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Scotland Rejects Independence, But Concerns Linger for a Renewables Future

2014-09-29 13:24:31 | Publisher: | View:

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.

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