes passing to Scotland, including oil taxation, excise duty, VAT and Corporation Tax. His choice will determine whether there is a settlement for a generation or if the sudden reversal of the UK Government’s position on Barnett once it had won will lead us straight back to a renewed debate on independence. I’m sure we all wish him luck with that one!

    Like

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