28/01/2014 Newsnight Scotland

economists. I still am. Are you? Relatively. Are you? We have but we

have to get the lost growth back. Thank you very much.

Tonight, on Newsnight Scotland: It's supposed to be the industry of the

future. But investment in off-shore wind power in Scottish waters has

been cut in half over the past year. Has the next stage of the drive for

renewable energy been the victim of its own hype? And even if investment

picks up, will consumers be prepared to pay for it?

Good evening. There's a large conference about the future of

renewable energy going on in Aberdeen tonight. One of the hot

topics will certainly be a survey by Scottish Renewables showing

investment in off-shore wind power has fallen by half over the past

year. Also today, one of the world's biggest off-shore wind arrays

started to produce electricity - just off the coast of north-west

England. Huw Williams reports. Power through the waves and the rain

off Barrow-in-Furness. Out to one of the biggest off-shore windfarms in

the world. Well, today is a fantastic day for us to celebrate.

Scottish Power Renewables say today is an important day, the culmination

of years of hard work. We started planning this project four or five

years ago. We started construction work on the project 18 months, two

years ago. We have now been installing all of the foundations

over the last year and now start started obviously erecting the

turbines and putting them up and today is the first export, the first

power coming out of the site. Today's development is off Cumbria,

but, from the Firth of Clyde, around the Western and Northern Isles, to

Moraa and the Firth of Forth. Firth Moraa and the Firthof Forth. Firth

of Forth. , industry sees potential for

off-shore windfarms right around the coast of Scotland. It's claimed,

though, that uncertainty about the future means investment is falling,

so that potential might not be fulfilled.

We surveyed the developers working on projects in the Scottish waters

in 2013. That showed there had been an overall investment to date of and

one-third came in 2012/13. Around ?60 #34i8 yob. We resurveyed and

them found a 55% drop in investment. That's clearly a concern for the

industry and it should be a concern for the Government. The figures

emerged as 900 people gather in Aberdeen for Scotland's biggest

off-shore wind event. What is causing that drop in investment?

We've identified two key drivers behind the slight dip in investment

we have seen from the off-shore wind developers in Scotland. The first is

a lack of planning determination coming forward from the Scottish

Government and the second is the continued uncertainty surrounding

electricity market reforms the UK Government is implementing. These

two things working to the has meant that the developments are not able

to move forward in the way we might have hoped. However, I'm sure we can

address these two issues over the coming months and that'll lead to a

positive 2014. The Scottish Government agrees with

criticism of the regime, imposed by London, but insists this is an

industry with a if you tour. Referry case should be dealt with on its

merits. The consent processes nearing completion in some

instances. But the Scottish Government believes that our future

should have a substantial component of quality off-shore wind projects

and, indeed, that that will benefit the whole of the UK, because the

risk of blackouts, particularly in England in 2015 vsh 17 is very, very

high. -- 2015/17. The minister rejects claims that the planning

process is Scot tland is contributing to delayings and

uncertainty. It's essential that the process be followed in a painstaking

manner. It is a probust process where every case must be looked at

with regard to the legislative framework. There have been no

delays. There has been a direction to ensure that the process is being

conducted swiftly and professionally and that has not caused any of the

projects to be delayed or deferred or worse.

Meanwhile, back off Barrow, what about the impact of all of this on

energy bills? Scottish Power's partners in the project say they can

bring down the cost of off-shore wind. We believe we can. We set a

target to reduce the cost of energy from off-shore wind by 40% by the

end of the decade making it competitive. We think it is

achiefable and are working on that today and over the coming years with

the supply chain through technology, innovation and building the supply

chain capabilities. The Government wants us to generate

all our electricity from renewables by 2020. It's clear that our seas,

just like our hills, offer unique opportunities to meet that

aspiration but they also pose real challenges for developers.

I'm joined now from London by Maf Smith, who's Deputy Chief Executive

of Renewable UK, and here, by Professor Stuart Haszeldine, who's a

specialist in carbon capture technology, and by David Hunter, an

energy analyst with Schneider Electric. Maf Smith, could you put

this in perspective for us, Scottish Renewables are saying that

investment in off-shore wind has gone down by 50% over the past year.

What is the situation in the rest of the UK? Well, the UK, the off-shore

wind sector is going through a few challenges but overall is on the up.

While we need to take pause and say - well, OK, what is happening with

things such as the electricity market, former regime that Scottish

Renewables identify, we should realise the UK industry is doing

well, there is a lot of ambition and plans and Scottish companies are

also doing well as part of that. For example, Scottish Power, a large

team, a headquarters in Gl serve serving their off-shore wind

developments across the UK and further afield. -- headquarters in

Glasgow. To be clear, you are saying investment in the rest of the UK did

not fall last year? There have been some delays in investment and

Scottish renewables, as they say there has been hiatus in investment

while companies get to understand the new regime called the

Electricitity Market Forum. Has the decline in investment in the rest of

the UK been as steep as it appears to have been in Scot snrand There

have been delays in some projects coming forward but equally we have

been seeing consent. We saw the project in Barrow generate

electricity today. And Scottish Power, whale it is difficult we are

not seeing those projects in the water Scottish companies are be

contributing to a UK success story and what will be a bigger success

story in the future. David Hunter, it may have fallen by 50% but in

Scotland they appear to have spent ?100 million, roughly, over the past

couple of years. Given that we don't have a single - by marked contrast

with England, a single off-shore array actually working in Scotland,

what has the money been spent on? In preparation and development work. To

give you one example. Scottish Power Renewables looking at the planned

array that they recently pulled out of, obviously there is a lot of

investment that goes into getting to the point where they realised that

for technical reasons and environmental reasons, that couldn't

go ahead. Obviously, you also see the developments with the world's

largest turbine. This is experimental. Experimental. But, you

know... In England they have got actual real off-shore arrays that

produce real electricity that go into people's homes and help heat

their homes. We don't have any of that. Not specifically in off-shore

wind but there are other reasons that contribute to that. For

example, the project transmit, Ofgem, the regulators review of the

costs of connecting these off-shore wind turbines to the grid and

Scotland has historically been at a disadvantage because the south of

England, closer to people's homes, has been in effect, sort of

subsidised with regards to the connection charges. It is much more

he expensive in the Scottish Highland and Islands, at the moment

now, that transmit regulation was meant to be announced before now,

has been put off until March 2014 and has been pushed back a year in

its implementation. So that can of alludes to some of the uncertainty

that people maybe see with projects in Scotland. Stuart Hazell dine. A

lot of people watching will say Scottish Renewables and UK

Renewables talk a good game as always but this tough just isn't

happening, is it? I think you have to look at a longer time-scale of

the if you look over ten years there is a huge amount of progress. If you

look into the future, we saw in the piece that the developers of

off-shore renewables now can see their way to reducing the cost of

that electricity by several tens of per cent. But they have said that

before Tyne has not happened. But we have seen the price of electricity

from on-shore wind decrease, so much so that it doesn't need very much

subsidy. We have seen the price of electricity from other renewable

energies fall so that they don't need subsidy. We are on a journey.

When the Government announced its prices, its subsidy structure before

Christmas for energy, off-shore wind, the subsidy was - I think the

price was ?150 kilowatt per hour s that right, the actual price

producing from a gas - A megawatt. Sorry. And the price for nuclear

energy was ?90. It is uneconomic this stuff. It is not. These prices

are set to attract a development to happen now. When that development

happens now, then we can learn from that and the next development will

be reduced in price. So, the only way that we get towards a cheaper

price of electricity, is by serial development, development,

development, gas, though, of course is being burned now and it is

emitting high carbon. It is not what we want for the future. You have to

compare oranges with oranges. Fine but if what Stuart Hazell dine said

is true and these are market signals to attract investment why is it down

by 50%? Taking on that point in terms of

offshore wind, it is an expensive form of subsidy in comparison to

Mordt -- most other sources like we've and tidal energy. The open

question is how rapidly those subsidy levels will fall from what

is currently more than three times the market rate. Professor Stuart

Haszeldine mentioned solar power, if we had massive investment in that

like we have in Germany, that would put the price down significantly.

Offshore wind has been much more sticky and looking at onshore wind

is well looking at that subsidy level. When you look at Germany you

must take into consideration the exceptionally high energy prices

that domestic consumers are paying as a result of these subsidies. We

must make sure that the clean-up the energy supply but we keep a close

eye on affordability also. Maf Smith, what is responsible for

this? One of the issues is the fact we are going over to a new pricing

regime for subsidies called contracts and there is an interim

arrangement for the Scottish projects that have applied for this.

They have been rejected. Is that the main reason for the fall in this?

That is one of the main reasons and not Scottish projects came out of

Final Investment Decision Enabling for Renewables successfully as a

result of that. They did not get through was not because of the price

differences so it is not that the projects were more expensive or

difficult. Why didn't they get through them? There was a range of

criteria that the government set, it is definitely not praise, however.

We should not say that Scotland cannot compete. They Dookie sector

is buoyant and is big ambition in Scotland for this kind of energy. We

are confident those kinds of schemes will come forward in Scotland. If

you book a few years ago when we installed some test turbines in the

Moray Firth, we are now increasing manufacturing there. If it is not to

do with pricing, could it be that the Department for climate and

energy change is not following through because they are thinking

that they do not know what will happen under the independence

referendum and therefore they are having second thoughts? I do not

think that has anything to do with it. It is in terms of the criteria

for the application process. If Scotland does vote for independence,

with Scottish projects be eligible for these new contracts? We would

have to look at the details. If you ask Scottish companies now, they are

part of the UK market and they will sell into that and all that markets

changes. But if I was one of your member companies and thinking of

investing in Scotland and they resume was changing to this new

contract system which is a subsidy breakdown by the UK government, I

would want to know Scotland voted for independence, will I get that

new deal that I would negotiate ahead of 2017 or not? Surely your

own members must be asking that question? And you have to ask the

Scottish government their thoughts. ScottishPower Renewables are doing

well in terms of developing projects internationally and around the UK.

Scottish companies are supplying and installing schemes around the

country. The UK market is doing well and companies are confident of

investing into that market. What do you think, David, should Scotland

vote for independence that will have an effect. If Scotland votes for

independence, what happens to this arrangement? I think without

sensationalising it there is uncertainty, not dissimilar to the

arguments for the sterling zone, there are respectable arguments on

each side of the debate and fundamentally overall I do not think

it has constrained interest in the renewable investment over the last

few years with in Scotland, a lot of projects have still gone at it. You

do not think this fall in offshore wind farms is connected? It is still

an open question and it is difficult to see how it can be resolved unless

and until we get down to the negotiation stage. It is not to say

that there would be an issue because they are strong arguments on both

sides. On one said of the coin you have legally binding renewable

targets that can arguably be more easily met with Scottish Renewables

but on the other side you have a case that if France had developed

renewables, would the UK data import rather than the out subsidies to do

so? Just to finish this point, because I think it is an interesting

comparison, another aspect here is the proposed energy price freeze put

forward by the opposition, which definitely set the cat among the

pigeons in terms of the number of big energy companies that said that

could be a factor. Whether it is specifically offshore wind,

generally speaking, they have said that they have put off investment

and -- plans until 2015 because if they are getting bashed about left,

right and centre, and you are telling them that the praise you can

charge is controlled by the costs you incur but the subsidies and, are

you going to invest? I think going forward we are looking at a couple

of difficult years because the price of electricity at the moment is

artificially cheap because they are storming -- we are burning cheap

coal. Those plans will close and we have seen one close in Scotland

already by 2022 they will all be gone and the price of electricity

will rise to the level of gas which is better but said more and probably

even more because of renewables. Therefore we must build more

renewables to satisfy the European target of 27% by 2030. The pathway

for renewables is clear. Have you just said our electricity bills will

rise by 50%? Yeah-mac that is correct, . -- that is what they

said. Now, a quick look at tomorrow's

front pages. The Daily Telegraph, the First Minister claims Mark

Carney's predecessor new the Treasury would change after a Yes

vote. The Guardian, huge swathe of GCHQ spying illegal, the suggestion

that the agency was allowed to commit serious crime with impunity.

Also touches on the Andy Coulson phone-hacking trial. The independent

also talks about Andy Coulson and hacking trial.

That's all from me. Goodnight.