Duncan Hamilton: Naysayers spout hot air on independent wind power

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.