The Scottish Futures Trust (SFT) has urged evolution rather than revolution when it comes to electricity market reforms, warning going too far could undermine investor confidence and risk a long hiatus in significant new renewable generation.
It released a report, prepared by The Energy Landscape, in which it warned any move to locational pricing could risk losing investor confidence which, in turn, could see consumers continue to be exposed to volatile gas prices and fewer jobs created in new generation and emerging sectors, such as hydrogen.
In 2020, the UK saw its electricity come mainly from renewable energy for the first time, with wind, solar, bioenergy and hydro-electric sources accounting for 43% of its power. Though the country must go further still to deliver a fully decarbonised power sector by 2035, as the government is targeting, calling for a rapid scale up of low carbon technologies. This will make the electricity system harder to manage, considering the variability of the likes of wind and solar power, calling for investment in batteries, pumped storage and green hydrogen to help overcome these challenges.
Shifting to locational pricing at this time, according to the SFT, with substantial transmission constraints and doubts concerning the speed of future grid delivery could either delay, or totally “choke off” the substantial investment needed. It therefore went on to set out an alternative vision, making a series of proposals for the future of the electricity market, protecting investor confidence and the path to net zero targets.
These include a shared vision and plan being agreed for Britain’s electricity system with a clear, strategic role for Scotland within it, along with a substantial acceleration in investment in network infrastructure in support of this; clearer communication of how consumers benefit from the renewable transition today and in the future being prioritised; and a Britain-wide wholesale market with a single national price being retained. This would help Scotland be the “engine room” of the UK’s renewable energy generation.
It also called for investment signals to be improved to encourage new industry, such as data centres and green hydrogen producers, to locate in Scotland, and for the way that Britain’s electricity system is operated to be improved, ensuring Scottish consumers are able to benefit from the availability of low cost renewable generation. In pursuing these proposals, the SFT said investor confidence can be boosted and capital spending will be driven into new onshore wind investment and Scotwind. This will bring lower, stable prices for consumers. It will also drive the UK forward to net zero.
Andrew Bruce, Senior Associate Director at the SFT, said: “Scotland has a key role to play in delivering the UK’s 2035 target of a fully decarbonised power sector. We have a current renewable energy capacity of 15 GW which needs to increase more than three-fold to at least 50 GW within the next 12 years if the UK Government is to meet its net zero commitments. Scotwind has a critical role to play in this.”
Bruce pointed out just how critical creating and maintaining a “secure and stable” investor market is set to be in helping to bring in the tens of billions of investment that will be needed for this transition. Bruce continued: “We need to attract investors in renewables, batteries and the green hydrogen sector. If we can achieve that, Scotland could potentially generate green electricity to cover the electricity demand of everything north of Nottingham by 2035.”
