George Kerevan - Scotland must not let its lead in renewable energy slip through its fingers

Between the lines

THE recent National Economic Forum – a coming together of the Scottish Government with the business community and civil society – spent a lot of time discussing how climate change might afford Scotland significant economic opportunities, particularly in the realm of renewable energy technology.

This theme has been developed on a number of occasions by the First Minister, Alex Salmond, who used his visit last week to the Irish power company Airtricity (soon to be absorbed by Scottish & Southern Energy) to argue that Scotland's "natural environment provides us with a clear, competitive advantage in developing clean, green energy".

How realistic are these visions of Scotland becoming a global leader in renewables?

In 2007, the first Scottish Renewables Economics Impact Report showed that (in 2006) only 2,600 people were employed in the industry with an annual turnover of 550 million. That is not negligible but neither is it earth-shattering.

It is true that Scotland has a reasonable R&D base in renewables technology, especially in wave and tidal power. But it must be remembered that, back in the 1980s, Scotland was a global leader in wind turbine technology. Regrettably we failed to commercialise this early lead, and the market went to Germany instead.

I am also mindful that we Scots are prone to claim world leadership without noticing who else wants to compete for the crown. For instance, Abu Dhabi, which has just hosted the World Future Energy Summit, also plans to become "the global hub" for renewables. The emirate has committed an initial 7.5 billion towards this goal, targeting projects in solar, wind and hydrogen power. This cash is being extended through joint ventures, including a 125m "clean technology fund" in partnership with Credit Suisse. Meanwhile, the Scottish Government has just launched its own Climate Change Fund of 30m.

An even bigger competitor for Scotland is California. Governor Schwarzenegger has set his sights on his state dominating global renewables technology in the same way it previously dominated aerospace then computers. And he has the venture capital industry and research base to do it. Even two years ago, California was employing 22,000 people in renewables technology. Last year, venture capital investments in clean technology in California were running at 1bn.

I don't mention this to disparage Scottish ambitions – which I entirely support. But I think it is time to define exactly what we mean by making Scotland a hub for renewable energy and spell out more of the practicalities involved if we are to make a business of it.

Just how big is the potential renewables market? The most reliable statistics available are found in the UN Renewables Global Status Reports, the latest of which was published in December (covering 2006 and the first quarter of 2007).

This report suggests there was $70.9bn new investment in renewables in 2006, up 43 per cent on 2005. At these growth rates, investment in 2007 was certainly in excess of $100bn. Of course, $100bn is still tiny compared with the $3 trillion per year which being spent on fossil fuel energy forms. However, there is absolutely no doubt that clean energy is where the market is headed. Renewables now account for a significantly larger share of generation investment than of installed capacity. Wind energy alone has shown an annual growth of almost 30 per cent this decade. Solar energy is also catching up.

Plus the industry has finally gone global. In 2007, for the first time, more wind power capacity was installed in the rest of the world than in Europe (the main market until now). Wind power has established itself firmly in the US; biomass is expanding in Asia and solar power is becoming commercial (at today's oil prices) in the sun-rich areas such as in North Africa. Some 56 countries now have some type of renewable energy promotion policy, while 44 have rules mandating future shares of power generation for renewables.

This growing market is attracting risk money – the best test of its viability. Public market activity surged in 2006, with 5bn raised – double the figure for 2005. IPOs in solar energy projects alone raised 2bn though the biofuels sector was the star performer. In the first quarter of 2007, more than 1bn of venture capital and private equity funds flowed into the sustainable energy sector, an increase of 58 per cent on the same quarter in 2006.

Clearly, the opportunity is there. But there are the questions Scotland has to answer. Are we going to develop and sell renewables technology? Or are we going to be a clean energy generator and exporter? Or both?

On the technology front, there is too much loose thinking. The fact is there are a myriad of technologies being developed and they are all at different stages of commercial viability. We don't have the money or capacity to lead in them all, so what are we concentrating on?

For instance, despite all the hype, there is no such thing as genuine "clean coal" today. There are non-commercial pilot plants but we are a decade or more before carbon capture and storage will be with us. My guess is that Scotland should concentrate on wave and tidal power but whichever way we go, the maxim is to find a focus.

Or we could concentrate on clean energy generation. But that requires serious capital investment to put in the generating infrastructure and a North Sea "super grid". Airtricity (which Salmond visited last week) reckons such a grid would cost 20.6bn. Of course, that is less than bailing out Northern Rock but it is a sizeable sum and without it Scotland's hope of being the clean energy Saudi Arabia of Europe will be stillborn.

Freeing the world of its dependence on carbon could be the biggest industrial market of the 21st century, But if Scotland wants a share of the pie we need to get a decent business plan written.