Centre for Energy Policy reponse toScottish Energy Strategy

Dr Oluwafisayo Alabi Oluwafisayo Alabi
Research Assistant 		 Dr Christian Calvillo, Research Associate, CEP Christian Calvillo
CXC fellow & Research Associate
Ian Cochran, Visiting Scholar, CEP Ian Cochran
Visiting Scholar
(I4CE - Institute for Climate Economics,
Paris)		 Dr Antonios Katris, Research Associate, CEP Antonios Katris
Research Associate
Professor Karen Turner, Director, CEP Karen Turner
Director, Centre for Energy Policy

Please note: Some of the consultation questions are unanswered, as we considered they fall outside our area of expertise.

SECTION 3. MEETING OUR ENERGY SUPPLY NEEDS

Q1. What are your views on the priorities presented in this chapter for energy supply over the coming decades? In answering, please consider whether the priorities are the right ones for delivering our vision.

The identified priorities include:

  • Support North Sea oil and gas
  • Support for demonstration and commercialisation of CCS
  • Exploring new energy sources (hydrogen, biofuels and unconventional oil and gas)
  • Increase of renewable energy generation
  • Increase the flexibility, efficiency and resilience of the energy system

These priorities seem adequate from a wider perspective, as they represent what also constitutes a good balance of climate change mitigation measures, while also keeping in mind the importance of the North Sea oil and gas, thereby trying to reduce adverse impact on the economy due to the energy transition. In summary, the priorities seem to align well with the proposed vision. Nevertheless, this energy strategy does not present detailed plans and goals for all these priorities; that is a “strategy” for achieving them. Hence, it is not always clear the practical objective that the Scottish Government is trying to achieve.

Furthermore, it is important that Scottish Government keep in mind that, in order to meet the long-term climate objectives of Scotland, the UK and the United Nations Framework Convention on Climate Change (UNFCCC) is likely to require scaling-down the dependence and extraction of North Sea Oil and Gas. That is, unless in the relatively short term extensive progress is made in terms of the full-scale deployment of CCS or related technologies. It is important to recognise where there could be cross-benefits where, for example, oil and gas industry infrastructure and skills capacity could play a role in enabling CCS, thereby also possibly putting back timescales on decommissioning. This type of consideration is important given the need to maintain the health of the Scottish economy, and the human and physical capital developed through the last few decades via the hydrocarbon industry and its supply chain.

Q2. What are your views on the actions for Scottish Government set out in this chapter regarding energy supply? In answering, please consider whether the actions are both necessary and sufficient for delivering our vision.

The energy strategy heavily relies on renewable sources for energy supply. Different types are mentioned, including on-shore and off-shore wind, hydro, bio energy, marine, solar, etc.

The actions proposed seem necessary, but is not clear if they are going to be sufficient. This is mainly because the actions outlined for the different sources seem unbalanced. For some areas, the strategies are more defined, with targets set, and in others not, taking more an exploratory approach. Therefore, the Scottish Government should present a more defined picture (with approximate technology shares) of the energy mix, not only at 2050, but at different milestone years between and beyond. Having such a plan may give better insight on the necessary actions for a successful energy transition.

A means of better understanding sufficiency could be to identify:

  • The investment in renewables and/or the divestment in fossil fuels needed to reach objectives.
  • Identify the gap between these needs and current levels of investment / reorientation of investment
  • Identify the economic rationale behind investments by project developers and how they finance these investments (public support schemes, private lending/equity)
  • Develop scenarios in terms of how Scottish Government can support both the investment environment for R&D / deployment as well as scaling-up access to different sources of finance to minimize overall cost.

Examples of this type of assessment have been conducted in a number of European Countries including France, Germany and Belgium. Furthermore, the Scottish Government recently participated in an expert workshop at the European Environment Agency in October 2016 on the topic (The outcomes of this meeting are available here).

Q3. What are your views on the proposed target to supply the equivalent of 50% of all Scotland’s energy consumption from renewable sources by 2030. In answering, please consider the ambition and feasibility of such a target.

It is, indeed, an ambitious target that will require important efforts to achieve. However, and as mentioned at  recent ‘Energy Conversations’ event held by the Centre for Energy Policy about energy efficiency (Centre for Energy Policy, 2017a), these ambitious targets could be useful as they show the way that Scottish Government is prioritising action. However, at the present time this particular target seems hugely ambitious given that we have so far only achieved (across heat, transport and power) 5.5% increment in the share met from renewables since 2009 (Scottish Government, 2016).

To really understand the feasibility of the target, it would be necessary to know the expected shares by main energy consumption type (i.e. how much of that 50% correspond heat, transport and electricity). Electricity seems to be the most straightforward energy type to be supplied with renewable sources. However, according to the draft energy strategy document, electricity only accounts for 22% of total energy use in Scotland. Even if all electricity demand is supplied with renewable sources, there still is 28% that will correspond to heat and transport, which could be difficult to supply with renewables.

Biomass, biofuels and electrification are likely to be an important way of employing renewable sources in the heat and transport sectors. Nevertheless, and as remarked at the event hosted by the Centre of Energy Policy about heat, power and mobility  infrastructure (Centre for Energy Policy, 2017c), probably the only plausible way of decarbonise heating, while maintaining the cost and reliability advantages of gas. This gas alternative is most likely to be Bio-SNG (synthetic natural gas) and hydrogen (which would require CCS) in the long term, and thus, targets for them with realistic milestones should be provided as well. Of course, it is important to bear in mind that these decarbonisation solutions are not actually (or not necessarily) renewables. This is an important distinction more generally: renewables may not be the correct target variable if it is a means rather than an end (see our response to Q4).

An assessment of feasibility, as mentioned in Q2, also needs to take into consideration the incentives and investment environment faced that the individual actors that will be making the necessary changes to adopt renewable sources (utilities, private companies, government, households). Many challenges in this area remain, as was a recurring theme of discussions at the Centre for Energy Policy (2017a, b, c, d) Energy Conversations and is discussed below in response to Q15 and Q17.

Q4. What are your views on the development of an appropriate target to encourage the full range of low and zero carbon energy technologies?

Considering that the ultimate goal is the decarbonisation of the energy system, targets to promote zero or low-carbon technologies also seem necessary and (see Q3) are perhaps more relevant ‘outcome’ targets than renewables, at least in the context of Scotland’s climate targets. Nevertheless, it is important to consider:

  • A clear definition of what do these targets comprise and how they complement the existing RE targets. In other words, the zero, or low-carbon targets should add/complement the RE targets by promoting technologies that are valued in the context of decarbonisation but which may otherwise be ignored. Hydrogen production and CCS could be a good example of this (Centre for Energy Policy, 2017c).
  • A strategy that accompanies the zero or low-carbon targets, explaining how they may be deployed over what timeframe, involving what actors, etc. This is particularly important if the energy strategy plan includes the phase-out of thermal plants, which creates the need for alternative stable and predictable generation technology. Therefore, there is a role to be played by low-carbon sources, such as small modular nuclear reactors, as well as the potential for hydrogen, not just for heat and mobility but also for electricity.

In addition to the previous points, extra targets/plans may be needed to support low-carbon technologies, including:

  • A target/plan to support R&D related activities around selected low-carbon technologies
  • A target in terms of domestic deployment of these technologies. In this case, while Scottish Government may wish to remain ‘technology neutral’, at some point decisions may need to be made in terms of what technologies are to be prioritized once they have passed demonstration phases to avoid complexity and the ability to develop deployment at scale. This is particularly the case for non-electricity focussed renewables such as biomass along with hydrogen for heat.

Q5. What ideas do you have about how the onshore wind industry can achieve the viable commercial development of onshore wind in Scotland without subsidy?

The reduction of subsidies for onshore wind has had both direct and indirect implications for the industry.

  1. The direct effects have led to a number of projects no longer being seeing as economically viable. Further assessment may be needed to ascertain to what extent this is due to otherwise viable projects based on generation potential, etc. not being able to overcome the higher (e.g. transactions) costs that onshore wind faces, compared to traditional fossil-based generation. If the reduction of subsidies would have a negative impact on commercial development of viable projects, other alternatives must be found to reduce the associated costs of development (planning process, connection wait time, etc.).
  2. Indirect effects may be more difficult to overcome in the short-term. Subsidies, particularly in the form of feed-in tariffs that guaranteed future revenue streams for projects, have been noted as key reasons for the involvement of certain commercial banks and investors in this area. Given the relatively short track-record and the high number of production and policy risks linked to onshore wind deployment, the finance and investment community may not be willing to provide the capital at reasonable rates to allow competitive project development. Thus, if the government no longer supports via subsidies, other forms of guarantees, investment facilities or programs facilitating access to capital, may be necessary to ensure access to finance for project developers at the scale required for broader commercial development.

It is important to note the various reasons as to why onshore wind may face more ‘transaction costs’ and challenges than other generation technologies (Scottish Government, 2017), including:

  • The need to acquire planning permissions which are open to challenges from local communities, who may feel they will face negative impacts from the development.
  • Potential high costs either to buy farm land or to install your generation in mountainous terrain.
  • The social costs of lost farm land and disturbance to existing ecosystems, which could lead to even further legal challenges and delays.

Given these direct and indirect impacts – and other barriers to investing on onshore wind – the Scottish Government should weigh whether it is more efficient to continue with subsidy-based programs or explore other means of supporting onshore wind development

The success on this matter may require multiple actions on different fronts, including:

  • Development of programs to support project development and access to capital (concessional finance, equity and junior debt positions by public bodies, guarantees, project development facilities).
  • Addressing public opinion issues through a set of strict regulations that developers will need to adhere to and that will also ensure that these are followed to the letter a) the social and environmental impact will be limited; and b) there will be limited room for legal challenges to any investment plans.
  • Exploring and investing in the development of cheaper storage solutions would allow wind farms to potentially produce at a larger scale, thereby reducing their marginal costs and potentially achieving large enough profits to render them viable and desirable investment options.

Q6. What are your views on the potential future of Scotland’s decommissioned thermal generation sites?

It is clear that beyond the questions of managing reduced electricity capacity, the key issue is the social and employment ramifications of decommissioning. Looking into the decommissioning action plan (Scottish Enterprise, 2017), it seems that the current focus is in the decommissioning of oil and gas wells and other offshore sites in Scotland. In this plan, it is recognised the supply chain capabilities, able to create jobs and economic benefits, in addition to technology innovation, skills and training development, also providing important assets for the Scottish economy.

The experience acquired from this decommissioning plan can then be translated to other thermal generation sites, trying to maximise the utility of sites while minimizing emission levels, and when possible maintain the jobs and welfare for the local communities.

Q7. What ideas do you have about the role of hydrogen in Scotland’s energy mix and the development of hydrogen production in Scotland?

Hydrogen could play a very important role in Scotland’s energy mix, as it could be a relatively straightforward replacement for gas in the heating system, and petrol or diesel in the transport sector. However, this is likely to require the development and deployment of large scale CCS. In addition, hydrogen could have an important role as an energy storage technology (Centre for Energy Policy, 2017c). Since the Energy Strategy proposes high volumes of renewable electricity generation, while the combination of hydrogen and storage capacity could potentially act as a precaution measure to avoid or to recover from a black start.

Scotland has many elements (e.g. gas availability for the production of hydrogen through methane, and gas infrastructure) that could assist the successful adoption of hydrogen. Moreover, Scotland can take advantage of the research developed in the UK on hydrogen economy. For instance, Hydrogen fuel cells (HFC) has been recognised as one of the most straightforward transition technologies to a hydrogen economy. One of the reasons for this is that the bulk of the HFC supply chain comprises components already common to the existing electricity and gas sectors. Thus, the UK already possesses a significant element of the HFC supply chain in terms of both manufacturing and services activity (Smith et al., 2017). Therefore, the development of a HFC industry may be expected to generate significant GDP and employment value in much the same way that has been demonstrated in transport fuel supply (though more so for less import-intensive electricity and gas for power and heat – see Smith et al. 2017) and automotive manufacture.

Indeed, there is a strong incentive for Scotland, and the UK as a whole, to strongly build up its HFC automotive and transport sector, taking advantage of the potential wider economic expansion through strong domestic supply chain opportunities. This recommendation is consistent with proposals outlined in the UK Government Green Paper on ‘Building Our Industrial Strategy’ (Department for Business, Energy & Industrial Strategy, 2017). Another benefit of promoting hydrogen in transport is that it is likely that the emerging market will begin to pull other applications – particularly regarding provision of heat – along with it (Smith et al., 2017).

Nevertheless, strong leadership must be demonstrated to avoid being left behind by other vehicle manufacturing countries in developing a strategy that builds on a basis of ‘make not buy’ in the introduction of new technologies. The risk of another “lost opportunity” through failure to create a domestic supply chain, promote Scottish job creation and economic growth (not only for the vehicle and hydrogen industry but to all the energy efficiency and low-carbon technologies), is an important concern also raised during our final Energy Conversation event (Centre for Energy Policy, 2017d). There the discussion focussed on the example of wind turbines implemented in the UK, produced overseas, transported and installed by foreign firms and workers, thus providing little (or no) intrinsic value to most British families.

Also, hydrogen development should be accompanied with other technology improvements and adequate regulation. In particular CCS needs to be supported and commercialised at a large scale to guarantee low-carbon hydrogen production (Turner and Lappin, 2017).

SECTION 4. TRANSFORMING SCOTLAND’S ENERGY USE

Q8. What are your views on the priorities presented in this chapter for transforming energy use over the coming decades? In answering, please consider whether the priorities are the right ones for delivering our vision.

The priorities seem mostly aligned with the stated vision. In particular, the need to reduce demand and increase energy efficiency in all sectors are of primary importance. However, and as discussed in (Centre for Energy Policy, 2017a), there are several challenges that need to be addressed:

  • Currently energy efficiency measures are not a desired ‘commodity’, due to the lack of an attractive near terms and/or sufficiently certain economic return.  As argued in our response to the SEEP consultation and Centre for Energy Policy (2017a) there may be a need for incentives and/or regulations to ensure public participation. However, while incentive measures are more limited in Scotland, caution is advised in the design and implementation of regulatory measures that involve coercion in the presence of significant costs but limited returns to private actors. See our responses to Q15 and Q17 below.
  • Energy efficiency programmes such as SEEP need to design their measures to target the people who needs them the most (i.e. effectively tackling fuel poverty).
  • The delivery measures are not yet available to a sufficient level. There is an emerging supply chain and qualified workforce, but the magnitude of the interventions required to meet the SEEP targets means that a much larger supply chain is required. Moreover, it might worth considering what will happen to this supply chain after the end of the existing energy strategy. Assuming that the targets are met, could all this capital and labour expertise be used in other projects or exported or will it become redundant?
  • Standards and regulation could be successfully used to achieve energy efficiency actions. However, these regulations and standards need to be clear, transparent and easy to apply.
  • More generally, stakeholder acceptance is another important challenge, to achieve a successful energy transition, i.e. it is essential that all the measures and regulation have public ‘buy in’ (see the responses to Q15 and Q17). This point is particularly important when transforming the energy mix translates to negatively impacting existing industries, particularly (but not exclusively) the oil and gas industry and its supply chain, where high quality jobs and employment are a major concern. Certainly, the draft energy strategy states that there will be important job creation linked to the emerging low-carbon industries (e.g. hydrogen, CCS, building energy efficiency, etc.) However, there are issues in terms of the quality and quantity of these jobs, set alongside the social and economic impacts of people fearing for their existing jobs when only the promise of new jobs in industries that either do not yet exist or are not yet fully formed (and may be of lower quality and income) (Centre for Energy Policy, 2017d). This may add to the type of ‘governance trap’ issues discussed in our responses to Q15 and Q17, as it requires ordinary working people to sacrifice in delivering on our low carbon ambitions.

Another important priority is the change to lower carbon transport and heat alternatives. For the former, the target of 40% ultra-low emission vehicles in Scotland by 2033 seems as an ambitious but needed objective. However, the challenges of getting people to change transport habits and reducing overall mobility demand is equally important, and should not be overlooked (again see Q15 and Q17).

For heat, the challenge could be even larger due to the scale of the challenge and the very ambitious target (low-carbon heating systems in 94% of non-domestic buildings’ and 80% of domestic buildings by 2032) of Scotland’s Energy Efficiency Programme (S. A. H. Scottish Government, 2017a). Therefore, the question is not only on how to reduce demand, but on how the heating systems will change, which fuels are they going to use and how these fuels will arrive to the final consumer (i.e. the supply chain, see Q7 above).

Q9. What are your views on the actions for Scottish Government set out in this chapter regarding transforming energy use? In answering, please consider whether the actions are both necessary and sufficient for delivering our vision.

The proposed actions aligned with the priorities proposed in this section. Nevertheless, the challenges described in our response to Q8 should be taken into account while planning and executing these actions. In particular, public engagement and participation is one of the main concerns, as it is not completely clear how these actions will be applied and how this engagement will be reflected in the policy making process (see the responses in Q15 and Q17 for more details on this).

Furthermore, a better balance between looking at transforming the supply of energy – and the demand, may be merited.

Q10. What ideas do you have about what energy efficiency target we should set for Scotland, and how it should be measured? In answering, please consider the EU ambition to implement an energy efficiency target of 30% by 2030 across the EU.

One issue is where, and by whom, action to meet any target is to be done. During the decarbonisation and energy efficiency targets discussion at the Energy Conversations event (Centre for Energy Policy, 2017a), it was remarked that burden of energy efficiency actions is unfairly distributed, and it is expected too much from the residential and commercial sectors (see (S. A. H. Scottish Government, 2017a)). To the best of our knowledge, similar targets have not been set to other sectors (e.g. industry). On this issue, please also see our response to Q17: perceived over-burdening or shifting of responsibility to particular groups may result in inaction (that is, a ‘governance trap’ – see (Newell et al., 2015) and (Turner et al., 2014)).

Certainly, a global energy efficiency target is desirable to align with EU ambitions, and to show “the way to go”. However, as remarked in (Leal and Azevedo, 2016), there should be correlation between short/medium-term targets and long-term objectives, and also from local or sector specific and general targets. Therefore, to maximise its effectiveness, the Scottish Government really needs to create a global or high level target accompanied with realistic and fair disaggregated sectoral targets, aligned with the same objective. This more transparent and fairer share of energy efficiency obligations will improve the acceptability and participation of stakeholders.

Furthermore, when setting industrial energy efficiency targets it is also important to take into account the individual characteristics of each sector. Not every sector uses energy products and services in the same way, so caution should be placed to not enforce measures that instead of boosting competitiveness and making energy efficiency attractive, they introduce extra costs and barriers. Moreover, different industries also work in an environment of multiple policy actions: additional energy efficiency requirements may be negatively received as adding to this burden. Care must be taken in designing incentives and regulations so that they might actually prompt industries to invest themselves in energy efficiency, essentially removing the burden from the Government’s shoulders and also creating strong trends in each sector.

SECTION 5. DELIVERING SMART, LOCAL ENERGY SYSTEMS

Q11. What are your views on the priorities presented in this chapter for developing smart, local energy systems over the coming decades? In answering, please consider whether the priorities are the right ones for delivering our vision.

The presented priorities seem necessary for the vision outlined in this section. Nevertheless, it is important to consider how these priorities, and the actions proposed, will actually help us work towards the main objectives around local energy, decarbonisation, security of supply, energy affordability, etc. Therefore, the Scottish Government should make sure that the process of considering these priorities and actions result in the production of the right guidelines and incentives for the local communities.

Some points that are not explicitly mentioned in the proposed principles and actions, but should be included are:

  • Technical guarantees to ensure security of supply. Indeed, the other elements are also important (decarbonisation, affordability, etc.) and should be implemented whenever possible, but as remarked in (Wilson, 2017) when there are conflicting principles, it is right that security of supply for the users should be prioritised. However, when security of supply is seen as a priority, it may not be feasible to also use approaches that focus on least cost efficiencies as often security will imply risk-aware redundancies in the system. In addition, security of supply should not be used as a catch-all explanation to defend reduced ambition for other targets (decarbonisation, affordability).
  • The creation of a market for smart local energy systems. It has been remarked in (Centre for Energy Policy, 2017a) that currently, there is no market for energy efficiency (not enough supply, demand, or financial mechanisms). There could potentially be a similar situation in the case of local energy systems. Similarly, in (Centre for Energy Policy, 2017b) it was remarked that most local energy systems in Scotland have been built out of necessity (islands and other isolated areas where conventional centralised solutions were not available), and a commercial case still is not there. Hence, an important priority for the Scottish Government will be the creation of a market for such local initiatives.
  • Public acceptance. This will be strongly determined by impacts on public citizens, particularly linking to impacts on fuel (and absolute) poverty levels, as well as how the different stakeholders engage on the decision-making process. At our final Energy Conversation event – focussing on how to actually deliver a low-carbon energy system (Centre for Energy Policy, 2017d) - it has been remarked that it is important to aim for a bottom-up approach, not only on the local energy systems but for the Scottish energy strategy more generally. However, it was also noted that the poorest people in Scottish society may be difficult to engage with, given the more pressing concerns affecting their lives (despite the fact that any action may have significant impact on them). Actions on this respect should be included in the strategy (see also the response to Q15 and Q17).

Q12. What are your views on the actions for Scottish Government set out in this chapter regarding smart, local energy systems? In answering, please consider whether the actions are both necessary and sufficient for delivering our vision.

See the response to Q11.

Q13. What are your views on the idea of a Government-owned energy company to support the development of local energy? In answering, please consider how a Government-owned company could address specific market failure or add value.

As mentioned in this energy strategy draft and in (S. A. H. Scottish Government, 2017b), there is a market failure in local energy systems (not enough demand, suppliers, etc.). A non-for-profit Government-owned energy company (GOEC) could help overcome a number of market barriers for local energy development:

  • Facilitate access to capital: a publicly-backed GOEC can access capital and finance / refinance individual local energy projects that would not have been able to access capital at similar financial terms.
  • Improve planning and deployment: establish and develop a national strategy for local energy, linked and taking into consideration issues of network development and connections.
  • Reduce transaction costs: centralisation of expertise, negotiating capacity with value change and finance community, etc.
  • Reducing risk: where government is recognised as taking responsibility, this will naturally reduce actual and perceived risk to a range of actors involved.

Successfully fulfilling these roles, however, appears to also require that a GOEC:

  1. Is large enough and with a broad enough mandate to carry out these tasks;
  2. Focuses on and is capable of improving the participation of the local communities. If the GOEC des not have a community-based approach to engagement and development, it may not have further success in developing local energy (Centre for Energy Policy, 2017d).
  3. Partner with private companies and developers. A pathway to explore to ensure a productive use of competition often seen as the principal reason for deregulating and allowing private sector participation in energy markets could be the use of capacity tendering mechanisms. A GOEC could be the eventual full or partial end-owner of the local energy projects with local communities, private companies could be tendered to compete to develop the projects at a set cost.

Nevertheless, it should not be expected that the creation of a GOEC will be able to overcome the broad energy policy and regulatory issues that in many instances do not make renewable energy competitive in many areas. If this is not take into consideration, the GOEC will not be able to be financially viable and might depend on large subsidies from Scottish Government.

It is important, before moving forward with such a plan, for the Scottish Government to:

  1. Identify what role local energy should play in the energy transition. Local energy may be a key component of deploying the renewable capacity necessary to meet needs given both the large number of smaller-scale projects needed, as well as the problem acceptability. Once a clearer vision of local energy is presented, it may be easier to better identify and structure how a GOEC could further local energy deployment.
  2. Assess whether the barriers to local energy are related to regulatory and economic factors that the creation of a GOEC would not be in a position to overcome (thus requiring separate action).

Q14. What are your views on the idea of a Scottish Renewable Energy Bond to allow savers to invest in and support Scotland’s renewable energy sector? In answering, please consider the possible roles of both the public and private sectors in such an arrangement.

The use of the bond market to finance renewable energy projects in Scotland is an interesting concept; however, it is important for the Scottish Government to decide whether this is the best option for their projects. In bond issuance, ‘the devil is in the detail’ and its success will most likely require that Scottish Government have the whole value chain of actors involved in bond issuance (Issuer, Structuring, Underwriters, Investors /purchasers). See (Shishlov et al., 2016) for a broader discussion of the potential of the green bond market in this area.

The use of a bond product to fund projects is most often used:

  1. To finance large-scale projects or a portfolio of projects that are being developed by a known project developer with a sufficiently high credit rating (BB+ or higher) and size (typically in the 10s to 100s of millions of € or £). Often, investors purchasing bonds are more interested in the credit rating of the issuer, not necessarily in the green nature of the project. In practice, there is little evidence that issuing a bond linked to green or climate related project will allow for a reduced cost of capital for the project.
  2. To capitalize a public fund or finance institution that can then use the funding to provide loans or equity to project developers. For example, the Scottish Investment Bank could issue a Renewable Energy Bond to raise capital that would then be used to finance or refinance loans for targeted renewable projects (in the case of local energy, medium to small size). The Scottish Government could also directly issue the bond; however, this would pose questions of how a ‘ring fence’ is put into place to ensure that funds raised are channelled to stated uses.
  3. Smaller entities, such as local authorities, could issue bonds as seen in case of large metropolitan areas (for example, the City of Paris). However, success in terms of raising capital at a lower cost is dependent on the credit rating and perception of the local government’s ability to pay out by investors. This for example may be the case for smaller-scale actors developing the type of community energy projects that would be one of the mains targets of this program.

If the objective is for households and local companies to purchase the bonds being issued as a means of support public engagement in the project, the Scottish Government will need to specifically identify:

  1. Underwriters that are interested in structuring the type of bond to the target audience in question. This may deviate from typical practice of targeting investment managers, pension funds and other traditional buyers of bond products – with the risk of higher transaction costs to market and sell to a large number of small buyers.
  2. Plan outreach activities to market the bonds issued to households and companies in the local area. While this is potentially feasible, there is an issue of whether these actors alone will be sufficient to raise the capital and completely subscribe the bond.

There is a significant risk that a program targeting savers would be insufficient to raise the volume of capital necessary for project development or justify the transaction costs (particularly in terms of reporting, underwriting and marketing). Other solutions that could be explored and could have similar outcomes would be:

  • Crowd funding platforms to raise local capital for debt or equity share in the project (there are increasing examples of this in France)
  • Determining how bonds could be issued by Scottish Investment Bank, Scottish Government or other agencies to fund projects, without necessarily a focus on marketing to savers.

SECTION 6. DELIVERY, MONITORING AND ENGAGEMENT

Q15. What ideas do you have about how Scottish Government, the private sector and the public sector can maximise the benefits of working in partnership to deliver the 2050 vision for energy in Scotland?

Activities such as this consultation can provide valuable (but, here, potentially insufficient) insight (see Q17 response) for the Scottish Government in trying to target its action effectively. A crucial issue that has been raised and discussed by the Centre for Energy Policy (see Turner 2017a, b, c; Centre for Energy Policy 2017a, b, c, d) from the outset of the current consultation period is that changing how we use energy requires that millions of individuals, as well as thousands of private firms, ‘buy into’ and participate in progress towards what are ultimately a set of wider (in the case of climate change, even global) societal benefits.  Linking back to some previous research conducted by Turner et al. (2014) and focussed on in the final ‘Energy Conversation’ run by the Centre for Energy Policy (2017d) we also have the challenge that if private actors feel that government at different levels are inappropriately (in their view) shifting responsibility for dealing with climate change, this may result in ‘governance traps’ where all parties fail to or take insufficient action. Thus, effectively engaging with private actors is essential.

For instance, with the participation of the public (e.g. through housing associations), energy efficiency measures could be tailored to different types of households, thus improve effectiveness in terms of both the societal goal of reduced energy demand/carbon emissions and the benefit realised by the private householder/family concerned. Similarly, engaging with the local authorities will allow to focus the efforts on the particular needs and possibilities of the communities. Partnerships with enterprises and skill agencies can provide important business opportunities that, on the one hand, facilitate the achievement of the energy strategy objectives, and on the other hand, creates jobs and boosts the economy. Nevertheless, if the actions related to the participation of stakeholders in the definition of the energy strategy are unclear, and if this is not addressed effectively, the result may be a unidirectional top-down process, with a high-risk of public opposition and the type of governance trap referred to above.

Certainly, the Scottish Government is clearly aware of the need for public/private collaboration and that the discussion around the development of the Energy Strategy going forward must not be limited to the technological potential and possibilities. That is, if the strategy is to become an executable plan, it must focus on the human side of the issue, and the public policy and political challenges that brings. However, in studying the proposed actions throughout the draft energy strategy consultation document, it is not clear that the scale or nature of the challenge has been properly recognised, particularly with regard to securing the agreement and active participation of the wider public. We address this issue further in our response to Q17.

Q16. What ideas do you have about how delivery of the Energy Strategy should be monitored?

Unfortunately, the monitoring section is very brief in the energy strategy document, and it suggests that the monitoring will be mainly based on the publication of an annual energy statement (the annual energy reports such as (Scottish Government, 2016)) including energy and GHG statistics, and other relevant information about the effectiveness of the energy strategy.

The main concern is not the actual monitoring of the effectiveness of the energy strategy, but the lack of sector specific intermediate goals (especially, considering that the decarbonisation pathways are unlikely to be linear and that decisions taken now might have long lasting effects). If the programmes are only evaluated properly at ‘the end’ of the timeframe focussed on – that is, in 2050 (and is that a long enough time frame?) – there is a serious risk that it might be too late to take corrective measures. We believe that the strategy needs clear short term and intermediate goals for each and every step. This way, there will be regular intervals where it is possible to evaluate the energy strategy progress, decide what sort of interventions are needed (if any), and ultimately whether the goals are in fact achievable or not. Having available data and measurements is obviously key, but a proper structure of the pathway to the goals and the checkpoints along the pathway are what will assist in the evaluation.

Moreover, as recommended in Q2, and in our response to the SEEP consultation, we advise that the Scottish Government conduct an in-depth assessment of the current state of play of investment in areas related to the energy strategy. Other European countries have formalized the requirement for the government to monitor and track annual public and private investment contributing to their climate action (see Cochran and Hubert, 2014,  and Hainut et al., 2016). This could be a pertinent and relevant part of the indicator set to be put in place.

This could be complemented with a ‘dashboard’ of:

Estimates of physical or real-economy impacts of investments per year (total and relative renewable energy production; change in emission intensity of vehicles; number of dwellings/offices renovated, etc.)

An assessment of how projects are being financed

  • Are programs finding means of leveraging financing from private sources?
  • Is there over-reliance on public subsidies or an increase in household debt?

Estimates of the reduction of key indicators tracking activities counter-productive to achieving the objectives set by the Energy Strategy

  • Reduction in thermal power generation
  • Evolutions in terms of employment in the energy sector

Q17. What are you views on the proposed approach to deepening public engagement set out in this chapter?

As discussed under Q15, there are some crucial challenges that should be addressed regarding public engagement. This is in terms of (a) ensuring that the public does not react negatively to the ‘responsibility’ attributed to them in participating in action to address climate and energy system issues; (b) ensuring that the public either value the societal return delivered by actions and/or recognise a private benefit accruing to them.

This implies that, in addition to the actions set up in this section of the energy strategy, the formation of energy and climate policy really should be a more bottom-up process that consults on the type of society that people want to live in and how this maps (or not) to the ambitions of government around the energy system and climate targets. We do not argue that this would be an easy process (indeed the ‘climate crunch’ identified in the work of Turner et al., 2014, is one challenging all governments around the world); however, if the challenge is recognised and understood, any action in response could help move things in the right direction. This could deliver the most appropriate basis for setting out Scotland’s ambitions and policies, informing, educating and raising awareness among the public in that context.

In terms of specific issues with this section of the Energy Strategy consultation document, Turner (2017b) focuses on the text around “2050 vision”. Here it is stated that “The public will be informed, helping to deliver and shape Scotland’s energy future”. This, by use of the word “informed”, sounds like a ‘top-down’ process. Similarly, paragraph 211 (on p.72) notes that “The consultation on this draft Energy Strategy will include new approaches to public participation and engagement, as we finalise the priorities for Scotland’s energy system”. Again stating the timing as when Government is finalising priorities limits what may be perceived as the expectations Government has for the consultation process. Also, paragraph 213 (p.73) states that “The Scottish Government is committed to developing an engagement plan and will publish this plan as part of the final Strategy”. Generally, in these statements, the timing seems to be out relative in the context of how the strategy is being developed.

The statement (paragraph 212) of the objective to “improve the design of programmes and initiatives through sharing ideas and listening to and feeding in the views of the public in designing policy” is indeed what Government should be looking to do. However, the text on proposed actions around “Information sharing and awareness raising” is both vague in terms of how this may be achieved and, again, reflecting a somewhat ‘top down’ tone.

To reiterate what we identify as the main problem, while there may be a need for some extent of top-down policy-making when important societal goals must be achieved, if the public is not ‘on board’, recent electoral experiences around the world have shown that there is a real risk of political ‘kick back’ and rejection of government actions and agendas. Moreover, where public consultation does not involve discussion of tangible policy options and potential costs (which are not detailed in the draft energy strategy for any of the ambitions set out), the danger in this respect may not be revealed until later in the process. That is, people may respond positively with their ‘public citizen’ hats on; however, when the potential costs to them are presented, they switch to considering in ‘private citizen’ mode. Turner (2017b) takes the example of the Edinburgh congestion charge: While initial research and consultation had suggested that the public may welcome the benefits of reduced pollution, congestion etc., the policy itself (involving a £ cost to motorists) was overwhelmingly rejected in the 2005 referendum.

In summary, we would advise that it is necessary to address, as early as possible in the on-going consultation and strategy development process, that problematic issue of how people feel about policy actions and ambitions aimed at addressing energy system challenges and climate change. If not, the result may be a lack of required action by all/any parties. If such a situation is to be avoided (and it must be here if the ambitions set out in our Climate Change Plan and draft Energy Strategy are to be realised), is it necessary for policymakers to rethink how they engage with the public. This view was reflected in our fourth Energy Conversation event (Centre for Energy Policy, 2017d), but with concerns expressed particularly over how low income people, struggling with fuel and wider poverty may become involved, or, indeed whether government consultation on energy strategy would even be relevant to this group.

One final issue arising from our fourth Energy Conversation event (Centre for Energy Policy, 2017d) is the difference in value that individual citizens may attach to different objectives and outcomes that policymakers may be trading off one another. Specifically, people are naturally concerned about jobs and economic well-being. It is important to remember that energy transitions/changes in the energy mix involve REPLACING one source of energy, and the associated supply chain/industrial activity, and therefore jobs, with something else. This may result in net job losses overall and/or in different areas of the country, different industries, and with a negative impact on the quality of jobs etc. It is crucial to note that the TIMES model used by Scottish Government in the current process is NOT an economy-wide model, but a least cost energy system optimisation model. Thus, it cannot track wider (and dynamic) economic implications of different choices. This is an important omission generally, but in particular if people are to understand and ‘buy into’ the choices made in developing Scotland’s energy strategy.

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