£100m for renewables as fossil fuel levy row ends

Chancellor George Osborne confirmed yesterday he was releasing half the £200m fossil fuel levy, which has effectively been sitting in a frozen bank account.

The SNP government, which has battled for the money for around five years, described the move as a “breakthrough”.

First Minister Alex Salmond said: “I am delighted that the UK government has at last listened to the Scottish Government’s case, and accepted the detailed proposal we made to release resources from Scotland’s fossil fuel levy so that we can step up investment in Scotland’s renewables revolution.” The remaining 50 per cent of the money will help capitalise the £3 billion UK-wide Green Investment Bank.

The decision has been welcomed by the business groups, green energy companies and political parties.

Mr Osborne and chief Treasury secretary Danny Alexander made the announcement as they visited the Nigg Energy Park in Easter Ross, a former oil fabrication yard being turned into a hub for renewables that could benefit from the new funds.

The Chancellor said: “It’s great news that we have been able to cut through the arguments and the wrangling with the Scottish Government that have stopped this money being invested in the past.

“It shows how serious the UK government is in its support for Scotland’s green future.”

He added: “What this means for the people of Scotland is that £100m will come out of what effectively has been a frozen bank account and go into green energy and help to create jobs in places like Nigg.

“It’s a good example of the way in which, for all the arguments we are going to have with the Scottish Government about the future constitution settlement in Scotland, when it comes to the things that matter now in Scotland, which is jobs and the economy, we can get things done.”

Under the agreement reached between the UK and Scottish governments, Holyrood will be able to access the Scottish fossil fuel levy fund from the next financial year.

Mr Osborne stressed the money will be in addition to Scottish Government funds and will not be clawed back in other ways.

In addition, any further funds becoming available in the Scottish fossil fuel levy fund will be split equally between the two governments and be paid out annually.

The settlement follows a review of the issue in the last spending review and subsequent discussions between the UK government and the Scottish Government.

The fossil fuel levy was introduced in Scotland in 1996. It was, in essence, a tax on carbon, designed to raise money from traditional energy sources in Scotland to invest in renewable power.

But in 2002, another environmental tax was introduced, the renewables obligation.

For several years the two processes ran in tandem, generating a surplus which presently stands at £206m, held in an Ofgem bank account.

Scotland’s Finance Secretary John Swinney said the announcement was welcome “though long overdue”. He said: “For too long Scotland’s money has been sitting unspent in an Ofgem account in London.

“We have consistently pressed the UK government to deliver a pragmatic solution that accelerates the release of funding for renewable energy projects that are ready to go now in Scotland.

“The proposal we put to the UK government has at last broken this logjam and made over £100m additional funding available now – vital funding to support further renewables investment, and make the Green Investment Bank a reality for ongoing support.”

The Scottish Government has a target of generating the equivalent of 100 per cent of Scotland’s electricity needs from renewable sources by 2020.

Sites that could benefit from the cash include areas earmarked in Scotland’s National Renewable Infrastructure Plan as potential hubs for offshore wind turbine manufacturing. They include Leith, Nigg, Dundee and Energy Park Fife, at Methil.

Scottish Enterprise chief executive Lena Wilson, said: “This is very good news for Scotland’s fast emerging renewable energy sector.”

Friends of the Earth Scotland policy officer Francis Stuart said: “This money has been a long time coming, but is very welcome at last. The challenge now will be to ensure that it is used in the best and most appropriate ways, to support Scotland’s vast renewable potential.”

Roy MacGregor, chairman of Global Energy Group, which owns the Nigg facility, welcomed the funds and the fact the Chancellor visited the north of Scotland to make the announcement. He said: “We have a euro crisis on just now and I’m very proud he has come to Nigg which shows he supports the industry.

“Mr Salmond and the people of Scotland will be glad that this £100m will help places like this.”

Per Hornung Pedersen, chief executive officer of Leith-based wave energy company Pelamis, welcomed “the confidence this sort of support brings”.

And David Hodkinson, UK manager for energy firm Vattenfall, said: “The decision sends a clear and strong signal to inward investors, like Vattenfall, that the UK and Scottish Government are right behind the delivery of Britain’s green energy potential.”