Fossil Fuel Levy

– in the Scottish Parliament on 22nd March 2012.

Alert me about debates like this

Photo of Elaine Smith Elaine Smith Labour

The next item of business is a statement by Fergus Ewing, which is an update on Scotland’s fossil fuel levy. The minister will take questions at the end of his statement; therefore, there should be no interventions or interruptions.

Photo of Fergus Ewing Fergus Ewing Scottish National Party

I will set out the Scottish Government’s intentions for the fossil fuel levy.

The Scottish Government spent more than five years negotiating with the United Kingdom Government to secure an acceptable deal to release the fossil fuel levy moneys. Members of the Parliament and colleagues in Scotland’s renewables industry made a significant contribution to the debate and should be commended on the role that they played in finally securing the funding.

We agreed with the UK Government last year that £103 million would be released to the Scottish Government in financial year 2012-13, with the remaining £103 million being channelled into the green investment bank. Given the significant efforts that so many people made to secure those funds, it is important that we use them in a way that will add most value to Scotland’s renewables sector. I will set out how we intend to do that.

By using Scotland’s massive green energy resources and our proven track record in energy innovation, we aim to maximise the economic benefits for Scotland and its people. We have set some of the most ambitious renewable energy targets in the world. Through them, we have forged our reputation as a country that gives strong leadership on, and support for, renewables. That hard-won international repute helps to provide the opportunity to create tens of thousands of new jobs and to secure billions of pounds-worth of investment in our economy.

Renewable industry investment will re-industrialise Scotland’s communities; it is already re-industrialising them. Communities such as Nigg, and Arnish in the Western Isles, are already benefiting from key investment. In Orkney, infrastructure developments, activity at the world-leading European Marine Energy Centre and activity at our northern ports have seen the area emerge as the global headquarters of marine energy.

That is why renewable energy is a key priority for the Government. Members need only look at the spending review settlement to understand the strength of our commitment; we have committed £200 million to renewables. That funding is focused on stimulating research, development and innovation; on accelerating the deployment of the first commercial marine renewables arrays through the marine renewables commercialisation fund; on transforming our ports and harbours through the national renewables infrastructure fund; and on encouraging inward investors to develop their offshore wind turbines using the POWERS—prototyping for offshore wind energy renewables Scotland—scheme.

I am delighted that Edinburgh has been chosen—and has been chosen on its merits—as the headquarters for the green investment bank. That decision acknowledges Scotland’s position at the vanguard of the renewables industry and follows an excellent and professional bid campaign. It demonstrates the effectiveness of the unity that was built across the political, academic and geographical spectrums to argue Edinburgh’s and Scotland’s case. It also underlines the importance of the £103 million from Scotland’s fossil fuel levy that we agreed to capitalise for the green investment bank. It is great news for Edinburgh’s economy and for Scotland’s thriving low-carbon sector.

The green investment bank will not cover the whole spectrum of green investment. It intends to invest in projects that are “almost commercial” and to focus on technologies such as offshore wind, energy-from-waste generation and energy efficiency—including support for the green deal.

Many attractive large-scale projects in Scotland are ideal investment territory for the green investment bank. Its activities will complement, on a larger scale, the support that we already offer through the NRIF and POWERS. Other equally important renewables sectors that are at an earlier stage of development, or that have community rather than commercial aims, also need investment to realise their ambitions. The fossil fuel levy moneys could, and should, be part of that solution.

We have considered how best to utilise the funds, and have drawn on three principles, the first of which is additionality: the funds should be additional to the £200 million of spending review funds that have already been committed, but must also be complementary to those and to other available funds, such as funds from the green investment bank. The second principle is leverage: we will use the funds to attract additional finance from other sources. The final principle is that there must be a legacy: a suitable structure will be found that allows longevity of support and ensures that the right type of investment is committed to projects at the right time.

With those three principles strongly in our minds, I today announce our intention to create a renewable energy investment fund, using the £103 million of fossil fuel levy moneys, in order to create a delivery mechanism that has the scope to attract other investors, to offer longer-term support and to offer early support to specific renewables sectors. In building on the experience of the Scottish Investment Bank model, the renewable energy investment fund will, from the next financial year, look to invest in early-stage technologies or community sectors, and to attract interested private sector investors as fund partners. I stress the word “invest”; our intention is not to replicate existing grant support. The fund will focus on investment that complements, rather than duplicates, current funding routes.

I have established to work on assessing the key sectors for investment a team that brings together the Scottish Government, Scottish Enterprise and Highlands and Islands Enterprise, and which includes experts from the Scottish Investment Bank.

I expect a strong focus of the fund to be on innovative renewable technologies—in particular, marine, wave and tidal renewables. We have supported technology developers—including Pelamis Wave Power Ltd, Aquamarine Power Ltd and AWS Ocean Energy Ltd—in developing and testing their prototype devices, which has built momentum across the industry. We will continue to support technologies in wave and tidal renewables as they emerge. The sector is now approaching an exciting milestone as it looks to develop and deploy arrays of devices in the water for testing. The new fund will give an extra boost to the sector to deploy more and larger arrays in the future.

Another priority area will be support for district heating. There are many benefits to district heating systems, which will offer some protection from rising energy bills and will reduce reliance on imported energy.

District heating projects such as the original one in Aviemore, which used biomass—it was fired by locally sourced woodchip—to heat more than 130 homes, and the scheme in Seaton in Aberdeen that serves more than 500 flats, including sheltered accommodation, a sports changing facility and Aberdeen City Council’s beachfront complex, have delivered real benefits to their local communities. Despite that, and despite the many benefits of district heating and more than £5 million in Scottish Government grants since 2007, we still have so little of it. We expect our district heating loan scheme, which has been operating for a year, to be oversubscribed in future years. To make provision for funding district heating within the proposed renewable energy investment fund is the right move, and will ensure that that important sector gets the support that it needs to take off.

Lastly, we are leading the way in the UK and beyond in supporting communities and rural businesses to develop their own local renewables projects. Our 2020 500MW target for community and locally owned projects could be worth up to £2.4 billion in revenue, so it represents a huge opportunity to bring the benefits of renewable resources directly to Scotland’s communities, including a great many communities in rural Scotland and our islands.

We already support communities through loans to projects, but we are concerned that the market may not be prepared to offer finance for capital build to allow communities to retain 100 per cent ownership. The renewable energy investment fund will look to address that shortfall. We know that the need of the communities sector to find finance is very pressing, which is why I am making available £2 million for community projects in 2012-13. From April, the community and renewable energy scheme will provide post-planning finance to community and locally owned renewables projects, alongside a CARES infrastructure fund to stimulate innovation in connection and in demand management.

Now that we have announced our intentions, the joint team is working to design the most appropriate delivery mechanism for the renewable energy investment fund. It will engage with developers, local authorities, universities and other parties to assess the key areas for investment. I am also keen that it work closely with potential funders, including the European Investment Bank, the team that is setting up the green investment bank and private sector finance bodies, in order to ensure that we maximise the leverage that the fund can deliver.

We have a lot of work to do over the next few months, but I will endeavour to return to the chamber to provide an update on the progress that is being made. As with the recent decision on the location of the green investment bank, securing access to this part of the fossil fuel levy money was a significant win for Scotland. Through the creation of the renewable energy investment fund, we will ensure that the £103 million is used in a way that will deliver additionality, leverage and legacy, and which will provide another significant win for our renewables industry and Scotland’s economy.

The Deputy Presiding Officer:

The minister will now take questions on the issues that have been raised in his statement. I will allow about 20 minutes for questions, after which we will need to move on to the next item of business.

Photo of Kenneth Macintosh Kenneth Macintosh Labour

I thank the minister for the advance notice of his statement and for the helpful informal briefing by his officials.

We are all pleased that the sums of money that were raised by the fossil fuel levy have been released for investment and are now available to help Scotland to make the transition to a low-carbon economy. The minister has indicated the broad thrust of his initial priorities for how the £103 million will be spent, and the mechanism that he will use—a fund to which organisations, companies and communities can apply—but it is clear that a huge number of important and detailed decisions on issues such as who will administer the fund, what criteria they will apply and how long the fund will last, have still to be considered.

I want to focus on just a couple of those points. The minister can count on our support for investment in community renewables projects—including microgeneration and combined heat and power schemes—but it sounds from the statement as though a lot of importance is being placed on attracting or leveraging in additional resources, or on the fund as an investment vehicle. Can the minister assure Parliament that community need and social justice will be important criteria in deciding on loans, grants or other fund investments? What appointments to the fund board will he make, or what other mechanism will he use to ensure that social justice policy—as opposed to commercial criteria—is adhered to?

Earlier-stage investment, particularly in wave and tidal power projects, is unlikely to attract the support of the green investment bank because such projects are riskier and less commercial. What balance does the minister envisage the fund striking between ensuring the longevity of the fund and investing in such strategically important, but inherently riskier, projects?

Photo of Fergus Ewing Fergus Ewing Scottish National Party

I thank Ken Macintosh and the Labour Party for their support. We will continue to work closely with Mr Macintosh and his colleagues on all these matters.

I am happy to confirm that we are determined to ensure that the interests of communities will be fully acknowledged and that we consider social justice issues as part of the approach that we take. I have announced an allocation of £2 million for community renewables.

Since May 2007, there have been, for community renewables, more than 800 grants worth some £16 million, so there has been a measure of success, but there is more to do. The difficulties in making some community schemes a reality are clear and manifest and we are committed to working with all parties and with people outwith the chamber to overcome the hurdles and to make such schemes a reality.

Ken Macintosh is also right to say that the GIB is for near-commercial projects and the renewables energy investment fund is for more nascent technologies in their earlier stages. He is also right to say that because that is the case, the nascent technologies involve greater risk than those that are nearer commercial deployment. I think that that is a matter on which everyone would agree.

The purpose of the renewable energy investment fund, however, is to incentivise and assist the development of wave and tidal energy, among other methods. I am delighted that so many companies in the world have chosen Scotland in general and the Pentland Firth in particular to develop their devices. The potential benefits that wave and tidal energy can bring to Scotland and the world cannot be overstated. There are risks and we will consider them carefully, but I think that we all agree that we are embarked on a worthwhile and sensible journey.

The Deputy Presiding Officer:

I am afraid that unless we have much shorter questions and answers I will have no chance of calling all the members who want to ask questions.

Photo of Mary Scanlon Mary Scanlon Conservative

We very much welcome the statement and the approach that is being taken by the minister, and I thank him for the time that was taken to brief spokesmen at lunchtime. I also commend the Westminster Government for releasing the money.

Given that we all want communities to benefit from the investment and that we want to ensure that Scotland gets its fair share of the manufacturing and assembling jobs that relate to renewables, will the minister ensure that existing fabrication yards and shipyards are fully utilised so that they get their fair share of jobs from renewables and energy innovation in the future?

Photo of Fergus Ewing Fergus Ewing Scottish National Party

Yes. I am happy to give that confirmation. We spend a great deal of time seeking to ensure that Scottish companies will have the opportunity to bid for and, we hope, to obtain the necessary work, and that Scottish ports—in particular ports, harbours and businesses in the Highlands and Islands—have the opportunity so to do. I commend to Mary Scanlon the progress that has been made in Campbeltown, Arnish, Nigg, Ardersier, Kishorn, Wick, Scrabster and the Orkney ports. There is a great deal to be done, but we are already achieving a great deal and the potential is enormous.

Photo of Annabelle Ewing Annabelle Ewing Scottish National Party

I, too, welcome the statement. It was, of course, great news for Fife when Samsung Heavy Industries Co Ltd decided earlier this year to base its first European offshore wind project there. Can the minister confirm whether it is likely that further projects will be brought to the kingdom through the new investment fund?

Photo of Fergus Ewing Fergus Ewing Scottish National Party

I was very happy to visit Fife Chamber of Commerce last week, as well as to visit Methil on—if my notes are correct—19 December. Fife is in the vanguard of the progress that is being made. I want in particular to pay tribute to Burntisland Fabrications Ltd—which is leading so much of the work there—and to Samsung for its investment. Samsung has chosen to have its European location in Fife energy park and is planning to make a substantial investment of up to £100 million, which is expected to create more than 500 new jobs in Scotland.

Photo of Rhoda Grant Rhoda Grant Labour

The minister will be aware that large renewables development companies spread risk by investigating several sites for development, knowing that their achieving a small number of consents will pay for their wider outlay. A community does not have that option, so its one project holds all the risk and all the cost. On that basis, will communities have access to the renewable energy investment fund and if so, and if their project is not consented, will they have to repay any loans?

Photo of Fergus Ewing Fergus Ewing Scottish National Party

I have just announced that specific provision will be made for community renewables projects that follow the various projects that have been undertaken under CARES and its predecessor scheme. I acknowledge the work that Sarah Boyack and others carried out in that regard. We are continuing work that Labour Party members and their Liberal colleagues initiated, so this is an important cross-party effort.

We need to try to de-risk the process of community renewables investment. Communities often do not have financial expertise and are unfamiliar with tasks such as getting a grid connection, dealing with corporate matters, setting up as the appropriate company and dealing with other parties who are involved. It is appropriate that the required assistance and advice are provided on all such matters.

We are determined to ensure that the mechanics—if I can put it in that way—work as effectively as possible and with minimum risk to the communities involved. We have a reasonable track record of success in that regard, but we are always happy to consider further specific measures that will mean that more community renewables schemes proceed.

Photo of Rob Gibson Rob Gibson Scottish National Party

I whole-heartedly welcome the overdue application of Scotland’s fossil fuel money in the renewable energy investment fund.

Without prejudice to the needs of the Cromarty Firth and Kishorn bases, will the fund offer support to smaller marine energy schemes, such as projects in the Pentland Firth that were rejected in the Crown Estate’s third leasing round, and will it ensure that Wick and Scrabster harbours are fully fitted out to support progress towards deployment of demonstration models in the Pentland Firth, the Orkney waters and the Moray Firth?

Photo of Fergus Ewing Fergus Ewing Scottish National Party

Yes. I had the pleasure of visiting Rob Gibson’s constituency—as he knows, because he was with me—on 12 March, where we saw the great progress that is being made at Scrabster, and discussed the progress that it is hoped will be made at Wick. Both harbours are well placed to take advantage of the opportunities and both are led by people who are determined to ensure that the opportunities do not slip from their grasp.

The answer to the member’s question about smaller companies and new entrants who were excluded from the leasing round is yes—we want to help them. I met one such company just yesterday. There are projects for 1.7GW of wave and tidal power in the Pentland Firth, which presents a massive opportunity for the part of Scotland that Mr Gibson represents. We fully intend to ensure that that potential is realised.

Photo of Sarah Boyack Sarah Boyack Labour

I thank the minister for his statement, which I and other Labour members very much welcome.

Has the minister considered eligibility for local authorities or companies that local authorities set up? He was right to suggest that there is a paradox in that although some of the technology—including renewable heat and solar technology—is established, we have not yet seen its mass application. South of the border, groups of authorities have had success, but cities in Scotland have not yet made progress. Is the minister keen to explore the idea?

Photo of Fergus Ewing Fergus Ewing Scottish National Party

Yes. I agree with Sarah Boyack and I am keen to explore the idea. I visited Dumfries and Galloway Council yesterday, which is taking an active interest in the matter, and I understand that Glasgow City Council is involved in a number of projects that could well be early candidates for consideration by the green investment bank. We want more work to be done on district heating, which I agree has been slow to take off. Once again, I think that we stand four square with the member in that regard.

Photo of Stuart McMillan Stuart McMillan Scottish National Party

Renewable energy presents an opportunity to reindustrialise all Scotland. Can the minister give details of how shipyards on the Clyde have the potential to benefit, bearing in mind our world-renowned heritage of Clyde-built ships?

Photo of Fergus Ewing Fergus Ewing Scottish National Party

Many of the engineering skills that are required in fabrication of the devices and apparatus of the renewables industry, and of the support vessels and equipment for the industry, can and are being used. There is a crossover between oil and gas and renewables and there should be a crossover between shipbuilding and renewables. I am keen to encourage the work that is done in—or near—the member’s part of the world; for example in relation to the possibility of upgrading the dock at Westway and dredging the River Cart, which might assist steel engineering companies to grow their renewables business. There are no parts of Scotland that should not be able to benefit from the renewables revolution.

Photo of Patrick Harvie Patrick Harvie Green

I thank the minister for his statement and for the briefing earlier today.

I welcome the emphasis on community renewables. Will the minister ensure that the widest possible range of communities are able to bid for the scheme, including those that are already working in partnership, perhaps with a local small business, a non-governmental organisation or a public body, such as a school or hospital? Will the minister assure us that such partnership approaches will not be ruled ineligible?

Photo of Fergus Ewing Fergus Ewing Scottish National Party

I give Patrick Harvie that assurance; we are happy to work with all the bodies to which he refers. In addition, if we can be of assistance to any scheme in the constituency of any member of any party in this chamber, we would be happy to do so.

Photo of Graeme Dey Graeme Dey Scottish National Party

The minister will be aware of plans to site, off the coast of my constituency, two wind farms that will have a combined potential to power up to 1.2 million households and whose construction and servicing offer the prospect of new jobs coming to the Dundee and Angus area. Today’s welcome statement follows the securing of the headquarters of the green investment bank. Will he advise what impact, if any, that might have on developments in that respect?

Photo of Fergus Ewing Fergus Ewing Scottish National Party

It would be inappropriate for me comment on any application that may come before me for decision as a minister.

However, I can say in general terms that there are considerable opportunities. Mr Dey’s constituency is close to the location of several of them, in particular in Dundee and Montrose. I visited Montrose harbour fairly recently. I know that Montrose was disappointed about not being included as a national renewables infrastructure plan port—it was the next one on the list—but it is well placed, for example for operations and maintenance. The east coast of Scotland is set to see a jobs windfall resulting in tens of thousands of Scots and their families developing careers that will be needed for centuries.

Photo of Claudia Beamish Claudia Beamish Labour

I thank the minister for his statement and for advance sight of it.

On the community renewable energy investment fund, I was reassured that the minister highlighted the mechanisms that will be put in place for support. However, I wish to push a little further and ask about the co-operative model, which I am meeting him next week to discuss. Will funding be available to cover the equity costs as well as loaned finance so that communities can take more control of their own power generation for the range of renewables, including microrenewables and combined heat and power?

Photo of Fergus Ewing Fergus Ewing Scottish National Party

I was unaware that I was going to have the pleasure of meeting Claudia Beamish next week, but I look forward to it.

I am happy to confirm that co-operatives can play a vital part in renewables, as they do in so many areas of Scottish life. I acknowledge the part that is played by many banks, including the Co-operative Bank, in that respect.

There are cases in which communities that do not have vast amounts of money—or any money—are unable to proceed because they cannot get the last 5, 10 or 15 per cent. As I said in the statement, the fund will bridge that gap. It gives us the opportunity to make those schemes happen.

Photo of Nigel Don Nigel Don Scottish National Party

I note the classes of scheme on which the minister has commented, but I do not recall seeing anything about oil product replacement technologies and the idea that waste products might be converted by technologies to something that would pass as petrol, such as isopropanol. Are those the kind of technologies that might also be supported by the fund?

Photo of Fergus Ewing Fergus Ewing Scottish National Party

Yes. I have mentioned the areas on which I think the fund is likely to focus, but we will not exclude biofuels from consideration. We have to consider each proposal carefully, but I am happy to confirm that proposals of the type that Nigel Don mentioned are not debarred from applying to the fund. I am happy to work with him to develop that further.

The Deputy Presiding Officer:

I call Jim Eadie. The question and answer must be very brief.

Photo of Jim Eadie Jim Eadie Scottish National Party

Will the minister take this opportunity to pay tribute to the university sector and the part that it plays in developing and commercialising renewable technologies? Will he visit the University of Edinburgh to see first hand how research into offshore wave technology is helping to underpin Scotland’s reputation as Europe’s green energy powerhouse?

The Deputy Presiding Officer:

Be as brief as you can, minister.

Photo of Fergus Ewing Fergus Ewing Scottish National Party

Scotland has some of the world’s leading experts in just about every discipline of renewable energy. I am delighted to accept the member’s invitation to meet the experts at Edinburgh university