LONDON — Scotland’s decision to vote no to independence from the United Kingdom of Great Britain and Northern Ireland has elicited a collective sigh of relief from energy sector players. Those companies with significant investments in Scottish renewable energy assets had understandably been anxious over the uncertainty that an independent Scotland would engender, for example potentially changing the rules on support measures for renewable energy investment north of the border.
Indeed, it is uncertainty that inevitably depresses business sentiment, and it was therefore no surprise to see the value of Sterling — the currency much argued over during the independence campaign — soar to a two-year high against the Euro in the immediate aftermath of the count. Furthermore, Scotland’s vote to save its 300-year old union with the U.K. means that, initially at least, all the existing conditions that have driven the massive investments in exploiting the substantial wind and wave resources in the northern parts of the U.K. will continue as before.
Commenting on the decision, Tony Ward, head of power and utilities at consultancy firm EY, said: “A ‘No’ vote is important for the whole of the U.K. in that it allows the established dynamic in the energy markets to continue its current course.
“The U.K. markets have developed ever-closer and more integrated systems and ways of operating that serve to reduce, then smooth, the cost burden across all users. This also enables investment choices to be made on system-wide merit and help achieve a degree of energy security that can often be taken for granted.”
Ward added that “a major uncertainty has been removed by the vote, particularly for those who were evaluating significant capital investments in Scotland. The Electricity Market Reforms and further developments of the U.K.’s competitive retail market can now progress while taking the U.K. market into account as a whole.
Highlighting investor concerns Ward noted: “The un-picking of this fully integrated market would have likely led to the creation of a significant degree of asymmetry in the separated markets, particularly in respect of the allocation of costs and assets. This is now smoothed by the ability to adopt a nationwide approach.”
As Brenda Kelly from IG Index — quoted by the BBC — said: “Investors…will be relieved that management will be able to devote their time to business performance, rather than fretting about contract changes or headquarter moves.”
There had been great concerns that victory for the pro-independence campaign would significantly impact Scotland’s thriving renewables industry and on the key impact on renewables Ben Warren, Environmental Finance Leader at EY U.K. & Ireland, said: “The cost of subsidising renewable energy has traditionally been spread across the U.K.” He described the result as “positive in that Scotland now won’t be left to pay the lion’s share of subsidies given that this is where most of renewable energy is generated.”
He noted that independence would have added further concerns to a market already facing significant challenges, saying: “The renewables sector still has to face the difficult choices that the new contract for difference (CfD) feed-in tariff regime, the threat of budgetary constraints and further solar subsidy revisions bring, as well as fatigue from constant policy tinkering. And with the current levels of energy market reform underway, the UK’s energy sector was not looking forward to having to digest the impact of an independent Scotland. We know how prolonged policy uncertainty can impact the attractiveness and viability of renewables investment and cause project delays.”
Similarly, Mark Kember, chief executive of non-profit group the Climate Group, noted that many analysts had underlined the expected impact on the energy sector of a ‘yes’ vote, highlighting the uncertainty of future policies set by a new political body. Under the Scotland act 1998, most of Scotland’s energy policies were created by central government.
Kember cited recent U.K. government analysis, which stated that Scottish bill payers could have paid up to £38 more per year for households and £110,000 for a medium sized manufacturer in 2020 to support renewables. He said: “As a member of The Climate Group States & Regions Alliance, Scotland has been an inspiration for its significant climate achievements and a world leader for renewable power. The leadership Scotland shows is exactly what we need from regional governments in tackling climate change, and now that it will remain part of the union we hope that Scotland will continue to set a clear example on the benefit low carbon technologies can provide, both in terms of sustainable resources and economic growth.”
Certainly there is little doubt that a yes vote on independence would have derailed investment in Scottish wind farm development, despite accusations from the independence campaign that any such suggestion was unduly and unjustifiably negative. Leading renewable energy analysis firm Bloomberg New Energy Finance (BNEF) had released analysis just days before the vote noting that a vote by Scotland in favour of independence from the UK would be likely to damage clean energy investment, at least in the short term, as developers and banks would be gripped by uncertainty over the future shape of the power market and incentives for renewables during negotiations.
Kieron Stopforth, BNEF analyst and author of the research, commented: “During this period of negotiation, with oil, power and renewables support under discussion as well as the currency, defence and national debt, clean energy investors would feel less than confident about future prospects, and decisions will inevitably be delayed.
“These delays could hit projects in the whole of the U.K. for a time, but the longer-lasting effect would be on those in Scotland if they are unable to compete for support under the Renewables Obligation or Contract-for-Difference schemes.”
BNEF added that England and Wales have limited dependence on Scotland for power. In 2012, they imported less than 4% of their net electricity consumption from Scotland, compared to 4.7 percent from Europe. With lower absolute generation levels and less interconnection capacity, Scotland may be more reliant on England and Wales as a customer than they are on Scotland as a generator.
Michael Liebreich, chairman of the advisory board, said: “The number one priority for Europe’s energy sector is to achieve higher levels of market and technical integration, to balance variable renewable generation. Any change that threatens that, especially if it creates a long period of uncertainty, is a step in the wrong direction. A ‘yes’ vote would be likely to slam the brakes on the Scottish renewable energy sector.”
Indeed, Angus McCrone, senior analyst at BNEF, said: “One leading renewable energy developer, Infinis Energy, has already said that it will not make an investment decision on two wind projects in Scotland until the outcome of the referendum and its effects on energy policy are known.”
Bloomberg New Energy Finance figures show that Scotland has 4.7 GW of commissioned wind farms, with another 900 MW financed or under construction. There are a further 5.7 GW permitted and 11.3 GW at the announced or planning-begun stage. The permitted category alone could be equivalent to more than $12 billion of investment.”
Nonetheless, despite these concerns it was clear that the No campaign had a lead almost throughout the two-year run-up to the vote. However, late opinion polls that put the Yes to independence campaign narrowly ahead spread shock waves among the major political parties other than the Scottish National Party (SNP) the primary backers for an independent Scotland. As a result, the Westminster government conceded considerable additional powers to the devolved Scottish parliament, based at Holyrood in Edinburgh, should a no vote be recorded.
Former U.K. prime minister and Scottish MP Gordon Brown promised that a draft law for a new Scotland Act would be published in January, granting more powers for the Scottish devolved parliament to have more say in taxation, spending and other areas of policy. Although this decision is again mired in controversy — largely related to the issue of Scottish MPs having a say on matters related to England only — it is clear that additional powers will be devolved away from Westminster after the May 2015 general election.
And following this decision, Scottish Renewables issued a policy paper on 23 September calling for additional powers for Scotland over energy policy.
The trade group called on both the Scottish and U.K. governments to work together to further accelerate the development of renewables in Scotland following the announcement of the result of the Scottish Independence Referendum.
Niall Stuart, chief executive of Scottish Renewables, said: “Now we know the final result of the referendum it is important that both governments return to working together to meet the incredibly important challenges facing our country, such as tackling climate change and growing the economy. Renewables can make a significant contribution to both.
“The current balance of powers between Westminster and Holyrood has served the renewables industry incredibly well to date, with the sector now generating almost half of Scotland’s electricity demand, employing more than 11,500 people, and displacing millions of tonnes of carbon emissions each year.
“But harder challenges lie ahead as we seek to reach the country’s target of generating the equivalent of all the power we consume by 2020. That is why Scottish Renewables is calling for a new joint Scottish and U.K. government energy policy that balances the interests of Scotland within a single GB energy market; a more open and accountable energy regulator; our islands connected up to the grid and coordinated investment by the U.K. and Scottish governments to support our flourishing marine energy sector.”
The paper details six key areas which the country’s £1 billion-a-year renewable energy sector would like to see addressed — including the further devolution of energy sector powers to Scotland.
Addressing the organisation’s Marine Conference in Inverness on 23 September, Stuart said: “Given the importance of the contribution that Scotland and the other devolved nations will make to the U.K.’s energy ambitions, and the growing importance of the sector to all our economies, we believe that it is time for a more coordinated and strategic approach to the formation of energy policy across the U.K.
“This should reflect our respective strengths, resources and priorities, and be designed to deliver the optimal energy mix for the U.K. as we seek to keep down costs for consumers, increase energy security and cut carbon emissions.
“If there is one obvious failure of the current regulation of our industry it is the lack of grid connections to Shetland, Orkney and the Western Isles — home to the country’s best wind resources, and key to the development of wave and tidal power.
“We want to see the Scottish and UK governments commit to getting the islands connected before 2020. No ifs. No buts. No maybes. This will allow the islands to contribute to the cleaning-up of our energy sector, while benefitting from the jobs and investment that would follow.”
Looking ahead, the independence referendum saw Scotland vote to stay in the United Kingdom by a clear majority of 2,001,926 votes to 1,617,989 — about 55.3 to 44.7 percent — giving the No vote a larger majority than had been anticipated. However, if anything the independence campaign has been bolstered by the turn-out and it is likely that the call for a new vote on separating Scotland from the wider U.K. will not be — as previously described during campaigning — a ‘once in a generation’ event. With political uncertainty the single most influential factor in driving future renewable energy investment it seems that the question of an independent Scotland is one that will possibly return to haunt investors.