Energy Minister Jim Mather

Statement to Parliament

Thursday, May 31, 2007

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I am pleased to have the opportunity to make a statement on the UK Energy White Paper. I think it important to be clear about a number of issues:

• Those specific proposals which will impact on Scotland
• Whether they are helpful or not in meeting our environmental and economic objectives
• Where we will seek to persuade the UK Government of the need for a changed approach
• Where we will use our own powers in different ways to achieve more for Scotland
• Where we will use our own powers to complement UK measures

But first let me reflect on our overarching objectives. There are some key goals for energy policy that I think we can all agree on:

• The need to reduce carbon emissions, and so tackle climate change
• The need to ensure security of energy supplies by fostering a vibrant, diverse and competitive energy sector that is rooted here in Scotland
• The need to deliver energy at an affordable price for both individuals and businesses
• Ensuring that energy policy allows the energy sector to continue to make its vital contribution to economic growth

These goals are entirely consistent with our overarching core purpose of perpetually strengthening the economy, brand and social-fabric of Scotland… by creating the best possible opportunity for the people of Scotland to fully benefit from their talents and energies.

In achieving these goals we can and must exploit the opportunities offered by Scotland's abundant natural energy resources and related expertise. But we must do so in a way that respects and protects Scotland's environment.

I believe that colleagues here - and indeed the UK Government - would agree that these objectives are reasonable and balanced. Where we may have different views is on how these objectives should be achieved - and the steps government should take to ensure their delivery.

The UK Government has been conducting its energy review for some 18 months now - last week's Energy White Paper is the result of that lengthy deliberation. But I suggest the delayed Energy White Paper fails on many counts.

The commitment to combating climate change is clear and we welcome that. In due course, we will have our own Climate Change Bill here in Scotland. This will set targets which will provide the context for the whole policy spectrum but particularly in energy, transport and energy efficiency.

We know our emissions reductions targets are ambitious. But putting climate change at the heart of our core economic decision-making gives us the best basis for meeting those challenges. By bringing forward a Climate Change Bill in the Scottish Parliament, we will set a clear, long-term statutory framework so that businesses, organisations and individuals can invest in low carbon technologies with certainty.

Climate change is a global issue requiring collective action - I look forward to constructive work across every party so that Scotland is taking a global lead.

By way of contrast the UK Government's "big idea" in combating climate change- nuclear power- is the hole in the middle of the White Paper. A White Paper without its intended nuclear core.

Members will be aware that Greenpeace, backed by the courts, have forced the UK Government to consult properly on the future role of nuclear power. We will respond and we will make clear that we do not want and do not need new nuclear power in Scotland.

If an application were to be submitted for a new nuclear power station that will be for Scottish Ministers to determine. We would be obliged to look at it - but given our policy position, our generating capacity, our multiplicity of energy sources and our strong alternative strategies such an application would be unlikely to find favour with this administration.

In any case we are confident that no operator could justify such an application to their shareholders or their customers.

The UK White Paper does recognise the other options that are open to Scotland and the rest of the UK - but we believe it underplays their potential. We do not believe there is an energy gap which only nuclear can fill. Scotland has other resources which we are determined to exploit. Resources so abundant that we should be planning for export - planning for offshore grids- not giving in to negativity about Scotland's burgeoning energy sector.

These resources can provide the baseload and diversity which security of supply demands. We can have: clean energy from fossil fuels, we can have more renewable energy from more diverse sources and the means to maximise energy output from a given resource through combined heat and power plants. These are real and concrete opportunities.

The opportunity for clean energy from fossil fuels must be better understood.- including here in Scotland. We can continue to use gas and coal if we capture and store the carbon dioxide that will otherwise be released into the atmosphere.

Carbon capture is an enormous opportunity- for the environment and for the UK in exporting advanced technology. But the UK Government has fallen at the first hurdle.

We have had a drip feed of announcements… support promised but details to be set out later. Now with the White Paper we are told that criteria against which projects will be judged will be set out in November with decisions after that.

This slow response appears to have already cost Scotland - and the UK- the Peterhead/Miller field project.

For Alastair Darling's announcement that the competition for UK's CCS project would begin Nov 2007 - has resulted in the withdrawal of BP - the key partner in the consortium.

The Secretary of State for Scotland gave the clear impression in February that a decision would be taken this year. The Energy Minister did the same. Now we find it was a decision about taking a decision. But they know full well that given obligations and costs relating to decommissioning BP needed to know this summer.

Thus we face the loss or yet further delay in a real and technically viable CCS project, with two of Europe's largest companies ready and willing to invest hundreds of millions of pounds. A case of bureaucratic timetables ignoring commercial reality.

This project would have given Scotland a world lead in CCS technologies. It is unlike most other projects in extracting CO2 pre-combustion. It would make use of Scotland's legacy from North Sea oil - both its infrastructure and expertise.

This project would generate sufficient low carbon electricity to supply 750,000 homes and store 1.8 million tonnes of carbon every year- roughly equivalent to the CO2 savings achieved by all of Scotland's windfarms.

Since the White Paper announcement, the First Minister and I have worked to bring the Peterhead project back on track. The First Minister has spoken and written to Alistair Darling pressing for a change in UK government position. I very much hope that he will respond to the constructive ideas we have put to him.

So I would assure the chamber that we are continuing to match the admirable best efforts of Aberdeenshire Council to secure the implementation of this crucial project.

The White Paper is silent on another matter that will affect the viability of our coal fired stations - and of renewables capacity too. That is the regulatory framework under which our generating companies operate.

Liberalised markets have brought benefits to the consumer. Competition between suppliers, together with the ability of suppliers to buy from a range of generators, has undoubtedly had a beneficial effect on prices - even if the price of inputs such as gas has recently masked this. But OFGFEM's approach to transmission charges is not helpful.

By their nature renewable energy sources are often distant from the markets which they need to serve - yet the transmission charging regime actively works against the development of these resources. And this is not just about renewable generators. Transmission charging threatens the future investment in clean coal technologies - with a power station in central Scotland paying £25 million more than a similar power station in Yorkshire. Overall the current transmission charging regime heavily penalises Scottish generators, resulting in additional charges of c. £100m pa for the 10,000MW generated in Scotland. Indeed Scottish companies have told us that transmission charges in Scotland are six times higher than in England and Wales.

I hope the UK Government will think again, that it will ensure that OFGEM takes more account of climate change objectives and, as a result, sets charging regimes which support rather than work against environmental objectives.

The First Minister has already committed that we will work with companies here in Scotland to achieve that end. If it seems necessary we will press the UK government for a change to OFGEM's remit so more account is taken of medium term investment needs and of the case for investment in renewable technologies.

Such steps are necessary if Scotland - and the UK - are to get maximum benefit from other proposals in the White paper. This applies particularly to the prospects for renewable energy.

There are welcome proposals for easing access to the electricity grid; and I hope the proposed review can be carried out swiftly and effectively.

And the restructuring of support for renewable energy goes in a helpful direction.

Studies have shown that our demand for heat and electricity can be met "several-times over" through the power of the wind, waves and tides, our forestry resource and our long-established hydro stations. It is vital that support for these technologies is sufficient, proportionate and effective.

The early advances in renewable capacity have relied almost entirely on onshore wind. The contribution from this technology is and will continue to be important. We want to see more projects- but good projects- not anywhere and at any price to the environment.

But, in terms of support structures, we need to look beyond the next few years. We need to take a more strategic view.

The principle that emerging technologies need more assistance is already enshrined in Scottish Renewables legislation which allows increased support for wave and tidal power. I acknowledge the actions of the last administration in going down that route and it is interesting to see the UK Government is now ready to take similar steps.

It is right and strategically sound to promote as diverse a range as possible of renewable technologies. It is right that the returns available under the Renewables Obligation mechanism should be redistributed away from competitive, lower cost technologies and towards offshore wind, biomass, wave and tidal.

I believe that such changes can benefit the renewables sector, and that they are capable of leading to increases in renewable output. The devil is in the detail, however and we will monitor developments very closely.

Meanwhile, I am not convinced that the measures aimed at supporting wave and tidal are sufficient. There is a sizeable gap between what the UK Government is proposing and what is currently available for wave and tidal power under the Renewables Obligation in Scotland. That gap might be bridged by the provision of capital support on a large scale, but the White Paper is short of detail on this aspect.

Once that is clear, then the question of "whether or not the same or similar changes are made to Scotland 's renewables legislation?" will be a matter for this Parliament.

These potential changes need to be considered alongside our own strategic priorities and vision for renewables development in Scotland- a vision that includes not just marine and tidal energy but also biomass and offshore wind I intend to listen very carefully to the views of our own stakeholders before making any decisions or recommendations.

I also welcome the White Paper's acknowledgment of the importance of renewable heat. There is a lack of firm proposals for action but I accept that we are all not far past the starting blocks here. I know that Executive officials have been working hard with stakeholders looking at how we promote renewable heat. I believe that this is an area where we can make genuine progress and a real difference in Scotland.

But we must not focus exclusively on generating heat and power. We all know that we can be more efficient in our use of energy. We support the steps set out in the White Paper that impact on Scotland- essentially that is the requirements that are placed on the utility companies and regulation in relation to consumer products.

We have our own powers and measures sitting alongside - such as our opportunity to use building standards to further improve energy efficiency and the ability to provide advice to business, the public sector and individuals in changing their practices and behaviour.

So energy policy must be a coherent whole - embracing power and heat, embracing new technologies for generation and reduced consumption, embracing sustainable growth and community benefit & engagement.

That is why we will set out our own approach to energy- set out the actions we will take here in Scotland and the issues on which we need dialogue with the UK government. Many have called for an energy policy for Scotland. We will work with all interested parties to develop that starting by bringing together voices from across the Energy Sector - including users - to establish a single unifying goal for the sector that is in line with the core purpose of this government.

Those voices will have the opportunity to work with Government to identify potential, identify inhibitors & constraints and work together to move forward in line with our national goal.

In conclusion, there are things to welcome in the White Paper. However there are also proposals for nuclear power that have no place in Scotland. And there are disappointments - the lack of commitment- indeed the lack of energy - in taking forward issues such as carbon capture. Especially given that promises have been broken, timescales extended and options to go the extra mile and take advantage of legislation have been ignored.

FINALLY, I look forward to working with the people of Scotland, with the Energy Industry and with this Parliament to achieve a more ambitious approach and an optimal outcome for Scotland.