Duncan Hamilton: Naysayers spout hot air on independent wind power

Published on Saturday 5 November 2011 20:53

TO READ the report from Citigroup this week on the impact of independence on our renewable energy industry, you would swear that with independence will come an age of darkness.

Fortunately, closer analysis shows the report to be ill-considered and based on erroneous assumptions.

The report essentially attempted to argue that if Scotland becomes independent, each of us can expect an £875 rise in our energy bills in order to subsidise renewables by £4 billion every year. Those subsidies, it was argued, are needed to meet the Scottish Government target of providing all of Scotland’s electricity from renewables by 2020. Rather than the calm and objective analysis one might expect of Citigroup, the report is like a Labour press release. It talks of the “huge uncertainty” of the referendum, of the “political battle” taking place at the time of investment decisions and concludes “Against this background of intense political uncertainty, it is difficult to see how multi-billion pound projects can be approved by companies and/or financed.” Stirring stuff, if total drivel.

What, for example, of the inconvenient evidence of actual investment which is taking place in Scotland right now? If the renewables strategy is fatally undermined by the mere whisper of independence, it seems odd that investment continues from Gamesa, Doosan Babcock and Mitsubishi. Companies like Scottish Power, Scottish and Southern Energy, Iberdrola and Centrica are entirely aware of events in Scotland. Call me simple, but doesn’t £750 million of new renewable energy projects this year and the plans for £46 billion investment by 2020 tend to suggest that the prospect of independence doesn’t bother investors?

Thankfully, Citigroup are not the only analysts in the field. A research paper by Altium Securities (published specifically in response to what it described as the “alarmist” broker report from Citigroup) deconstructs the Citigroup position with a forensic beauty. The reasons to distrust the Citigroup analysis range from the highly technical to the stunningly obvious. Let’s start with the easy stuff – Scotland is the windiest part of Europe. Speaking on behalf of North Berwick, I can confirm that fact. Moreover, Scotland’s wind profile means it has the potential to be the lowest cost generator of wind energy in Europe. Not that Citigroup appeared to know this stuff – their report completely wrongly assuming capacity of 26%, which is about half some of the windiest on shore locations.

It is also entirely clear that, in relation to renewables, the UK needs Scotland more than Scotland needs the UK. Without Scottish-based renewables, the cost of meeting the UK Government emission target will be miles higher. As the Altium report notes: “We therefore view Scottish independence an irrelevant factor… as the lowest cost supplier will always be sought first.” So energy production is much cheaper up here. Gosh, maybe those big companies pledging £46 billion investment knew what they were talking about after all?

Amusingly, it appears that the UK Government has already accepted the vital aspect of Scottish production, publishing figures in July showing Scotland will be an increasing part of onshore wind generation. Moreover, the cost of reliance on carbon fuels will rise sharply, partly as a direct result of policy designed to encourage renewable energy. Therefore, says Altium, “the lowest cost of renewable energy will be utilised first regardless of the political stewardship of Scotland”. In other words, the market doesn’t give two hoots whether we vote “yes” or “no” – it will do exactly what it was going to do anyway.

What then of the vexed question of subsidy which spawned this whole story? Again, the Citigroup analysis is exposed as deeply flawed. Ultimately, this is all about cost. Let’s all agree that it is overwhelmingly in the English national interest to have access to the lowest cost of carbon-free power. As it happens, that comes from Scotland. But even allowing for our energy being the cheapest, Altium projects that “the prevailing wholesale price for clean energy would be sufficiently high” such that no subsidy would be needed. Even if that is not right, we are not talking anything like the current figures of £4 billion a year upon which the Citigroup analysis is predicated. In any event, renewable production is becoming much cheaper so any future subsidies will be reduced. Witness, for example the 18% reduction in wind turbine costs in the last two years.

Ah, say critics, but what if England goes off in the huff post-independence? What if England decides to source energy from the Continent (as the Labour Party spokesman so patriotically suggested) and not Scotland? They won’t – for two reasons. First, we are cheaper. Secondly, the analysts also flag the vital aspect of energy security. Locally supplied clean energy from Scotland “would almost certainly be treated as a priority” rather than reliance on the Middle East and Russia. Surely, on any cold analysis of likely market developments, that makes total sense.

Shamefully, however, David Cameron trumpeted the report as a weapon against independence, telling MPs that “a major financial institution warned yesterday of the dangers of investing in Scotland”. A British Prime Minister endorsing a flawed piece of market research and deliberately and explicitly undermining confidence, investment and jobs in Scotland? He is trying to save the Union, but every time he speaks he makes the case for independence. More thoughtful Unionists like Douglas Alexander appear to understand that relentless negativity and wild allegations of impending doom won’t do. Apparently, they are in the minority.

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samcoldstream

Sunday, December 4, 2011 at 09:46 AM

In 2004, the then Citigroup financial giant donated almost half a million dollars to George Bush's Presidential campaign. In 2008, at the height of the US banking crash, Citigroup like many other US financial institution went bust and could't pay its creditors one red cent! In the second quarter of 2008, Citigroup returned a loss of $8.9 billion, the largest loss in US corporate history, It paid off thousands of employees worldwide, including several hundred in the UK. Humiliated Citigroup had to go cap in hand to the Federal Government and President Bush agreed to provide it with $13 billion of capital loans and loan guarantees to bail it out. Citigroup has now returned to profit but most of this will be going to repay its massive Federal loan for the forseable future. Like RBS and the Lloyds Banking Group, Citigroup is in hock to its government. (Source: The Wall Street Journal)

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tested

Tuesday, November 15, 2011 at 09:58 AM

The author seems to be totally unaware of one of the fundamental flaws of windpower - availability. When he talks of england importing electricity he totally fails to recognise the fact that in order for Scotland to export electricity the electricity has to be available. So unless you can come up with some way of ensuring that windpower peaks at the same time as demand then your energy export is at best intermittent. If we had developed a proper energy mix of mainly reliable sources then this wouldnt be the case and please dont even mention pumped storage because we wont be able to afford to run the windmills never mind provide the billions required to build PS. I note that like most cybernat attacks on the blatantly obvious fact that an independent Scotland would have to foot its own energy subsidies there is little in the way of serious counter arguement just attempts to rubbish the source. The points raised by Citibank are nothing new I raised them on these boards months ago because I support full independence and could see the SNP's renewables fiasco as a stumbling block (or an indication that they had given up on full independence in favour of bigger crumbs from the masters table).

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Geomac

Sunday, November 6, 2011 at 02:16 PM

#5 Alexander - this is too serious a subject for you to try to address it in party politicam terms - your asserstion that the Inst Mech Eng report came from Westminster and hence it is wrong, is abject nonsense. Unlike you, the I Mech E has no political axe to grind and I, for one, would rather believe them than any politician or political party activist!

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Geomac

Sunday, November 6, 2011 at 02:13 PM

#2 nabodican - absolutely correct. It is obvious that this clown is a politician and hasn't a clue about the real world. For example he calims that the Citigroup's 26% capacity is about half that expected - rubbish - many trubines have less than HALF that. Then he claims that "energy production is much cheaper up here" - that too is rubbish - the way we're going, it's going to be much more expensive. Unless, of course, he anticipates Scots paying the ROC subsidies and then the electricity is exported at wholesale prices???? This obviously costs us a lot more. What a terrible misrepresentation of reality made by Hamilton in this article. No doubt in the fullness of time, he will denigrate the Inst of Mech Eng report as well - since he believes, like all SNP activists, that he knows best.

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alexander/

Sunday, November 6, 2011 at 12:28 PM

so I read the first comment and unionists beleive anything that liebour tell them I mean its actually pathetic they want to use The Institute of Mechanical Engineers so called report to justify a flawed citigroup report with the person wrote the report it not only a former member of the cabinet office doing a favour for his unionist buddies and doing it for the intrests of London but the thing is The Institute of Mechanical Engineers report that is being used made me question where it came from and suprise suprise The Institute of Mechanical Engineers report came from what unionist never question westminister and Ian gray using it shows you the level of lies that unionists will use to try and attack independance and the SNP just like johann lammont using a fabricated rape story from the evening news which the paper apologised for writing with the quote showing her knickers in court to try and score a political point which turned out to be what happened when labour where in power also to note lammont hasn't apologised for misleading parliament on that one! all I can say to unionists is just question everything you are told look for the real answers soon you will realise you get lied to often to keep you in line with preserving power in London and keeping unionist mps, msps and councillors in a job for life while they all strive to get to westminister for the money even sell out there own country to do so! e.g now lord mcconnell, Margaret curran mp former msp who jumped ship to save her career just like Cathy Jamieson and a few others, and labour councillor from paisley who is an mp but still hasn't resigned as a councillor and racking in 2 wages or Brian donohoe mp in Irvine who every election goes with jobs, jobs, jobs which never happens and then you look at his record an realise he actually opposes jobs in ayrshire and promotes jobs for London and at the same time is claiming expenses for things that don't exist like jim devine former mp jailed for fiddling expenses the list is massive also remember this Scottish mps will no longer have a seat in westminister after independance so if do you not think they will lie to protect that then your obviously brainwashed!

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Incognito360

Sunday, November 6, 2011 at 09:21 AM

The Institute of Mechanical Engineers would argue differently "In light of this report’s analysis, this aspirational target appears to represent an ambition that cannot be justified from an engineering perspective."- Scotish Energy 2020?,IMechE From that basis one can assume the targets must of been constructed for purely political reasons, and thus should be viewed with contempt. If the engineers don't think that Scottish renewable targets are achievable how can you expect financiers to pour money into vague renewable energy targets, how can they be sure of their returns? Citigroup are right to be worried about investment in renewables, any uncertainty will scare investors and rightly so. The uncertainty over independence as well as how Scotland will meet it's targets are well justified reasons why not to invest.

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samcoldstream

Sunday, November 6, 2011 at 08:58 AM

In 2004, the then financial giant Citigroup donated almost half a million dollars to George Bush's Presidential campaign. In 2008, like Freddy Mac, Fanny Mae, and dozens of other over-exposed US banks and financial services companies, Citigroup went bust, and couldn't pay its creditors one red cent! In its annual accounts that year, Citigroup made a loss of $8.9 billion, the worst in US corporate history! Humiliated Citigroup had to go cap in hand to the Federal Government which lent it over 10 billion dollars in loan guarantees to keep it afloat. In 2010, after 3 years of massive losses, Citigroup returned to profit thanks to being propped up by billions of US taxpayer dollars. It will take Citigroup another 13 years to repay the debt it owes to the Federal Government! Yet, this failed company has the brass neck to caution investors against doing business in Scotland? (Source: US Securities & Exchange Commission)

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nabodican

Sunday, November 6, 2011 at 08:15 AM

Not only is Duncan Hamilton "simple" he is extremely thick, he has no understanding of how the electricity market works or how electricity is generated and distributed.

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WJohn

Sunday, November 6, 2011 at 08:13 AM

“Witness, for example the 18% reduction in wind turbine costs in the last two years.” I would like to witness it. How about some source references, just like school pupils are expected to give in their written course work. Reduction in cost, to taxpayer, energy payer, per turbine, to the landowner who still gets the same subsidy, to what?

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