Mather gaffe sparks a key debate over future of our electricity supply

In Aberdeen this week to give his first big speech, he spoke boldly about the future of renewable energy and the "significant ongoing investment" in that sector. "Scottish & Southern electricity, BP, GE, and RTZ," he said, "have applied for consent for their proposed hydrogen-based generation plant at Peterhead - perhaps an initial foothold into the hydrogen economy."

Hardly had the words left his mouth, when BP announced the project's cancellation. It blamed delays by the Department of Trade and Industry (DTI) in London, which that day published its long-awaited energy white paper. The paper said the DTI would subsidise a pilot carbon capture and storage (CCS) plant, such as the Peterhead proposal. The idea was to take North Sea natural gas, strip out the hydrogen, burn it in a 350 megawatt power station, capture the carbon dioxide and pump it back into permanent storage in an old North Sea oilfield. But the DTI said that the demonstration scheme would only be chosen after a competition to be launched in November, which BP said was far too late for it.

It does look to be an overly-slow process, but I suspect that BP already knew it would be. And given that it had, two days earlier, announced plans to invest in an Australian coal-fired power station with CCS, and coal is where the big market in CCS technology is, I also suspect that BP had decided some time ago that it should place its investment bet in Australia rather than Peterhead.

Whatever is the case, the episode illustrates a big and important truth about the energy business: governments may make plans for the future provision of energy, but energy companies will be driven always by their own commercial goals rather than those plans. And that truth needs to be learned by Mather and the Scottish Executive.

Mather told the conference that forecasts of an "energy gap" in about 2015 caused by power station closures and no investment in new stations, made by the Royal Society of Edinburgh and written about in this column, are "not just unlikely, but ridiculous". As no explanation was offered, I presume he means either that existing stations will not close, or that new ones will be built.

Let's take closures. Hunterston B, a 1,200 megawatt nuclear station, is currently due to close in 2011. British Energy, its owner, hopes that its life can be extended by five years. That depends, however, on it passing stringent engineering and safety tests which, given recent problems discovered in boiler tubes and worries about graphite bricks in the reactor core cracking, cannot be guaranteed. Cockenzie, a 1,200 megawatt coal-fired station is due to stop operating by the end of 2015 to comply with European pollution control directives. Although owner ScottishPower is looking at giving it a new lease of life by fitting it with low carbon-producing boilers, it does not yet know whether this makes commercial sense. It seems to me that a prudent minister should be assuming that both stations will close.

What about new stations? The Peterhead experience says that this depends on whether a power company thinks it will make a profit. Cleaner coal and gas stations probably can. So can nuclear, but the new Scottish Executive has ruled that out. Coal with CCS technology has yet to be commercially proven - which is why the government wants a demonstration plant. And at the moment no new power stations of any type are proposed.

Does this mean an energy gap? The table below shows how much electricity is likely to be generated from all the available sources between now and 2020, and how that matches demand. It assumes that Hunterston B and Cockenzie will close on schedule and also adopts the growth in renewable energy sources forecast by Scottish Renewables. It also assumes the big power stations continue their long-term average electricity production. Longannet, for example, has managed to produce 12 terawatt hours in a year, but averages 10.4 terawatt hours annually.

You can see that excess production of electricity (which is exported to England) initially increases, then falls sharply in 2016 before rising again. The big question is whether the projected surplus in 2016, about 15 per cent of projected demand, is big enough to ensure reliable supplies. I'm not sure that it is. If there is an unplanned shutdown at Torness due to a safety problem (which has happened), that's more than the margin of surplus gone. If there is a summer heatwave and the wind does not blow, demand will rise (extra air-conditioning) and the supply will fall below the surplus margin. That happened in Europe in 2003, causing blackouts in Italy.

True, power firms do not produce more electricity than they can sell, so output can be increased at such times. But by 2016, we may have only three big stations, so the room for increased generation may be small. So, was Mather right about the energy gap? You can judge.

• Thanks to readers who responded to a previous energy column. I'll respond in a future column. Comments and criticisms on this one welcomed at: [email protected]