Electricity Market Reform

– in the Scottish Parliament at 2:15 pm on 13th January 2011.

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Photo of Alasdair Morgan Alasdair Morgan Scottish National Party 2:15 pm, 13th January 2011

The next item of business is a debate on motion S3M-7693, in the name of Jim Mather, on electricity market reform.

Photo of Jim Mather Jim Mather Scottish National Party 2:57 pm, 13th January 2011

I welcome the opportunity to debate the critical importance that electricity markets and regulatory frameworks play in delivering Scotland's energy potential. As our very own Professor Peter Cameron, professor of international energy law and policy at the University of Dundee, wrote,

"Energy is at the heart of modern life" and

"In modern times the main driver of economic growth has been, and continues to be, energy".

Fortunately, Scotland has a high-quality and high-potential electricity industry, which provides security of electricity supplies, has developed and maintained renewed capacity and has rapidly grown renewable energy sources and new technology.

That is why the Government works closely with the sector, the Great Britain energy system regulator Ofgem—the Office of Gas and Electricity Markets—and the United Kingdom and European Union Governments to develop our electricity sector in Scotland.

In Scotland we have, with our allies and stakeholders, made significant progress. Our energy advisory board has enabled the Government and industry to work to deliver our shared ambitions. We are working with UK Government colleagues on areas of shared interest, connecting renewables projects throughout Scotland and addressing energy demands through energy efficiency planning. We are now preparing to implement the UK green deal to improve energy use and reduce waste.

We are making progress at EU level, with the renewable energy potential of Scotland now recognised as a resource of European significance, as highlighted by the North Sea grid co-ordinator, Georg Adamowitsch, in his third annual report, which is published today.

We are making progress with Ofgem to move forward on fairer locational charging and developing an offshore regulatory framework. We are also making progress in leading research and development in our universities and companies, in delivering innovative network and grid solutions and in developing carbon capture and storage to address Scottish, UK and EU challenges.

Past, present and future, we have the credentials. We have a history in hydroelectric development, we have the successful growth of the onshore wind sector in Scotland, and we are developing our offshore sector. We lead the way in wind, wave and tidal and in carbon capture and storage, and the opportunity is there to do much more. However, we all know that the design of our electricity market and the regulatory frameworks that underpin it are key to making that happen. We therefore welcome the UK Government's intention to radically reassess the UK electricity industry in the next phase of electricity market reform.

There are significant challenges in moving to a low-carbon electricity generating mix, and substantial new investment is needed. The electricity market reform consultation properly sets out to assess market and support mechanisms for low-carbon electricity. The implications of the consultation are far reaching, and there are positives in the proposals as well as areas of concern. To quote Peter Cameron again,

"natural resources are unevenly distributed among states", but we know that Scotland is fortunate to be one of those countries with an abundance of energy resources. We have some of the best renewable energy resources in Europe, with as much as a quarter of Europe's offshore wind and tidal energy resource and an estimated 10 per cent of its capacity for wave power.

In addition, a major UK offshore valuation study that was published in May last year estimated Scotland's practical offshore renewables resource at some 206GW, which represents almost 40 per cent of the UK total. We also have the European Union's largest potential offshore CO2 storage hub. Meanwhile, we have some 7GW of renewables capacity installed, under construction or consented around Scotland and Scottish ministers have determined a total of 43 applications since May 2007. As a result, we are on track to hit our target of 31 per cent of the electricity that is consumed in Scotland to be provided by renewable energy by 2011 and we are confident of delivering 80 per cent by 2020.

Our draft electricity generation policy statement, which was published in November, sets the evidence base to meet that 80 per cent renewables target. That is backed up by a minimum of 2.5GW from new or upgraded thermal plant, which will progressively be fitted with carbon capture and storage by 2030, coupled with increasing energy efficiency and reducing overall energy demand. The statement also shows clearly that there is no need for new nuclear power stations in Scotland to meet our future electricity demand. However, the Scottish Government wants long-term price certainty and a regulatory framework in the UK market that facilitates rather than acts as a barrier to renewable energy in the areas of highest resource.

The success of the renewables obligation in Scotland shows how flexible, established and well-understood support mechanisms can bring forward investment at the scale and speed that are needed to meet renewable energy policy aims and ambitions. We have also used Scottish powers to good effect, introducing higher support levels for wave and tidal, supporting carbon capture and storage—Parliament has consistently supported Longannet as the UK's leading CCS demonstration site—and creating a regulatory framework for CO2 storage in the North Sea. That innovative approach is attracting wider international interest and recognition through the Global CCS Institute. We have used our powers to develop Scottish discretion for Scottish opportunities.

In that context, I turn to the detail of the electricity market reform. We know that there are significant challenges in moving to a low-carbon electricity generation environment and that substantial new investment is needed. The key is how that will be achieved through support mechanisms and incentives. I will touch briefly on the main proposals from the Department of Energy and Climate Change.

The first proposal is carbon price support through a higher tax on the use of fossil fuels for energy generation. That could strengthen low-carbon price signals for renewable energy generators, but we want to be sure that the resultant market signals for renewables will be strong enough. It is important that any such tax does not undermine investment planning for existing fossil fuel generating plant or slow down plans for CCS development and deployment. Also, Scotland must receive its fair share. The UK Treasury's track record of giving money that is due to Scotland back to Scotland with no strings attached is deeply disappointing. As we know, the UK proposal on the fossil fuel levy was to give money that is rightfully due to Scotland back to Scotland, but that was offered only with painful consequential reductions to our budgets for health and justice. That is not acceptable. We have long argued for the fossil fuel levy funds to be made immediately and fully available to Scotland to give us the opportunity to accelerate renewables development. We share the Economy, Energy and Tourism Committee's disappointment that the levy issue has not been resolved and agree that the Governments need to keep working towards doing so.

DECC has also suggested that the existing renewables obligation mechanism be replaced by feed-in tariffs for forms of low-carbon generation. In Scotland, we have used our devolved powers very successfully to create a strong and effective framework of support for renewable energy technologies. Our renewables obligation stands apart from the one in the rest of the UK; we can shape it—and have done so—to reflect specific Scottish priorities such as our enormous wave and tidal energy potential. We plan to do likewise for CCS and indeed welcome the UK Government's proposals to make long-term price support available for CCS. That said, we need to consider carefully how any move towards a feed-in tariff and away from existing renewables obligations will affect investment, particularly in new and emerging renewables technologies. In that context, we must ensure that any change is at least as effective as the current framework and is capable of delivering new industry capacity as well as new jobs.

DECC has suggested capacity payments for peaking plant—in other words, plant that can be brought on to the grid quickly to offset any intermittency in renewable generation to ensure security of supply while we make the transition to a low-carbon generating mix. However, it is important to resist any capacity payments proposals that replicate the kind of unfair locational approach that exists with transmission charging.

DECC also suggests the introduction of an emissions performance standard to ensure that there is no new investment in unabated coal plant. The Scottish Parliament and the Scottish Government must be closely involved in the design of any such standard to ensure that it delivers our CCS policy objectives, backed by clear long-term price support.

Electricity market reform has implications for devolved powers to set renewables obligation support levels, financial support for CCS, energy planning and consents and emissions performance standards. Although I fully believe that Scotland should have full powers over energy in Scotland, I also think that the Scottish ministers and the Scottish Parliament must be fully involved in agreeing and delivering any new mechanisms. After all, renewable energy from Scotland will play the crucial role in helping the UK to meet its renewable energy target and deliver our joint low-carbon future.

The fact that, only today, we have heard from Europe that our renewables resource is of European significance should add to our focus on the matter and I welcome the opportunity that I had yesterday to discuss electricity market reform with the UK Secretary of State for Energy and Climate Change in Edinburgh. I also welcome the fact that the committee was able to do the same in considerable depth, which will add considerable value, and that Mr Huhne made himself available for a lengthy conversation with the First Minister. Finally, I genuinely welcome our agreement with him to hold a follow-up plenary session on electricity market reform next month under Chatham house rules, much as we did with Ofgem, the National Grid, the generators, Scottish Renewables, academia and others on grid issues.

Most important, I welcome today's opportunity to debate these reforms with the Parliament, to put on record their significance for Scotland and to have a chance to hear members' thoughts and ideas.

I move,

That the Parliament notes the UK Government's electricity market reform proposals and their importance to the delivery of the Parliament's climate change and low-carbon energy objectives for Scotland; agrees that the related UK review of Ofgem and the transmission charging regime is an opportunity to deliver a more equitable system that is fit to help deliver Scotland's massive low-carbon energy potential that will bring economic and other benefits to communities across Scotland; further notes the Parliament's existing powers with regard to renewables and carbon capture and storage (CCS), which it believes should, at a minimum, be left intact; believes that the Parliament should continue to use these powers in support of the development of Scotland's low-carbon energy potential; urges the UK Government to work closely with the Scottish Government to ensure that reforms further incentivise clean energy and incentivise energy demand reduction, as set out in the Draft Electricity Generation Policy Statement 2010; calls on the UK Government and Scottish Government to work together to help fulfil Scotland's low-carbon potential, and further urges the UK Government to ensure full and immediate consultation with the Parliament on these proposals.

Photo of Lewis Macdonald Lewis Macdonald Labour 3:08 pm, 13th January 2011

Yesterday morning, in answering the Economy, Energy and Tourism Committee's questions, the Secretary of State for Energy and Climate Change was keen to stress that the UK Government sees its electricity market reform proposals as a basis for consultation rather than firm and settled plans that are already set in stone. That reflects the commitment to the plenary session in Scotland to which Jim Mather has referred. We on this side of the chamber welcome those assurances and the indication that Chris Huhne gave last month on publishing the proposals that UK ministers want to proceed on the basis of consensus rather than diktat. However, if that consensus is to be achieved, the detail of the reform has to be right, and I agree with Jim Mather that the net effect must be as good as or better than the current approach for producers as well as consumers.

Mr Huhne conceded yesterday that the representatives of the renewables sector had not been pressing him for a feed-in tariff in place of the renewables obligation, although he claimed to have taken soundings that he said showed considerable support in the sector at large. In making inquiries this week, I have been unable to find much evidence of that undercurrent of support in the sector in Scotland. That is because the existing system of renewables obligation certificates works, and renewables developers tend to the view that if it ain't broke, don't fix it. ROCs give developers a pretty high degree of certainty about the return that they will make by generating from renewable sources over a significant period. Critics of ROCs might argue that the system errs on the side of generosity, as the National Audit Office suggested when it looked into the issue in 2005, but I have yet to hear anyone in the sector argue that ROCs are to blame for any failure to provide incentives to development.

A significant amount of financial support comes from the existing system. In financial year 2008-09, Ofgem issued 6.7 million ROCs for Scottish renewable generation, at £35.76 per megawatt hour, amounting to a financial benefit to the sector of well over £200 million. That is a significant sum in subsidy, not from taxpayers but from consumers of electricity that is generated from non-renewable sources. Financial support on that scale is certainly large enough to influence investment decisions and, by the same token, changes to that system have significant implications for existing production and future investment decisions.

UK ministers propose a range of new measures. For me, the key one is to replace ROCs with a feed-in tariff. It is also proposed to replace the levy that was planned by the previous UK Government to support carbon capture and storage with a feed-in tariff, and to provide price support for new nuclear power with a feed-in tariff. The UK Government's current preferred position envisages a single feed-in tariff for all three sectors, which it describes as

"introducing, permanently, a level playing field for low carbon technologies in the UK's electricity market."

That removes the option of retaining ROCs while introducing new mechanisms for the other sectors, in spite of the success of ROCs and the absence of demand for their replacement within the sector.

There could conceivably be an alternative approach of providing three separate streams of support for the three different low-carbon sectors. It would be transparent and it would ensure either that ROCs could be retained or that a feed-in tariff could be designed with the needs of renewables in mind, tailored to maintain as high a level as possible of continuity with ROCs. Equally, according to that logic, the UK Government's ambitions to offer financial support for carbon capture and for new nuclear electricity could be met in ways tailored to the specific needs of those sectors.

That was another area on which I took the opportunity yesterday to ask Chris Huhne about his Government's intentions, specifically on the issue of different levels of support for different technologies. He confirmed that he has not ruled out a feed-in tariff system with a premium rate for early-stage technologies, providing additional subsidy for a period, which would be reduced to the general rate as the technology matured. Given that new nuclear, carbon capture and the range of renewables technologies are at different stages of development, that premium approach can offer some advantages over one size fits all.

As the minister said, ROCs have evolved in the context of devolution, allowing different parts of the UK to adapt the system to address particular strengths and weaknesses in their respective renewables sectors. That has allowed Scotland, on a cross-party basis, to provide higher ROCs to stimulate new technologies in the marine environment, allowing Scottish ministers and the renewables sector to play to Scotland's strengths. It has wide support and provides a flexibility that we would not want to lose without some effective alternative mechanism being put in place that achieved the same objective.

Photo of Liam McArthur Liam McArthur Liberal Democrat

I may have slightly misunderstood Lewis Macdonald. Is he most concerned about the idea of moving away from ROCs at all, or would he wish to see that happen following a subsequent ROC review, perhaps in 2020 or thereafter?

Photo of Lewis Macdonald Lewis Macdonald Labour

No. I am not saying that we should move away from ROCs. I am saying that ROCs have brought significant benefits and advantages and that those benefits and advantages must be retained in whatever system takes their place. It is critical that that is got right. There is no problem in principle with moving away from either ROCs or the previously planned carbon capture levy to a feed-in tariff and there is no problem in principle with the Government recognising that new nuclear can contribute to a low-carbon economy or channelling financial support from polluting plant to low-carbon generation.

The challenge for UK ministers is to make the right choices, so that the new system increases rather than undermines the successes of the renewables sector in Scotland over the past few years. That is why our amendment emphasises the importance of those choices protecting existing investments and providing adequate time for transition from ROCs to a new system. We welcome the fact that UK ministers are consulting on the option of a premium feed-in tariff, which could protect some of the most valuable features of ROCs and could be adapted to maintain devolution of decision making in providing different levels of support to different technologies in different parts of the UK.

We welcome the emphasis that has been placed by UK ministers so far on achieving broad political support and listening to stakeholders, because the wrong kind of feed-in tariff could have significant unintended consequences. ROC payments depend on output: the more you generate, the more financial support you receive. With the wrong kind of feed-in tariff, the guaranteed long-term price, which Chris Huhne described yesterday as a benefit to producers, could turn into a nightmare for consumers, because it could send wholesale prices through the roof if it overregulates the market or sets the price at the wrong level. The experience of Germany and, recently, of Spain, emphasises the importance of getting that right.

The key issue is not whether to change but how to change in the right way. I hope that that is the case that Scottish ministers will put to their UK counterparts; it is certainly the case that we will discuss with our colleagues at Westminster.

The same is true of a carbon floor price, which is currently envisaged as a tax to be managed by the Treasury rather than as an energy initiative to be led by DECC. We need to know early how Treasury proposals will interact with the proposals in other areas coming from DECC and how long-term certainty for investors can be maintained under those proposals.

We also need to know how the consultation will operate in relation to the review of transmission charges, which is currently being undertaken by Ofgem under project transmit. Ofgem will complete its review of the evidence on charges at much the same time as ministers begin to consider the responses to the EMR consultation, so we need to be sure that the different processes will be joined up and will provide a coherent result for both producers and consumers. We also need to know what thought has been given to the potential impact on wholesale electricity prices and we need to have assurances that the interests of consumers, as well as those of producers, will be taken into account before final conclusions on a new system are reached.

It is crucial that all these changes are subject to proper consultation. We agree with Jim Mather that Parliament is an important stakeholder and that Scotland's distinct interests should be taken into account. If UK ministers make the right decisions, they will have our support, but to get the decisions right they need to continue to listen.

I move amendment S3M-7693.3, to leave out from "agrees" to end and insert:

"recognises the potential impact of these reforms on both existing and emerging low-carbon energy technologies; believes that it is essential that the best options are adopted for developing Scotland's low-carbon energy potential and providing best value for consumers, and urges the UK Government to ensure full and immediate consultation with the Parliament and with producer and consumer interests in Scotland on the electricity market reform proposals."

Photo of Gavin Brown Gavin Brown Conservative 3:18 pm, 13th January 2011

This is a critical debate and the tone so far has been exactly as it ought to be for such a weighty and long-term matter.

We need secure, affordable and low-carbon energy and it is clear that the current system as a whole will not deliver what we need it to deliver across the United Kingdom. There is increasing demand, which is likely to accelerate, especially if the market for electric vehicles grows at the rate at which we hope it will as we decarbonise transport and heating. The consultation document suggests that electricity demand across the UK could double by 2050. At the same time, we are seeing a shrinking supply—thermal plant is reaching the end of its natural life and the directive on combustion plants is playing its part—and we have very ambitious carbon reduction targets.

Ofgem estimates that, at a UK level, more than £100 billion of investment is required by 2020. That is about double the rate of investment over the past decade or so. It is clear that that investment will not happen by itself without further intervention. We need new entrants into the marketplace and new sources of finance.

The initial speakers from the Scottish National Party and Labour outlined the four main planks of the electricity reform consultation: carbon price support, feed-in tariffs, capacity payments and the emissions performance standard. Much of the debate so far has focused rightly on feed-in tariffs and the potential replacement for ROCs and I intend to focus most of my remarks on that subject too. However, before I do that, I will reiterate a couple of points about the consultation.

Like Lewis Macdonald, I was at the Economy, Energy and Tourism Committee yesterday when Chris Huhne gave evidence to us. He made it clear that the UK Government does not have a firm set of policies at this stage and intends to consult. The consultation document backs up what Mr Huhne said to us. At page 7, it makes it clear that the UK Government has not yet undertaken full consultation in Scotland but that it is determined to do so. There is a specific reference to Scotland. Indeed, at page 128, a section is devoted purely to the devolved Administrations. In what the UK Government has said publicly and within the terms of the document is a clear determination to engage on the reforms with the Scottish Government and the Scottish Parliament.

Photo of Lewis Macdonald Lewis Macdonald Labour

Although what the member said is correct and I welcome it, does he agree that certain proposed outcomes can support and protect Scotland's influence on stimulating the renewables sector whereas others would fail to do that?

Photo of Gavin Brown Gavin Brown Conservative

A range of policies is proposed. There are three separate suggestions in relation to feed-in tariffs: a fixed rate, a premium rate or a contract for difference, which is the UK Government's preferred idea at this stage—that is "preferred" without a capital P; the Government simply thinks that that policy is better. However, it has made it clear that the premium tariff might be better.

Both Mr Mather and Mr Macdonald raised the substantive point about ROCs that we have had some flexibility in Scotland so we have been able to give more support to wave and tidal power, which makes sense. The potential in the Pentland Firth is probably greater than that anywhere else in the world. The map that I saw at the European Marine Energy Centre suggested that it was either the second or third best stretch of water for wave and tidal power generation on the planet.

Yesterday, Mr Huhne was candid in saying that concerns had been raised with him by the main trade body for renewables. He did not say whether that was Scottish Renewables or RenewableUK, but he was forthcoming and candid about the concerns. Mr Macdonald mentioned that Mr Huhne stated clearly that there could be a premium price or, if I heard him correctly, a range of premium prices to reflect the stage at which the technology was at the time. He stressed the view that one of the benefits of a contract-for-difference feed-in tariff was that there would be greater price certainty for all low-carbon sources of energy. Speaking as an economist, Mr Huhne said that such a tariff had the potential to lead to greater certainty for investors in the short and medium terms.

Shortly before attending this debate, I received the Scottish Power memorandum that was submitted to the House of Commons Energy and Climate Change Committee inquiry. I do not want to rebut completely Mr Macdonald's point, but I will put another emphasis on it—although Scottish Power is not jumping up and down with its arms in the air demanding a feed-in tariff, it states that that could be a beneficial approach to investment in low-carbon technologies. It adds the caveat that there are major complexities and uncertainties still to resolve before it can be confident that such a tariff would be workable. However, at this stage, Scottish Power is not saying that it is a particularly bad idea; it feels that it could have benefits even though there are complexities.

Given the terms of the consultation and what I heard the secretary of state say yesterday, it seems that there are enormous potential benefits in many of the reforms suggested. There are specific issues to work through, particularly in relation to ROCs, but the parallel systems proposed for between 2013 and 2017 provide some comfort. Those systems potentially give the option to new entrants between 2013 and 2017 either to go for a feed-in tariff or to stick with ROCs, which would remain open until 2017.

There is also a commitment to accelerate the review of the current banding so that investors can be given greater confidence. The document contains an entire annex devoted to investor confidence. The Government is clearly aware of the issue and determined to ensure that any changes that happen are gradual and make it far better to invest than worse.

I move amendment S3M-7693.1, to leave out from "at a minimum" to end and insert:

"not be changed in any way that has a negative impact on Scotland; believes that the Parliament should continue to use these powers in support of the development of Scotland's low-carbon energy potential; supports the continuation of nuclear power as a vital part of Scotland's diverse energy mix, and calls on the UK Government and Scottish Government to work together to help fulfil Scotland's low-carbon potential."

Photo of Liam McArthur Liam McArthur Liberal Democrat 3:25 pm, 13th January 2011

I welcome the opportunity to open the debate for the Scottish Liberal Democrats on issues of far-reaching and fundamental importance to the country. I echo Gavin Brown's comments on the tone of the debate so far. I can confirm that we will support the Government's motion at decision time, although judging by its length, and that of Mike Russell's amendment to the education motion this morning, it is clear that ministers believe that size matters.

By contrast, my amendment is small but perfectly formed. It invites Parliament to show again its support for Longannet to become the UK's first CCS demonstration facility, with the award of up to £1 billion set aside by UK ministers. We have the industry and academic expertise to be world leaders in CCS. In a week when the UK and China signed a low-carbon co-operation agreement, the potential benefits globally are all too evident and must now be taken through demonstration and full-scale deployment.

Photo of Stewart Stevenson Stewart Stevenson Scottish National Party

The Redpoint Energy report on electricity market reform shows that in 2030 the baseline will be substantially more for gas-generated power rather than for coal. Does the member believe, like me, that it is important that investment in carbon capture for gas-powered stations is brought forward in early course as well?

Photo of Liam McArthur Liam McArthur Liberal Democrat

I welcome Stewart Stevenson's comments, which anticipated my very next comment.

As with previous debates on energy-related issues, I suspect that we will find that there are broad areas of agreement across the chamber but also key and perhaps fiercely defended points of difference. Let me start with the former.

I believe that the objective of delivering secure, affordable and low-carbon energy is uncontested. Likewise, there is a recognition that to achieve that, we will need significant new investment in our energy infrastructure to manage the transition as smoothly, speedily and successfully as possible. That is why the consultation on electricity market reform is so important, although today's debate may have come a little early in the process. From my discussions with the sector in Scotland, it is clear that views on how to respond are still being formed, making it difficult for companies to brief MSPs, although thoughts are clearly already emerging.

What has been firmly established is that there is a specific Scottish dimension to the debate. That has been recognised by my colleague Chris Huhne, who has taken early steps to engage with the Scottish Government and other Scottish stakeholders to ensure that final proposals properly reflect Scottish needs and circumstances. That is a characteristically constructive approach, as the minister and others have acknowledged. It is the right approach and increases the likelihood that this once-in-a-generation opportunity for reform will be grasped in a way that benefits both energy consumers and the environment.

The prize is colossal: the potential to secure £110 billion of investment in low-carbon electricity generation, including grid; reducing emissions while keeping bills as low as possible and more stable over the long term; investor confidence through more certain returns in low-carbon generation; special payments for back-up power and new demand reduction technologies; and a firm price for carbon and an emission performance standard to drive down carbon from the system. That is an ambitious but achievable agenda that commands widespread support; the complex task is to get the detail of its implementation right.

In the brief time remaining I will, like others, touch on a few of the specifically Scottish aspects of the debate. I agree with those such as Scottish and Southern Energy who argue that carbon price support is essential if we are to rebalance the market and incentivise the move to low-carbon generation. I agree also with those who are making the case for a tough EPS, and I could see an argument for devolved control over its scope and level.

The second element of the package is feed-in tariffs—which formed much of Lewis Macdonald's and Gavin Brown's remarks—where it is accepted that long-term contracts are essential to provide certainty to investors in low-carbon generation. A contract for difference is proposed to control costs for consumers, provide stable returns and maintain market incentives, but I welcome the fact that the UK Government has acknowledged the difficulties here and is seeking views on a premium feed-in tariff alternative.

The issue is particularly difficult to get right and the potential pitfalls are deep and numerous. That is why it is right and essential to make any reform gradually and with proper transition arrangements. I appreciate very much Lewis Macdonald's and Jim Mather's points about that.

Gavin Brown quoted some of Scottish Power's early thinking, but I was interested that SSE welcomed the clarity on ROCs and the commitment to existing contracts through grandfathering and in the medium term. That said, I acknowledge the need to continue to allow Scottish discretion, to capitalise on Scottish strengths.

It will surprise no one to hear me stress again the longer-term importance of wave and tidal stream power to our energy mix. Achieving that through the reform process, not least through enhanced incentives, must be a priority. We also expect tougher requirements to be put in place for nuclear operators to put aside significant contingencies to cover the costs of eventual decommissioning. I welcome the proposals for capacity payments, which are aimed at encouraging the construction of flexible reserve plants and demand reduction measures, to help to address security of supply.

Of course, all those policies interact with each other and will take time to be digested and analysed in the months that are ahead. The outcome of Ofgem's review of charging and of the review of Ofgem's role as well as questions on grid access, planning—including community benefit—and financing and construction risk are all key factors in determining our success in moving to a low-carbon economy. Let us not forget that electricity is only one part of the decarbonisation challenge—heat and transport also require major attention.

For the moment, I welcome the publication of the EMR document and the process that it has set in train. Greater clarity is needed about how many policies will interact and I am sure that that will be the focus of attention for the industry and other stakeholders in Scotland in the weeks and months ahead. Despite the impending election, I hope that the Scottish ministers will continue to engage in the process constructively and with an eye to the long term.

I have pleasure in moving amendment S3M-7693.2, to insert at end:

"and supports Longannet to become the UK's first demonstration facility for CCS with up to £1 billion of UK Government funding."

Photo of Rob Gibson Rob Gibson Scottish National Party 3:31 pm, 13th January 2011

I am pleased to participate in the debate. The Scottish approach is summed up in the suite of papers entitled "Scotland—A Low Carbon Society". It involves the opportunity for us to take an integrated approach to the production, supply and sale of electricity and to other carbon reduction measures. Previous speakers have mentioned the need for stability for developers and producers. We must see some opportunity in the system to assure consumers that the prices that they pay do not vary throughout the country for any unnecessary reason. The regulators must ensure that the environment benefits from the decisions that they take.

The Scottish Government's suite of papers—the draft electricity generation policy statement and so on—shows that the low-carbon society that we envisage is based on our ability to produce some of the cleanest power in the world, without any of the hangover of nuclear waste or of issues that relate to that, which have yet to be solved.

Feed-in tariffs have been mentioned in the debate about how to encourage renewable electricity generation. I am sure that many members will mention such tariffs. The consultation paper suggests that such financial support will also be made available to nuclear power developments. If a two-way process is to take place between the UK Government and the Scottish Government, and if Scotland's Parliament is determined to take a particular approach, I am concerned that quite a strong firewall will have to exist between the methods of support for renewables and those for nuclear, if support is needed for that in England. I will not argue about that today, but that is important.

The National Grid owns and operates the high-voltage electricity transmission network in England and Wales and operates the system throughout Great Britain. Whether that private company provides the appropriate model for running our transmission of electricity has not been discussed. Given the moneys that will be required to upgrade the grid, I wonder whether we can rely on the profits that the National Grid makes in the north-east of the United States or whether we should find a more substantial way of supporting the grid. I would like there to be some reflection on that issue because we have been presented with a Thatcherite model. Although such a model has been rejected when it comes to locational charging, we have not yet addressed why the grid should be run by that kind of private company. I would like the minister to talk about that when he responds to the debate.

Market and regulatory reform will be required for electricity developments that, in some cases, will take 10 to 15 years to achieve. The development of wave and tidal energy has been mentioned, and Gavin Brown mentioned the opportunities in the Pentland Firth. There are also opportunities in many other, smaller areas, such as the one between Islay and Jura. We must have some certainty that, beyond 2017, there will be a stable regime that allows such developments to happen, because the 2017 timescale could well be too short for some of the commercial-scale developments. We must start the process early, so we must have a system that allows for that.

Among the matters that might be more pertinent to Ofgem, but which feed into the electricity market debate, is the fact that only five of the 27 EU member states apply network charges on the locational basis that we do, and that Britain has the widest range of intra-country charges and the highest locational charges in Europe. If the electricity market is to benefit producers and consumers, we will have to measure its success against developments in Europe. Jim Mather mentioned Georg Adamowitsch's report and the need for a vast European infrastructure. If the electricity market reform does not slot into that, we will miss a trick, given our ability to export into that much wider market. I hope that it will be possible for our ministers to hold serious discussions with their counterparts in London about that.

I have two more brief points to make. First, good will and collaboration are required. They were not evident when the port development fund was restricted to English ports in the autumn and the Scottish Government was required to provide for Scottish ports. If we want there to be good will and collaboration, that will have to work both ways. Secondly, the fossil fuel levy, the funds from which the majority of members of the Scottish Parliament believe are required now, should be released in a form that can be used. We must keep up the campaign for that.

Finally, the ROCs supported the production of hydroelectricity, but some tweaking is required so that we can increase the amount of hydro that is available in the power stations in which they have been used. If possible, I would like the minister to address that issue when he closes the debate.

Photo of David Stewart David Stewart Labour 3:38 pm, 13th January 2011

I welcome the opportunity to speak on electricity market reform. There can be few more important debates than that on the future of energy in this nation, particularly now that the UK, as we all know, is a net importer of oil and gas. The debate draws out strong emotions—although we have not heard too many of those in what, to date, has been a well-tempered debate—about one technology or process versus another. It is also quite complicated, involving the technospeak of product life cycle, proven technology, carbon capture and storage, security of supply and—my own favourite, as I have mentioned before—avoiding Russian-end supply chain, which I am sure that Mr Mather will explain when he sums up.

However, sometimes we miss out consideration of the energy needs of the ordinary Scottish citizen in Leith, Lerwick or Lossiemouth. It might be true that the lights will not go out all over Edinburgh, but if we get the energy balance wrong in the next decade, we will be paying over a barrel—or, indeed, over a therm of gas—to countries with the political stability of Burma and the civil liberties record of Zimbabwe.

Perhaps one of the most fluent and well-argued documents on the subject, which goes back to last year and earlier, is the Royal Society of Edinburgh's report on its inquiry into energy. Members will be aware that it concluded that the challenge is to meet the growing aspirations of the developing world, not least China and India, while mitigating the impact of global climate change. The UK is now more reliant on imported energy, at a time when the international market is much more competitive. To widen the debate from earlier discussions, I believe strongly that the developed world has a strong responsibility to carry the torch and to show leadership in reducing greenhouse gas emissions. For that reason, I welcome the reform consultation.

I believe strongly that, as the Secretary of State for Energy and Climate Change said last month, now is the time to act. We need to increase investment in greener technology and energy supply, to reduce our dependence on carbon-based energy and imports. We cannot sit on the sidelines if we are to become the green powerhouse of Europe. I welcome the Scottish Government's view that we should work with the UK to ensure effective and efficient development of Scotland's low-carbon energy potential.

As we have heard from all members so far this afternoon, the reform proposals identify four key areas that need to be addressed to ensure both security and decarbonisation of energy supply, while maintaining low energy costs. Those areas were well identified by Lewis Macdonald, Gavin Brown and Liam McArthur. As has been identified, there is a clear structural problem in the industry. We know that there will be a reduction in the number of coal and nuclear sites, due to closures, that we face issues relating to security of supply and that we must look at demand issues and consumer prices. Rightly, Gavin Brown said that demand for electricity is likely to double by 2050. There are real worries that, without new capacity in the longer term, we may have interruptions of electricity supply at peak periods in the future.

However, in my view, the UK electricity market as a whole is much stronger than many others in Europe and abroad. All of us remember the stories more than a decade ago from California, which had major energy disruptions. The key is to have a strong balance of energy sources, combined with a rigorous and comprehensive grid of the sort that we have here in the UK.

I share Chris Huhne's perspective that we should analyse our future energy needs using three yardsticks—we need to look at affordability, security of supply and carbon reduction. I will give the chamber two examples of security of supply problems in the gas industry; they will be well known to members, but I would like to flag them up nonetheless. Just last month, the Russian-controlled gas company Gazprom cut 80 per cent of Belarus's gas supply over a disputed debt. This month—only a few days ago—Russia cut gas supplies through the interconnectors, which badly hit Bulgaria, Greece, Macedonia, Romania, Croatia and Turkey. I argue that there are particular strategic threats that need to be part of the wider energy and industry master plan.

As we have heard, we need to incentivise producers to create a greater capacity to decarbonise or to produce low-carbon electricity. However, as we have seen in other industries such as telecommunications, transport and banking, the needs of the producer are often in conflict with the needs of the consumer. Recently The Sunday Times reported on the scandalous costs of domestic heating oil to consumers, with huge mark-ups by distributors. That is a particular problem in the Highlands and Islands, given our weather patterns.

A report this week by Save the Children concluded that families on low incomes are paying £1,300 more a year for basic goods and services such as heating—up by a fifth from its survey in

2007. The charity said that about one fifth of the poverty premium comes from fuel bills alone. Why is that the case? The reason is that gas and electricity companies routinely charge more for repayment meters than for direct debits. As all members know, low-income families are forced to use repayment meters to manage their budget. With expected rises in gas and electricity prices over the next year, the number of households in fuel poverty, which are defined as those that spend more than 10 per cent of their income on heating, will go through the roof.

Power giant E.ON will increase electricity charges by 9 per cent next month. Yesterday, The Scotsman reported that critics such as Energyshop.com believe that

"energy suppliers are not taking chances with their profits, and offloading the bulk of their increased costs on to the consumer."

I welcome Ofgem's investigation into power companies' charges for domestic customers, which is due to report in March.

Although 2011 is only in its infancy, already consumers have been under siege from Christmas price hikes and the new VAT increases. We know from studies by Consumer Focus that 750,000 people are living in fuel poverty. Heating a home is a necessity, not a luxury. That is why I strongly support the adoption of the new European legislation, allowing Ofgem to force the big six energy suppliers to disclose the price that they pay for energy.

I welcome the consultation and I believe that our energy strategy links into our industrial strategy. Where are the Scottish manufacturers of wind turbines—with the exception of Skykon in Campbeltown?

The debate should be about not just new capacity, but reducing energy demand. We need to be able to develop co-ordinated offshore grids and better interconnection with Europe, as a springboard for the development of renewables. We all know that the task is great, but Scotland has the opportunity and skills to achieve it, not in a self-serving way but as a partner in the UK. With appropriate development and the right technology on a sustainable scale, and using the skills of our Scottish workforce, we can take a lead in Europe and beyond as we contribute to meeting our global climate change responsibility.

Photo of Stuart McMillan Stuart McMillan Scottish National Party 3:45 pm, 13th January 2011

Thank you, Presiding Officer, and happy new year to you and to everyone in the chamber.

Much has already been said this afternoon, and in the media over the past couple of weeks, about the UK Government's proposals for electricity market reform. I welcome the tone of the debate so far. In a few moments, I will focus on the fossil fuel levy, which the minister and my colleague Rob Gibson have touched on already.

First, it is important to state that the related Ofgem review of the transmission charging regime, which is already under way, presents a wonderful opportunity to fully open up and harness the renewables potential that Scotland possesses. I am sure that all members, irrespective of party affiliation, want Scotland to enhance its credentials as a leading light—no pun intended—in renewables technology. I just hope that we do not miss the boat, certainly in the sense of financial benefit, as we have done since the 1970s, when oil and gas were found in the North Sea. I hope that we can work together in the Parliament to ensure that history does not repeat itself.

The issue of the fossil fuel levy lies within the wider energy debate. It has been spoken about today and many other times in the chamber and in the Parliament's committees. Yesterday the Economy, Energy and Tourism Committee had the UK Secretary of State for Energy and Climate Change, Chris Huhne MP, answering questions on UK energy policy. For my part, I thought that it was an extremely useful and worthwhile session, and it was a shame that it lasted for only an hour or so—a point that I made to the convener at the end of the meeting, as I thought that we could have discussed energy policy with the secretary of state for three hours or even longer. As members would expect, Mr Huhne promoted the UK Government's energy policy proposals extremely well, but he was open to other suggestions, which I thought was very useful.

One issue that I am sure the secretary of state did not expect to be brought up in our discussion on energy policy is the thorny issue of bankers' bonuses, but I raised it with him yesterday. I appreciated Mr Huhne's honesty in his response, but I am left wondering about the green investment bank and the fossil fuel levy, which will be used to capitalise it. As I said yesterday, there is widespread political support for a green investment bank and it would be ideal for it to be established here in Scotland, as there is the financial expertise here—as well as Scotland's position in renewables. If the institution is to be established as a normal bank, as is the wish of Mr Huhne, issues of bail-outs and bankers' bonuses must be addressed at the very outset. If they are ignored, public support for such an institution will not be guaranteed. I would go as far as to say that in these times of austerity the public will never support the creation of any institution that might pay out obscene bonuses to even more bankers.

The direct link to this debate lies in the capitalisation of such an institution, with £250 million from the fossil fuel levy. Currently, Scotland's fossil fuel levy stands at more than £190 million, which, as we all know, can be taken at the expense of the Scottish block grant. However, the proposal from the UK Government is to forgo that money so as to be guaranteed £250 million from the GIB for 2013-14. If the fossil fuel levy were to be invested now, that could open up even more possibilities in my region. One prime example is that of Inverclyde, which narrowly missed out against more developed locations on resources from the national renewables infrastructure fund. I was disappointed that it missed out—but it was against other areas that were more developed.

Who can say that if some of the fossil fuel levy were to come to Scotland now and find its way to Inverclyde, the area could not be helped to become the renewables hub that it has the potential to be? We have the core facilities and, with a bit of investment in the waterfront, Inverclyde could be on the cusp of a renewables boom.

After yesterday, how can any politician sell to the people of Inverclyde and Scotland the idea that we should wait for a few years for the green investment bank to be established with capitalisation of £1 billion and guaranteed investment for Scotland of £250 million, when the bankers might well be paid obscene bonuses and the bank might have to go back to the taxpayer for a bail-out if it fails?

I stress that I support the concept of a green investment bank, but we should not build it up to be a panacea. It might not be the answer to all our prayers. It goes without saying that the UK Government needs to work closely with the Scottish Government on electricity market reform and many other issues. The last thing that Scotland or any current investor in Scotland wants is the unintended consequence of lost investment and employment opportunities.

Scotland can grasp the renewables opportunity and we are on our way. Electricity market reform by the UK Government, however well intentioned it is, must not hamper our growth and opportunities. The debate has been interesting and consensual—up to now; some members might disagree with what I just said. I hope that the Parliament will speak with a strong voice today. Collaboration between both Governments and Parliaments is essential for Scotland.

Photo of Marilyn Livingstone Marilyn Livingstone Labour 3:51 pm, 13th January 2011

I am pleased to take part in the debate. I will talk about the importance to Scotland and to my constituency of Scotland's low-carbon potential and the renewable energy sector and I will set out why the issue must be addressed in proposals for electricity market reform.

Given increasing energy demand and our ageing electricity generation park, it is clear that the UK will have to invest heavily during the next decade if it is to maintain a reliable power supply and meet the Government's climate change targets. According to the Department of Energy and Climate Change, a quarter of the UK's generation capacity will need to be replaced by 2020. If we are to meet the Government's targets, almost a third of the UK's electricity must come from renewable energy sources by 2020, and the energy sector will need to be largely decarbonised by 2030 to meet climate change goals—no mean feat. Therefore, there is a need to address the needs of the energy sector and provide a fit-for-purpose framework, which also helps Scotland to meet its climate change targets and become the green powerhouse of Europe.

Scotland plays a leading role in low-carbon generation. Half of all UK renewable generating capacity is located here and the most recent renewables obligation report shows that 35 per cent of renewable electricity comes from Scottish generators. Electricity market reform is crucial to the release of Scotland's renewable energy potential.

More than any other part of the UK, Scotland has the potential to deliver all its electricity needs from renewables and to make a substantial contribution to total UK and EU renewables capacity.

Scotland's low-carbon market was worth around £8.5 billion in 2007-08 and that is forecast to rise to £12 billion by 2015-16. Therefore, Scotland has considerable low-carbon economic opportunities across various sectors, which must be supported in any package of reform, particularly in the context of tariffs and incentives. Many members rehearsed the arguments on the issue and I will not do so again—members will be glad to hear that.

In my constituency, the renewables sector is an increasingly important source of investment and employment. For example, Burntisland Fabrications—BiFab—which is located in Fife and in the Highlands and Islands and focuses on offshore energy, has recognised that the energy sector is changing and is now involved in the market for renewables such as wind, wave and tidal power. The company has applied its 20 years of experience to the new sources of power during the past decade. It employs 900 workers and is currently working on a £60 million contract for 31 substructures for the Ormonde offshore wind farm in the North Sea. It is investing more than £14 million so that it can be well placed to take advantage of future developments.

BiFab is now one of the leading suppliers of support structures for offshore wind turbines in Europe and a world leader in developing offshore structures in deep water, which has given it an international research base and boosted Fife's economy.

In November last year, BiFab secured a £12 million contract from RWE Npower Renewables to design and manufacture two substation foundation structures for its wind farm. The project will safeguard around 390 jobs at BiFab's facilities.

The experience and expertise of the workforce in Fife has made the kingdom the centre for offshore power. It must be matched with investment in renewable energy in any proposals for reform of the energy market to deliver cleaner, greener electricity.

Yesterday, I raised with the minister the need for access to long-term funding for companies such as BiFab, as well as access to the appropriate skills and workforce. Organisations such as OPITO, which developed skills and training for the oil and gas sector, are exemplars of best practice. I hope that the renewables sector will start to emulate some of that success.

We have a once-in-a-generation opportunity. If we fail to reform the energy market or secure appropriate finance and skills to incorporate the needs of the renewables sector, we will jeopardise the progress that BiFab and other renewable energy companies throughout Scotland have made and the jobs that they sustain.

However, the consumer must not bear all the burden of the need to reform our energy market. To deliver best value and ensure social inclusion, support for those on the lowest incomes must be in place to ensure that electricity remains affordable and can be sustained in the long term. David Stewart outlined how increased costs are being offloaded on to the consumer, which has the greatest impact on those who are in fuel poverty. We must protect the consumer.

The reform proposals must be implemented in a way that enhances the sector's current plans for further increases in renewable electricity regeneration as well as protects investments that have already been made so that we can sustain our position in areas in which we are world leaders. Any package for reform must provide a degree of certainty for investors in renewable energy to make that option more attractive than conventional, polluting alternatives and to counter concerns over the long-term robustness of low-carbon markets. A sound business case will be made for investing in the renewables sector only by reducing uncertainty and risk.

Given Scotland's low-carbon energy potential and the importance of renewables to the economies of regions such as Fife, the UK Government must fully consult the Scottish Parliament on discussions about electricity market reform. I support the amendment in the name of Lewis Macdonald, which

"urges the UK Government to ensure full and immediate consultation with the Parliament and" the sector

"in Scotland on the electricity market reform proposals."

Photo of Iain Smith Iain Smith Liberal Democrat 3:58 pm, 13th January 2011

I, too, welcome the constructive tone there has been throughout the debate. It is an important debate and there is consensus across the parties on the importance of decarbonising our electricity supply and on the role that Scotland can play in doing that in the UK and, indeed, Europe.

Before I highlight a number of issues from my experience as convener of the Economy, Energy and Tourism Committee, I point out that on the key issues that we would have discussed if we had been having this debate 12 months ago—before the general election—there has been a significant change through the way that the new Government in the United Kingdom operates.

For example, Ofgem's project transmit, about which I will talk more later, is examining transmission charging, which the Parliament has called for for many years. Within a few months of the new coalition Government's coming to power, Ofgem began to review the transmission regime. That is a significant change. We called for that review from the previous Government, which did not deliver it.

We have also seen a commitment to investment of £1 billion in carbon capture and storage, for which Longannet is now the only candidate. That will bring significant benefits to Scotland.

Another great change is that we have also had movement at last on the fossil fuel levy. Some members in other parties do not think that there has been movement, but a deal is now on the table for debate and discussion if the Scottish Government will get down to London, discuss it and try to find constructive and positive ways to bring that money into play.

For those who talk about the green investment bank not being available until 2013, Chris Huhne again emphasised yesterday that it could be up and running much earlier, because there is not just the £1 billion that the Government will put into it from the 2013-14 financial year; there is also money from the sale of assets that might be available much sooner. The bank could be up and running and able to invest in Scotland's renewables infrastructure from next year. We should be positive about these things and engage with the UK Government to see how we can take advantage of them, rather than try to find obstacles to doing so. We have seen some very important changes.

Another point that is worth emphasising from yesterday is that Chris Huhne gave a positive message when he said that there is a strong case for Scotland to be the home of the green investment bank. Again, that has support throughout the chamber. We should welcome Chris Huhne's support and make a strong case that the green investment bank should be based here.

The energy market reform document tries to do a number of things, but the key issue is around trying to take a coherent approach to a number of actions that have to be taken to ensure that we meet our climate change objectives. The carbon price support will help to ensure that fossil fuel generation is less cost effective, and will make lower carbon power more attractive. The feed-in tariff proposals are about ensuring that there will be a long-term increase in investment in those areas. Capacity payments seek to ensure that if the wind does not blow, electricity will still be available. Emissions performance standards will ensure that those who use fossil fuel will be required to produce lower emissions.

Those are all important changes, and if what is being proposed in the consultation is implemented, it will result in more investment in those areas, the acceleration of the decarbonisation of our electricity supply and, by 2030, lower bills for domestic and industrial consumers of electricity. If those three aims can be achieved through the proposed reforms, that will be significant. I hope that members agree that we should be looking to achieve those aims.

I will use the time that I have remaining to talk a bit more about the Ofgem transmission charging review. The Economy, Energy and Tourism Committee has been pressing on that issue for a considerable time. It was part of our 2009 energy inquiry, which was endorsed by the Parliament. It is important to ensure that the transmission charging regime is fit for purpose, and that it encourages rather than discourages investment in renewables. We all know about the lunacy of the current locational charging scheme, which was based on the idea that power stations should be great big things that are built close to the bulk of the demand. That has changed. The wind, waves and tides are where they are. We have to build power stations where the fuel is and not where the population is, and we need to be sure that the transmission charging regime does not discourage that.

By the way, I think that there are some illogicalities in the locational transmission charging scheme. I cannot quite work out why there is a subsidy for connecting to the grid for someone who happens to be based in Cornwall, which is not one of the most populous areas of the United Kingdom, while someone who is based in the central belt of Scotland has to pay a premium to feed into the national grid, even though the central belt is somewhat more populous than Cornwall. That does not make any sense. It is not a logical system and it is based on an outdated idea of the energy market. I am delighted that it is being looked at.

The regime needs to encourage people to invest and to give security of price, because people will not invest if they do not have that security. As a result of the existing regime, we have seen the cancellation of an important grid network to the Western Isles. It is not going ahead at present because the transmission regime means that it is not economically viable. That regime must be changed so that it does not prevent investment where it is needed, and so that we can take full advantage of Scotland's renewables potential. That is agreed across the board—no one in the chamber will disagree that that needs to be done. The opportunities that we have been given by the transmission charges review have to be welcomed.

I am pleased to say that Ofgem has agreed to come and give oral evidence to the Economy, Energy and Tourism Committee. We will take that evidence in February and we will put the transmission charging regime case to Ofgem very strongly.

I hope that the plenary session to which the minister referred in his opening remarks will be seen as something that the Parliament can be involved in. I am sure that the Economy, Energy and Tourism Committee would particularly welcome the opportunity to send representatives to that meeting.

Photo of Bob Doris Bob Doris Scottish National Party 4:04 pm, 13th January 2011

I will focus on the relationship between electricity market reform and microrenewables and how it may affect funding for Scotland and jobs in my constituency. I make an appeal to members at the start: I would not normally speak on subjects such as this so, as I tiptoe my way through the issues, I hope that they will be gentle with me.

I have a direct constituency interest in the subject. When we talk about the opportunities in harnessing Scotland's green energy capacity, we tend to think about electricity generation in rural and offshore settings. However, fabrication, supply and maintenance of equipment are also required, and there are a number of spin-off benefits that will establish our urban areas as key players in the Scottish renewables revolution.

Just before Christmas, I met the chief executive officer of Gaia-Wind Ltd at Port Dundas, in Maryhill, Glasgow, which has just announced an initial investment of £5 million in an assembly plant for small wind turbines, which will create at least 50 high-value jobs. Scottish Enterprise and the Scottish Government have been praised for their approach in bringing in that investment ahead of other European locations that were going for that business. I also met last week the head of Ofgem in Scotland. Both meetings were incredibly interesting and have given me a real sense of how mistakes in energy policy at this time could have serious consequences for the growth of the sector as well as for the future sustainable growth of the Scottish economy.

Members will recall that there was a closure announcement not that long ago in Port Dundas, with more than 200 jobs going from Diageo. That gives an idea of why I am keen to get jobs to that part of my constituency. That is my direct constituency interest, and I would like to see Gaia-Wind and others like it investing not just in Glasgow but right across Scotland. I believe that energy policy—particularly reform of the feed-in tariffs—may impact on that.

Gaia-Wind produces small wind turbines that are eligible for the feed-in tariff at the level of 26.7p per kilowatt hour. There was broad political support when that was introduced in April to promote the development of microrenewables, and it has made it more economically viable for small producers, such as farmers and community initiatives, to invest their capital up front in the technology. However, I understand that there are concerns that the scheme is being highly subscribed to by larger commercial interests, particularly in solar panel electricity generation in the south of England. That is not in keeping with the policy intention to boost microrenewables production throughout the UK. David Cameron has also mentioned that in the press recently. With fixed budgets for that FIT scheme being drained, that could have access implications not just for Scotland but for other parts of the UK. I cannot comment on the matter in detail, but I have written to the Department of Energy and Climate Change for more information, saying that I believe that the administration of that scheme is a potential concern and needs to be scrutinised fully by that UK department.

Photo of Liam McArthur Liam McArthur Liberal Democrat

I am still struggling with the image of Bob Doris as a shy, retiring wallflower in the debate. He may find some reassurance in the fact that Chris Huhne has made it clear that he recognises that aspects of the way in which the FIT scheme works will need to be kept under review without, at the same time, knocking investor confidence in the various technologies.

Photo of Bob Doris Bob Doris Scottish National Party

I welcome that. I was about to say to the minister that I hope that the Scottish Government will work in partnership with the UK Government to achieve that outcome and to address the possibility of uneven access to the FIT scheme for microrenewables across the UK. Although I am delighted to see renewables investment in all the nations and regions of the UK, as I have just said, I want to ensure that Scottish tax pounds go to foster that market, particularly in Scotland, and that we get our appropriate share. Also, if there is any dubiety about the affordability and long-term management of the FIT scheme because of administration issues or other factors, investor confidence could drain from the scheme, which is not what we want. The sector needs certainty in relation to that.

FITs for microrenewables are to be reviewed again in 2012, but the current review may impact on that. We have already heard about ROCs and a FIT subsidy for wider, larger-scale electricity investment, and there are direct links there. The FITs must be reviewed, and we hope that that review will move the situation forward. The current level of uncertainty is not helpful, which is why I have written to Chris Huhne on the matter. It seems to be sensible to look at feed-in tariffs across the sector.

Another aspect of the feed-in tariff subsidy is how European law, as interpreted by the UK Government, affects feed-in tariffs in the nations and regions of the UK. For example, if a farmer or small community-based housing association wanted to build some small wind turbines to lower their carbon footprint and cut electricity bills, they could do that but would perhaps need to find grants for it. Highlands and Islands Enterprise may be in a position to provide a partial grant to help, and the Scottish Government's climate fund could perhaps provide a partial grant.

Under the UK's application of European law, however, it would not then be possible to apply for a feed-in tariff. Scotland would be using its block grant to lower carbon footprints in communities, but feed-in tariffs would be squeezed out. I am not suggesting that I want individual owners of turbines to get a double subsidy, but I want to consider how feed-in tariffs are accessed across the UK and whether Scottish block grant investment could divert some of the feed-in tariff subsidy from Scotland.

Those are a couple of issues that are of interest to me—to be fair, they have only recently become of interest to me because there are 50 new jobs coming to my constituency—and, as I feel my way ahead in the dark and try to get a grasp of the subject, they are the issues that I would like to be developed and which I believe the minister should consider.

Photo of Stewart Stevenson Stewart Stevenson Scottish National Party 4:10 pm, 13th January 2011

I was delighted to respond to Liam McArthur's motion on renewable energy on 28 October. In my speech on that day, I focused on the fossil fuel levy, which has been part of the discussion today. It is slightly disappointing that, with 50 minutes to go in the debate, I am the last speaker in the open part. I am, however, happy to use as many of those minutes as the Presiding Officer allows me.

Today, I read a statement by Georg Adamowitsch. He said:

"The North Sea has different conditions and potentials for the generation of renewable energy. Scotland is a fine example of how different offshore technologies (wind parks, wave and tidal technology, onshore potentials, various wind potentials) can be combined to form a coherent approach."

Of course, if we want more and more of the energy that is used in the UK and Scotland to come from renewable sources, that means implicitly that the shift will be towards electricity. Therefore, it is right and proper that we focus on transmission of that electricity from where it is generated to where it is required.

There are, of course, a number of low-level issues that will be discussed on another occasion, such as the fact that if we are to have electric cars, we must also have local delivery of electricity for them to use. Today's debate is much more about transmission over the high-voltage network, which involves minimising transmission losses so that we can deliver from one end of this island to another.

Photo of Liam McArthur Liam McArthur Liberal Democrat

I hope that my intervention will help Stewart Stevenson to get through the 20 minutes that are available to him. Transmission is an important issue, but will he touch on the importance of storage? Everyone who has spoken in this debate has been guilty of glossing over that issue, which involves issues around transport and other factors.

Photo of Stewart Stevenson Stewart Stevenson Scottish National Party

I am not sure that the Presiding Officer responded to my suggestion that I should speak for 20 minutes—

Photo of Stewart Stevenson Stewart Stevenson Scottish National Party

Hopefully, not by a tender part of my anatomy.

In response to Liam McArthur's point, it is quite interesting to note that one of the storage mechanisms that is mentioned in the Redpoint Energy report is pump storage. Electricity is going to be a key part of producing hydrogen, which might turn out to be one of the main fuels of choice for transport in the future and, of course, there is a range of challenges in relation to how one stores hydrogen because, being the smallest atom that exists, it sneaks through almost any metal and dissipates rapidly.

I will turn to issues that are a little more parochial. In Aberdeenshire, we have some of the highest transmission charges in Scotland, at some £20 per kilowatt, which is in contrast to the subsidy of over £6.50 per kilowatt that is available in the south of England. That does not seem to be fair, and it does not seem to serve the interests of any part of these islands. As Georg Adamowitsch's contribution to the debate illustrated, Scotland has a huge potential to be the renewables powerhouse of Europe, which will benefit Europe and the UK and will, fundamentally, create economic opportunity for Scotland. We have won the energy lottery again, so it is important that we have in place the right policies and practices that will allow us to capitalise on that.

We and the UK Government share a 2050 target of an 80 per cent reduction in carbon emissions, and the effective generation and delivery of electricity is vital to that.

A huge proportion of the UK's gas supply comes ashore in my constituency adjacent to Peterhead, and there is a gas power station in Peterhead itself. It has been very disappointing that because the charges are so great, there is a real risk that one of the generation units could be closed. The unit has to pay £29 million a year for access, whereas an identical power station in the London area would be paid £3 million to generate the power that is required.

There is a broad consensus among energy producers, business groups and trade unions that locational transmission charging is no longer appropriate, and we very much welcome that. Broadly, I have heard no dissenting voices on that, and the issue has now been picked up in the UK Government's consultation. It is a shame in some ways that we did not get to that sooner.

As there are some 26,000 potential Scottish jobs in renewable energy, it is important that we make progress and move to a model that is quite distinct from that which is used elsewhere in Europe. The Scottish Government has continuously pressed for a change in that regard. As Scotland generates some 12 per cent of the UK's electricity but is forced to pay some 40 per cent of the transmission costs, significant change is in the interests of everyone in these islands.

There has been one disappointment that I have found in my research for which I have not really found an answer. I had thought that there were significant transmission losses when electricity was pumped over long distances, but there is a clear assumption, even in the UK Government's consultation document, that what you put in is what you get out at the other end. I am obviously wrong on that, and I have been corrected by reading the UK Government's document.

It has been entirely appropriate to take a consensual approach on this subject. It is fundamentally clear that any policies in this area will outlast the term in office of any Government in any part of these islands; it is probable that a series of Governments will continue to engage in the policies that are set as a result of the current consultation. It is important that we all contribute, and that we express clearly and unambiguously today the needs of Scotland and the opportunities that we have to provide for the energy needs of our neighbours elsewhere in these islands, and further afield through interconnectors to other countries in Europe.

I will address—perhaps in a slightly contentious way—the point that Stuart McMillan raised about the performance of individual managers in banks, whether those are green banks or otherwise. I came into politics to purge myself of the taint of having worked for a bank for 30 years. We should perhaps start to call bonuses "performance-related pay" and they should perhaps be taken away from a person's pay if that person does not deliver. If we consider the issue in that sense, performance-related pay is not a bad idea, provided that it delivers for the public good and for customers, and is focused on the outcomes that an individual has delivered. In any case, it should be paid only from profits, should there be any.

I will draw my remarks to a conclusion, Presiding Officer, to—as I can see—the great relief of many of my colleagues in the chamber. I welcome the support that I heard in Liam McArthur's reading of his amendment, which confirmed what I took from it. His party can deliver a positive contribution in Government at Westminster via the UK Government's consultation, to give us equitable access and go a little way towards offsetting some other areas of disappointment.

I particularly welcomed Chris Huhne's recognition yesterday that the SNP Government is led by one of Europe's leading energy economists. It should be no surprise that our First Minister has long been engaged in criticising the access regime and the effects that it has on Scotland and on energy supply in the UK as a whole. The existing process of charging must change. I am happy to support the minister's motion—and to allow others to try to fill the time.

Photo of Trish Godman Trish Godman Labour

I now move to the wind-up speeches, and I call Jim Hume.

Photo of Jim Hume Jim Hume Liberal Democrat 4:20 pm, 13th January 2011

I am grateful for the opportunity to sum up for the Liberal Democrats in this afternoon's debate. It has been a very constructive debate, and that must be welcomed.

It is just a few months since we debated Scotland's move towards a low-carbon economy. At that time, I said that climate change must be tackled head on to avoid our leading industries being severely impacted by prolonged periods of extreme weather. Never has that been truer, when we consider the hit that our businesses took in December and the carnage that our commuters faced in the transport network.

The path to achieving a low-carbon economy need not be a painful one. It should be seen to present opportunities that are ripe for exploitation. Although electricity market reform is a vital component in our efforts to tackle climate change, it also serves as one such vehicle of opportunity. Indeed, I know that the Scottish Government shares that view and agrees with the Secretary of State for Energy and Climate Change that the reform offers a once-in-a-generation opportunity to restructure the vital electricity market.

The consultation document that the Department of Energy and Climate Change published recently is important both because of the scope of its ambitions and because, frankly, time is of the essence. That has been clear today. We are in a period where numerous coal and nuclear power stations are nearing the end of their lives and will leave gaps in energy generation that need to be plugged. One such power station—Cockenzie, in the south of Scotland, just east of here—is scheduled to close by the end of 2015. It is important that power companies are mindful of local sensitivities when they plan their next generation of power stations, as well as considering the potential impact on communities such as Cockenzie when existing stations close.

In the past, some members on the Government benches have got a bit hot under the collar over nuclear power and its inclusion as one of the means of low-carbon generation. However, for all Governments, there will be circumstances that dictate that things cannot always be done as planned. Those are not my words, but those of the Deputy First Minister—on Twitter, of all places. I welcome her admission that Governments cannot always fully legislate according to their manifestos, as they would wish. However, for the avoidance of doubt, I state what the Scottish Liberal Democrats have been saying for some time—we are still opposed to new nuclear capacity in Scotland and we firmly believe in maximising the benefits of Scotland's enviable renewables potential, which the Minister for Enterprise, Energy and Tourism mentioned when he commented on the EU remarks.

The publication of the consultation and the reforms that are contained within it only serve to further strengthen the Lib Dem and Conservative coalition Government's green credentials after just eight months in power, as Iain Smith remarked. The Government committed £1 billion to carbon capture and storage pilot plants in the comprehensive spending review. I welcome the energy secretary's visit to Longannet in Fife yesterday, as did Liam McArthur in his opening speech. Members should also be aware that our party is lobbying strongly for the green investment bank to be situated in Scotland, and I welcome the energy secretary's positive comments in that regard yesterday, when he appeared before the Economy, Energy and Tourism Committee, which is chaired by Iain Smith. Due to our renewables potential and Edinburgh's position as a financial powerhouse, Scotland is the obvious fit.

David Stewart noted that E.ON has announced a 9 per cent increase in electricity prices, which makes it the fifth of the big six to announce substantial price increases this winter. Perhaps the most attractive aspect of the reforms in the consultation is the certainty that they would create in the market. For example, carbon price support and feed-in tariffs will provide certainty over the cost of running polluting plant and the revenues for low-carbon generation, and certainty breeds investment. Given the number of new generation power stations that will be required to keep the lights on, the measures will remove the existing bias in favour of fossil fuels and incentivise investment in low-carbon generation. By implementing such reforms, we will be able to achieve the key aim of securing our energy supplies and insulating ourselves from the volatile fossil fuel prices that are so often blamed for increases in electricity and gas prices. It is vital that any reforms protect customers while encouraging investment in low-carbon technologies. The consultation strikes the right balance.

Significant investment will be required from the power sector. It is important that the sector plays ball to drive through the reforms to the market for the benefit of consumers who are penalised annually for trying to heat their homes. That happens not only in the Highlands and Islands, as David Stewart said, but across the whole of Scotland, including of course my area, the South of Scotland.

As we begin to make significant inroads into decarbonisation, the demand for electricity will rise dramatically, given that it will be required to meet more of our heating and transport needs. The reforms are crucial. I hope that the Scottish Government will work closely with the Liberal Democrat Government to shape the final proposals—[Interruption.]—I should have said not Liberal Democrat Government but coalition Government.

I am glad that the minister has welcomed the UK Government's work, which is, of course, led by the Lib Dem Chris Huhne. I am glad to hear that there is to be a follow-up session next month. We all look forward to some positive remarks coming out of that.

Photo of Alex Johnstone Alex Johnstone Conservative 4:26 pm, 13th January 2011

I confess that I am not as young as I used to be. I can just about remember the time before there was an oil industry in the North Sea. It was a wonderful discovery when we found that we had all that oil and gas out there, off the shore of the north and east of the country. As Stewart Stevenson said earlier, who would have thought that this little country of ours could win the jackpot twice in one generation. In the early development of renewables it became very clear that, if wind and waves were the way to go, Scotland had plenty of both.

We have known for a long time about the opportunity of developing our renewables industry. The regime that was in place previously did a great deal to bring that forward. In fact, if anyone took the trouble to look back at some of the things that I have said over the past 12 years, they would discover that even I have been surprised at the developments in the renewables sector in Scotland. I was perhaps one of those who cast doubt on the opportunities or the speed at which development would take place. I now accept that we are achieving the targets that were set. I now realise that the opportunity exists to develop this area still further.

The system that was put in place to underpin that—in particular, the renewables obligation certificates—has proven itself, albeit that it was obvious to many that something had to change. That is why it is a disappointment that it has taken so long, and a change of Government, to come forward with proposals to change or develop the electricity market. Electricity market reform is an overdue subject and one that we must discuss.

As a number of members have said, it is important to ensure that we do not undermine the confidence of investors. Unlike some in the chamber, I believe that the private sector will produce the necessary investment. I also believe that the sector will bring forward the potential development that we know exists in so many areas of Scotland. Unless we build confidence within the industry, and in those who have enough money to invest in it, we run the risk of undermining that development. It is crucial that what the Government proposes in its consultation document is an overlapping system that will take us forward. It should allow those who have already invested to rely on the old regime while offering the opportunity of a new regime for those who are about to go into a new phase of investment. We are moving from the situation where we are used to seeing wind turbines appear on our hillsides to seeing turbines appear in large numbers off our coast. That will happen in the not-too-distant future and will be a significant change.

In looking at the structures that we have debated today, and as the word "nuclear" is mentioned in my colleague Gavin Brown's amendment, I must mention nuclear energy and make some comparisons.

I have already said in the Parliament that I think that Scotland has missed the boat on nuclear power. If we were to replace one of our nuclear power stations, we would have had to make that decision before now. The decision not to do so was a bad one that we will live to regret.

When we talk enthusiastically about carbon capture and storage, we are talking about a technology that is not comparable in price to simply burning coal and pumping the carbon dioxide into the atmosphere. We are talking about a technology that will be expensive and difficult to implement. When all the costs are taken into account, it may be significantly more expensive than nuclear energy. That is why, as I have said before, I believe that Scotland will have its nuclear power station but that it will be built south of the border and that we will use the electricity that it sends north through the grid.

It is important that that possibility is retained because, as we consider the key elements in this issue, we cannot ignore the elephant in the room: the transmission charging regime. If we are to cover the north of Scotland in renewable electricity generation devices and supply that electricity to the south of England or, for that matter, mainland Europe, we must have a regime in place that allows the consumer to pay for the cost of the grid development that will be necessary. That means that what we have at the moment is not fit for purpose. The Lib Dem-Conservative coalition Government should be praised for having moved forward so quickly. I welcome that.

So where are we going? What do we have to do here in Scotland? A number of issues mentioned in the debate are worthy of mention again. Rob Gibson raised the subject of hydro. We all seem to forget that we led the world in hydro for a while. We have the opportunity to do so once again. Stewart Stevenson pointed out that we need to find a way to store all this renewable energy. The hydrogen economy may be coming, but it is some way off. However, we have the opportunity to store energy through pump storage, which is why key decisions about developing pump storage in Scotland, perhaps taking some of our existing hydro schemes and converting them to pump storage, is vital to continuity.

Remote renewables need grid improvements, which will be expensive. If we are to do that, we need to ensure that it is the consumer, wherever he or she may be, who contributes to that development. For that to happen, we must be part of a bigger marketplace than simply Scotland. To be part of a UK-wide marketplace would give us a tremendous opportunity to draw money in for investment and to hedge our bets, in case anything that we do turns out to be either inadequate in terms of supply or overly expensive in terms of cost. By spreading that load throughout the United Kingdom and—let us face it—beyond, we have a tremendous advantage that we should not turn our backs on. I cannot accept Rob Gibson's idea that there should be some sort of firewall between Scotland and England in terms of the electricity market.

Photo of Rob Gibson Rob Gibson Scottish National Party

I meant a firewall between the financial support for nuclear energy, which is supported by the UK Government, and the support that we need for renewables—we must not have that diverted.

Photo of Alex Johnstone Alex Johnstone Conservative

Indeed. As I said earlier, I genuinely believe that Scotland needs access to effectively and cheaply-generated nuclear electric. We should have replaced one of our nuclear power stations. We would be in a stronger position today if we had made that decision. We are lucky that that decision is being made in other places.

This has been a constructive debate. We are a great deal further forward in evolving the structures of the electricity market than we were a year ago. Thank goodness for a change of Government. That is the biggest step forward of all.

Photo of Lewis Macdonald Lewis Macdonald Labour 4:34 pm, 13th January 2011

I agree with Alex Johnstone that sometimes a change of Government is a very good thing. I look forward to the next opportunity for precisely that.

As Gavin Brown said, Scottish Power today submitted its response to the consultation on electricity market reform. Similar views have been expressed—so far informally—by Scottish and Southern Energy and others with an active interest in the outcome of this process. I quote a little further from the Scottish Power submission. It says that the contract-for-difference type of feed-in tariff, which was promoted by Chris Huhne yesterday, carries with it "major complexities and uncertainties" that need to be resolved. That is why it calls for the "Premium FIT" approach to be explored. Scottish Power has also highlighted the importance of a Europe-wide approach to carbon pricing and the risk that too high a price in Britain alone could affect competitiveness and be costly to consumers. It has expressed a similar concern in relation to an emissions performance standard if the UK Government was to get its level wrong. It says that

"In all these areas ... getting the detailed design right will be critical," and that,

"first and foremost, we need to do everything we can to avoid a hiatus in renewables deployment."

I endorse all those comments and, above all, I echo its summary, which states:

"We are committed to working with the Government to ensure that the final package delivers the progress that we need on renewables, nuclear and carbon capture and storage whilst keeping the interests of consumers firmly in mind."

Although we might not agree with the utility companies on what every detail of the final package should look like, we share their view that it is the detail that matters at this stage. The introduction of a capacity mechanism, for example, could be done in any of a number of ways. Modern combined-cycle gas generation may have a role to play, but we do not want another dash for gas at the expense of reducing carbon emissions. Nor do we want the capacity mechanism to produce public funding support for new fossil-fuel plant without carbon capture technology already in place.

Setting a carbon price or emissions standards can help if the right choices are made but, if they are not, the impact could be counterproductive. That is also true of the central proposal for the replacement of the renewables obligation with feed-in tariffs. I was pleased to hear from all the parties and, I think, from all the members who have spoken in the debate, a recognition of the central importance of getting right the regime that replaces renewables obligation certificates.

In recent weeks, Spain has responded to wider economic pressures by altering the feed-in tariffs that it has for solar power, leading to disputes between Government and generators, which may end up being resolved in the courts. That is not where we want the reform of electricity market intervention in this country to take us, so it is critical that the right system is adopted from the start.

Liam McArthur confirmed what Chris Huhne said yesterday, which is that contracts for difference are currently the UK Government's preferred option, although they are not the only option on the table. The contract-for-difference system would remove the obligation on suppliers to contract for renewable electricity. It might also lead to inflated prices, so instead of reduced costs by 2030, which is an aspiration that we all share, we might end up with the opposite.

Likewise, the current preferred proposals aim to control price through auction structures, which may not be able to deliver lower prices and new technologies at the same time. An ineffective auction system would do more harm than good, which is why the renewables sector is keen to have other options properly considered: options that can maintain a requirement or an incentive to source low-carbon generation; options that identify an appropriate level of support in consultation with stakeholders, which is perhaps preferable to doing so by auction; and options that secure the smoothest transition from the existing renewables obligation. That is why I suspect that the support of large utilities for investigating premium feed-in tariffs may well be reflected by growing support for that approach from the renewables sector as a whole and why I hope this question will be central to discussions on these matters in the weeks and months ahead.

Like others, I welcome the areas of agreement that there have been in the debate, but it is nonetheless important at this stage to recognise that there are some differences in the emphases of the motion and amendments that we will vote on shortly. I will say a word or two about those. I start, of course, by commending Labour's amendment, for two reasons in particular. First, our approach highlights the importance of making the right choices, which I mentioned a moment ago. We will not oppose change just because the current system has served us well—we think that the renewables obligation certificates have done so—but we will only support change if it promises to serve us as well or better. That is crucial. Secondly, our amendment highlights the importance of obtaining best value for consumers and of consulting consumer interests as well as producer interests on any changes that are to be made. On that basis, I hope that the chamber will support the amendment in my name.

Photo of Liam McArthur Liam McArthur Liberal Democrat

I am grateful to the member for taking an intervention. I have no difficulty with either of the two reasons that the member posits for supporting his amendment. My difficulty is with what it takes out of the Government's original motion. I was also slightly confused by the call for a

"full and immediate consultation with the Parliament and with producer and consumer interests", which DECC have made clear and Chris Huhne emphasised yesterday is already in process. The EMR consultation document that was published before Christmas in effect fired the starting gun on that process.

Photo of Lewis Macdonald Lewis Macdonald Labour

I accept that point on the basis of what was said yesterday. I also accept the point about consultation, which we all agree is important. Nonetheless, when wording the Parliament's final view on the matter, it is important that consultation is seen to have a central place in our priorities.

That said, we have no great difficulties with any of the other propositions on the table. I remind Iain Smith that the billion pound competition for carbon capture and storage was put in place by the previous UK Government, rather than the incoming one. I also remind him that Longannet was in pole position long before Chris Huhne discovered the merits of nuclear electricity.

We will be happy to support Liam McArthur's amendment because we all want to see carbon capture and storage demonstrated at Longannet and hope that it will be demonstrated to be both affordable and effective. Should our amendment not succeed, we have a marginal preference for Jim Mather's motion over Gavin Brown's amendment, simply because we do not want to lose all reference to consultation. We will vote accordingly.

I agree with Iain Smith about the importance of consultation with the Parliament and I look forward to the minister's confirming in his response that the plenary session that he discussed with the secretary of state and the UK Government will involve the Parliament and give an opportunity for the kind of debate that we have had this afternoon to be reflected in the discussion between Scotland and the wider United Kingdom on how the reform should be undertaken.

Photo of Alex Fergusson Alex Fergusson None

I call Jim Mather to wind up on behalf of the Government. Minister, you have free range up until 5 o'clock.

Photo of Jim Mather Jim Mather Scottish National Party 4:42 pm, 13th January 2011

I will take a languid approach.

I am grateful to members for their contributions to today's debate and for its tone, which has been mentioned several times. Stewart Stevenson recognised that electricity market reform will be a legacy issue for every Government that will ever be formed in Scotland. The tone of the debate was reflected in the conversation that we had with Chris Huhne yesterday. By way of consolidation, I make it absolutely clear that the electricity market reform consultation session will be open to everyone, and to the Economy, Energy and Tourism Committee in particular. I have drawn a lot from this debate, and I know that we will draw more in that session.

Whether from the session that we had on taking a connect and manage approach or the session that we had on grid and transmission charging with Ofgem, the National Grid, energy companies, Scottish Renewables, academia and our officials last year, we are discovering that such sessions work really well. The right solution can emerge when we have such open-ended plenary sessions. That is especially true when we start from a good place of wide consensus. We need to get the right energy generating mix supported by the right market structures, with the right support mechanisms, the right framework for electricity regulation and the right deal for consumers.

Today, we have had the likes of Scottish Power telling us to get it right, to avoid throwing the baby out with the bath water, and to maintain our competitiveness. Competitiveness is an important concern, which was reflected in our conversation with Chris Huhne yesterday and the points that many members have raised today about the necessity of maintaining both confidence and competitiveness. We made a point yesterday about involving the Faculty of Actuaries, which has largely positioned itself as the faculty of enterprise risk managers so that it can get its head round the issue of electricity market reform. Not only was Chris Huhne receptive to that, he gave us the comfort that UK Government actuaries are already involved in that process.

When we come together, in particular when we get other voices in the room, the chances of our identifying more potential unintended consequences and then being able to avoid them are greatly enhanced.

The fantastic thing is ensuring that Scotland delivers its remarkable energy potential in full. Believe me, there is huge international demand for it, which has been shown clearly in the messages that we got from Cancún and the Delhi international renewables conference. At that conference, the Pulitzer prize-winning journalist Thomas Friedman galvanised the audience by telling them that down the line more and more people will look for an American lifestyle, which will require much more power, and that we have to focus on producing more and more clean, green electrons. That links to the point that David Stewart made about Scotland having the obligation to optimise its potential.

Thomas Friedman also pointed out the sheer arithmetic of population: in 1947, when I was born, there were 2.5 billion people on the planet, there are about 6.5 billion now, and by 2050 there will be 9 billion. The demand exists, which means that Scotland will have to produce energy and technologies that it can export, quality intellectual property, information to advise and guide people, and skilled people to go out from Scotland, as happened in the past when we sold steering gear and engines from companies such as Kincaid's and Hastie's. The issue is important globally, and we must ensure that energy from Scotland plays an important role in meeting Scottish, UK, EU and worldwide renewable energy targets.

What we want from electricity market reform is a basis to ensure that Scotland plays its full part in meeting the challenges of climate change and ensuring the security of future electricity supply. As we all know, energy opportunities for Scotland are vast. The opportunities for onshore and offshore wind, wave and tidal power and for CCS for coal and gas are huge, and we must ensure that we deliver them all in full.

It is worth pausing at that point. The dynamics of the engagement in the ad hoc discussion of carbon capture and storage, the connect and manage approach, and the grid have been enhanced by the way that we have handled the situation with the energy advisory board, the oil and gas advisory board, the advisory group on thermal generation and carbon capture and storage, the forum for renewable energy development in Scotland—the renewables side of it—and now the economic impact and grid advisory board. We are getting people to talk and begin to build trust and confidence in each other, which is enormously important, because in developing the low-carbon potential there are huge implications for low-carbon jobs. We have a low-carbon sector that supports more than 70,000 jobs—that is a 2008 number—and with concerted action we know that we can get the number up to about 130,000 by 2020. With the move to reform, the renewable energy sector could support an additional 26,000 jobs and get a further boost from the low-carbon technologies that will come through.

It is really important not to forget that renewable energy from Scotland will play a key role in helping the UK to meet its renewable energy target of 15 per cent from renewables by 2020. To his credit, Chris Huhne accepted that yesterday. He also accepted much of what we have been doing here, and he was interested to understand how we might have a technology transfer. We are more than willing to ensure that that happens.

The key thing is that future developments are all contingent on a stable, supportive policy and regulatory environment and the right balance between effectively functioning markets and targeted support mechanisms. It is essential that the energy regulation board protects the interests of the consumer and ensures that electricity is affordable, and it is essential that energy regulation is open, fair and transparent. That is the key point that I have always thought that actuaries bring to the table. Actuaries ask how we can maintain the balance and have an energy sector that grows in line with the economy, that will never try to outperform the economy, and that will give us a landscape in which the maximum number of entities and households in work can pay their energy bills. That message was put across yesterday in spades.

It is essential that our regulatory framework strikes the right balance between regulated stability to drive industry and investor confidence and helping to deliver the Government's long-term aims on renewable energy and climate change targets and on security of supply.

Photo of Lewis Macdonald Lewis Macdonald Labour

Does the minister agree that, although the extension of price support to the whole range of low-carbon technologies has much merit, it is important that whatever mechanism the UK Government adopts to do that does not destabilise the existing renewables sector, its expectations and its reliance on the current system? The design of the mechanism will be critical to confidence in the future.

Photo of Jim Mather Jim Mather Scottish National Party

That is fundamental. The approach must be incremental and better and must build on what we have. We must debug it for unintended consequences. I am a great fan of a guy called Dennis Sherwood, whose big theory is that there is no such thing as unintended consequences—just bad thinking. We need the best-quality thinking. We will get the best thinking if we have the collaborative effort from the industry; the Parliament and its committees; the Government in Scotland, Westminster and Brussels; our energy regulator; our utility system operator, National Grid; the wide energy sector; developers; and academia.

By the way, academia played a blinder at Victoria Quay in showcasing to the Chinese—to huge effect—what we have to offer and the comprehensive nature of what we have discussed today. What was said about key matters such as carbon capture and storage, a smart grid, offshore wind power and Pelamis really registered. The Pelamis staff must be thoroughly congratulated on laying on an excellent corporate visit. They showed the technology developing, doubling in output and being utterly solid. That is based on North Sea expertise and proven componentry. It can be deployed and could work for China and for Chinese interests worldwide.

Photo of Nigel Don Nigel Don Scottish National Party

I propose to change the subject slightly on the minister's thinking point. I have not heard—forgive me; I have not been here for every word of the debate—about the use of electricity. The comment was made that pump storage is the only way to store electricity. We know that we cannot store whizzy electrons—they must just be used. The balance is important.

However, we will surely have far more batteries, because we will have far more electric cars, one way or another. At some point, the charging regime for the consumer will therefore need to be time as well as kilowatt dependent. Charging batteries overnight is useful, whereas charging them during the day is not. I have not heard about that, but surely that needs to be part of our forward thinking, as we do not have electric cars yet.

Photo of Jim Mather Jim Mather Scottish National Party

Nigel Don makes an excellent point, which we debated when we met the Québécois out in Cancún. In Québec, 98 per cent of the energy comes from hydro. People there are considering electric vehicles and pump storage as mechanisms for storing energy. We can learn from those good dynamics. In talking to the Québécois, I was struck that we have shorter journeys in Scotland, because it is a smaller country, so the electric car might be a better fit for Scotland.

Photo of Liam McArthur Liam McArthur Liberal Democrat

When the minister spoke to the Québécois, did he discuss the Scottish Government's record on its car pool and its shift to hybrid and more fuel-efficient cars?

Photo of Jim Mather Jim Mather Scottish National Party

Yes, that was discussed. I received to my great delight today a handwritten note from Jean Charest, Québec's Premier, to thank us for our time, so we have registered in yet another element of the planet.

The key point is that the Parliament has come together on the issue. The Economy, Energy and Tourism Committee has played a particularly strong role and helped in successfully forcing the long-overdue review of transmission charging by Ofgem. Committee members have played a role again today. Excellent points have been made, which reflect excellent points that were made in the conversation with Chris Huhne at yesterday's committee meeting, when Lewis Macdonald obtained from Chris Huhne the welcome concession that he would not rule out a premium-rate feed-in tariff for new technologies, and when the wide array of potential unintended consequences was noted.

Before Nigel Don mentioned electric vehicles, the issue was registered by Gavin Brown. It is of considerable significance.

I was taken by Liam McArthur's comments on the virtuous circle of investor confidence, investment and consumer interests feeding back into competitiveness. That is the stuff of this debate. He used an interesting phrase when he described the flexibility that we need from electricity market reform. He said that we had to have

"Scottish discretion, to capitalise on Scottish strengths."

That captures what we want to achieve.

Rob Gibson made some interesting points about the fact that our low-carbon society has the potential to be based on the cleanest power in the world. He identified the requirement for a firewall, and he questioned whether the National Grid was an appropriate model. We meet the National Grid regularly, and we will continue to ensure that it performs to the level that we require and that it is aligned with the common good.

The other point that I want to make in response to Rob Gibson is that in Georg Adamowitsch, we have someone who not only sees the potential that exists in Scotland but aspires to have a common EU electricity market. That takes us to an interesting place.

The considerations of Stuart McMillan and others on the green investment bank pointed to the fact that we have a fantastic opportunity to justify its location in Edinburgh. I was delighted to note Mr Huhne's confirmatory nod on the subject at yesterday's meeting of the Economy, Energy and Tourism Committee. We have the potential to have a green bank here in Scotland that will widen public support and allow the management that runs it to rediscover intrinsic motivation—[Interruption.]

Photo of Alex Fergusson Alex Fergusson None

Order. There is too much background noise in the chamber.

Photo of Jim Mather Jim Mather Scottish National Party

—and a desire for the common good to be a key driver.

Among the points that Iain Smith made in his role as convener of the Economy, Energy and Tourism Committee was one on the fossil fuel levy. I assure him that I, Mr Swinney and the First Minister, along with officials, will continue to engage on the issue.

We entirely agree with Iain Smith on transmission charges, and we are delighted that the case for change has been driven through. We raised the issue of the Western Isles interconnector with Mr Huhne yesterday, and we will raise it again. We found him understanding and, we hope, sympathetic. As I mentioned earlier, we are happy to ensure that the committee plays a full part in the wider process.

Bob Doris mentioned the incompatibility of feed-in tariffs and grants with EU law. We are working to develop a community loan fund that will provide loans rather than grants and therefore be compatible with EU law. We are looking to take some of the risks away from communities through the initial planning phases.

At a late stage in the debate, I was very taken by Alex Johnstone's life story. He told us that he was just old enough to recognise the north-east before oil. He was surprised at the scale and scope of renewables and seemed to have come to an understanding that the development of nuclear power would result in Scotland having to write a big cheque and would damage our balance of payments. We could not spend that money on renewables or on the grid here. His desire for us to talk to the UK on such matters is being met—we are doing so—but we do want an EU-wide electricity market to be developed.

We are continuing to work to remove the unacceptable barriers that exist. We are continuing to ensure that we have a mechanism for identifying unintended consequences and managing them away in conversation. The electricity market reform document sets out significant proposals. We are working to understand better how they will impact on Scotland. We have a track record of being at the forefront of developments by holding debates that bring forward good solutions in the long term. We are keen to ensure that electricity market reform has a really positive effect on investor confidence, that the renewables sector in Scotland that has blossomed and bloomed in the past four years continues to blossom and bloom, and that everything that we can do here is done to the fullest.