Scottish households facing hike in bills due to energy gap in rest of UK

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  By Bob Duncan
 
Scottish consumers are facing a hike in household energy bills after it emerged a shortfall south of the border means an increasing reliance on gas imports in order to satisfy energy demands.
 
This was the consequence of revelations in a speech to be given by Ofgem chief executive Alistair Buchanan, who will say that reductions in Britain’s power production capacity are likely to lead to more imports and customers across the UK paying more for their domestic gas and electricity.

The energy watchdog predicts power station closures could mean a 10% fall in capacity by April alone.

Mr Buchanan told the BBC that the ‘UK’ “would be very tight on power station capacity in three to five years’ time”.

He added: “We’re going to have to go shopping in world markets at a time when they will be very tight [on supplies] themselves.”

A spokesperson for the Department of Energy and Climate Change said that “we cannot afford to be complacent”.

“The reforms we are making to the electricity market through the Energy Bill and through our gas generation strategy are aimed at plugging this gap in order to keep the lights on,”

Commenting, Friends of the Earth Energy Campaigner Guy Shrubsole said: “This is yet another stark warning that UK energy policy is heading in the wrong direction – and the Government’s reckless dash for gas will only make matters worse.

“Ministers must urgently tackle rocketing fuel bills by introducing a comprehensive energy saving programme and ending the nation’s reliance on increasingly costly fossil fuels.

“The Energy Bill currently going through Parliament must be amended to include a clean power target to give businesses the confidence to invest in the UK’s huge wind, wave and solar resources, create jobs, and provide energy we can all afford.”

The problem facing Scottish consumers is that, while part of the UK, they will be charged the same prices as other UK consumers, even though Scotland is a net exporter of both gas and electricity.  The expected hike in bills could also see more Scottish families pushed into fuel poverty.

Figures for Scottish gas exports are difficult to obtain as energy exports are normally calculated on a UK wide basis. However, an Energy Study published by the Scottish government showed that Scotland produces around 390 TWh (Terawatt hours) of gas per annum, of which it exports over 300 Twh, or more than three quarters of production.

Most of the gas exported from Scotland currently goes south, or to continental Europe through England.

Scotland also exports around one quarter of the electricity it generates, again mainly to the rest of the UK.  In 2009, Scotland generated 51 TWh of which 12 Twh was exported.  This is increasing as new sources of renewable energy come on stream.

International energy consultant, Dr David Wilson, said: “Scotland has the potential to be a very significant exporter of both gas and electricity, particularly green electricity, to the rUK and further afield.

“In particular, increased demand from China and India will lead to rising gas prices, making many currently marginal North Sea fields commercially viable, and effectively increasing the reserves of both oil and gas in the Scottish sector.”

The plans to import gas in the short term coincided with news that the UK government was preparing to offer lucrative deals to companies willing to build its new nuclear power plants. 

Speaking on BBC Radio 4, Charles Hendry MP explained that “we do need to rebuild our energy infrastructure, that is an absolute necessity if we are going to keep the lights on.”

The former energy minister also admitted that new nuclear in England would push up consumer prices to pay for ‘contracts for difference’, the 40-50 year subsidies paid to entice companies to build the planned new nuclear stations.

Under the planned system of Contracts for Difference, each type of energy technology will agree a ‘strike price’ with the Government for the energy it produces in contracts which had previously been expected to last for 20 years.  When the wholesale price of energy is below that strike price, the difference will be made up through a surcharge on consumer bills.

Coming on top of pressure from the nuclear lobby for a strike price that is above the current cost of onshore wind and around twice as high as current wholesale prices, extending the length of contracts to 40 years would inflate the consumer subsidies being diverted into nuclear energy massively.

It is estimated that extending planned contracts to that length of time could see new nuclear power stations handed a consumer subsidy of £50 billion.  The coalition agreement signed by the Westminster Government in 2010 promised no public subsidy to new nuclear energy.

Commenting, SNP MSP Chic Brodie who sits on the Economy, Energy and Tourism Committee said:

“It seems that not a week goes by without the Westminster Government trying to find some new way to divert additional support to commercially unviable and completely unnecessary new nuclear energy.

“No matter how many rules are changed or promises are broken; nuclear energy simply cannot be delivered without eye-wateringly high levels of subsidy from ordinary people.

“With renewables a cheaper option than horrendously expensive new nuclear ever will be, why does Westminster want to divert people’s money in this way?

“The last thing that people need in these difficult times is to be faced with 40 years of bills for nuclear white elephants.

“This desperation to move every goal post possible to assist the new nuclear lobby has all the hallmarks of a Westminster Government that is once again puttying Tory ideology ahead of what people need.

“In Scotland we have fantastic opportunities to be a world leader in a range of renewable technologies. Turning our backs on that to throw money at a technology the rest of the world is moving away from is something that runs completely counter to Scotland’s interests.”

The Scottish government has set a target of producing the equivalent of 100% of its own electricity requirements through renewables by 2020. The surplus will continue to be exported.  As the country has around 25% of Europe’s available wave and offshore wind potential, and 10% of the EU’s tidal power potential, it is set to become a major exporter of electricity over the coming decades.

The think tank Reform Scotland, in a report published last year, estimated that an independent Scotland could earn over £2 billion per annum by exporting electricity to the rest of the UK, and could become Europe’s largest exporter of renewable energy.

Commenting at the time, Graeme Blackett, a trustee with the think-tank said: “We would support the aim of a substantial increase in energy exports with a target of around half of electricity generated in Scotland being exported because, even using conservative assumptions on prices, this would increase Scottish exports by £2 billion per annum, equivalent to around 17% of manufacturing exports to the rest of the UK.

Energy Minister Fergus Ewing agreed with the report, saying: “We share Reform Scotland’s view that Scotland could become the biggest exporter of low carbon electricity in Europe.

“We already produce 40% of the UK’s renewable electricity and with the continued investment we are witnessing, Scotland’s energy will continue to be used across the UK and Europe in all future constitutional circumstances, including independence.”

Responding to the Scottish Government’s plans, Labour’s shadow energy minister Tom Greatrex said: “While Scotland has a plentiful supply of raw natural resources, we don’t have the customer base to finance its full exploitation.  That is why Scotland benefits immensely from being part of a UK-wide energy market because subsidies for renewables are applied to customers’ bills across Britain.”

However Mr Greatrex’s claims that the rest of the UK would spurn relatively cheap and plentiful electricity from their near neighbour were undermined last month with the announcement by the UK government of a signed memoranding of understanding with Irish green energy producers that seeks to import renewable electricity from the Republic into the southern half of the UK through underwater cables.