Peter Jones: Power to rebalance Scots economy

Scotland has prolific energy but has yet to invest fully in delivering it successfully. Picture: Donald MacLeod

Let’s set aside the sound and fury of the election campaign and concentrate for a moment on what, to me at any rate, is the big long-term question – how to grow and re-shape the Scottish economy. The political aim should be to make it sustainable, not just in an environmental sense, but in fiscal terms – that it should be capable of generating enough tax revenues (without oil and gas revenues) to sustain decent levels of public spending.

Over the past two weeks, I have argued that Scotland’s fiscal problem is not that taxes are being siphoned off by the Treasury but it is actually the reverse. The evidence from the Scottish Government’s own figures is that public spending is too high relative to the tax-generating capacity of the onshore economy.

Just to re-cap, in 2013-14, total public spending by the Scottish and UK governments in and on behalf of Scots was £66.4 billion. Total onshore tax revenues were £50bn, a deficit of £16.4bn, or -12.2 per cent of GDP. Adding in oil revenues reduces the deficit to £12.4bn (-8.1 per cent of GDP) but that is still worse than the UK deficit of -5.6 per cent of GDP.

The lesson is as plain as a pikestaff to all but the most obtusely blinkered. Without the money Scotland gets from the UK Treasury (which is what independence or its substitute full fiscal autonomy mean) Scots would be facing much harsher austerity than is the case now while the English, Welsh and Northern Irish would enjoy slightly eased austerity.

Moreover, the collapse in oil prices should surely have taught another lesson, that Scotland cannot rely on offshore taxes to plug the deficit. Only if Scotland can get to a position where onshore taxes and spending are roughly in balance, and any offshore revenues are genuinely a bonus, could independence or full fiscal autonomy be realistic possibilities.

So how could that be done? Slashing spending to balance the books is clearly a political non-starter, so the economy needs to grow to cause tax revenues to rise faster than spending, eventually to the point where the two totals converge.

This is a tall order. Governments around the world are desperately trying to do that, and few are managing it. Part of our answer, I think, is in renewable energy. We just haven’t been looking at the right way to make the best use of the huge renewable resource that Scotland has.

This thought dawned on me last week at Scottish Renewables’ annual conference. As I listened to the speakers, an array of ideas that have been swilling around in my head gradually fell into place.

Development of renewable energy so far has essentially meant proliferating wind farms. We have been concentrating on building up as many gigawatts of wind generating capacity as possible without thinking about how to make the best use of it.

This build-up has adverse side effects, mainly on the landscape, but the main problem is the unpredictability of wind energy. Because we cannot rely on the wind blowing when we need electricity most, we still need conventional thermal power stations, either fossil-fuelled or nuclear.

This inconvenient fact creates a credible foundation for opponents of renewable energy, particularly wind energy, to claim that it is useless and destructive of another great Scottish resource – the landscape.

The argument about the uselessness of wind energy would disappear if it could be stored for release at times of peak demand. The only commercially proven method of doing that is pumped hydro storage – pumping water uphill to a reservoir for release back downhill through a hydro-electric power station. Scotland currently has about 740 megawatts (MW) of pumped storage. This could in theory increase to about 2 gigawatts (GW) but it is expensive and would only meet about a third of peak demand. It would also only run for about 20 hours before the uphill reservoirs run dry.

This, however, is conventional pumped storage using a reservoir high in a mountain above a loch. But listening to a guy talking about the potential for geothermal energy from warm water sitting in disused coalmines, it occurred to me that these coalmines could also be used for pumped storage. Build a reservoir, or perhaps make use of a disused one, and hydro pumped storage stations could work in Ayrshire, Lanarkshire, Fife – anywhere there is an old mine with sufficient capacity.

Or what about making use of known technology to use wind-produced electricity to split water into hydrogen and oxygen which can then be used to produce synthetic natural gas? This can be stored and burned to produce power and heat. Or the hydrogen can be combined with carbon dioxide to produce hydrocarbons, either vehicle fuels or chemicals’ industry feedstocks.

Then there are the astonishing advances in battery technology. Don’t think about giant multi-megawatt batteries, think instead about batteries in cars and homes that could be used for power storage and release, not just to your car or home, but to the grid. Clever folk are already examining the idea.

My point is this: in concentrating on building up renewable generating capacity, we have ignored the need to devise smart and integrated energy storage systems that can use renewable energy at off-peak times to provide power at peak times. Such a system is needed, not just in Scotland, but world-wide, which means there is potentially an enormous amount of wealth to be generated from this. There is no reason why Scotland could not be the pioneer, and Scots the beneficiaries, especially if there is some radical re-thinking about how the revenues from renewable generation are shared – a subject for another column.

Much thought needs to be given to the economics of this, particularly given that there is a need to eventually eliminate subsidies. Inconveniently (for Nationalists) these mostly come from south of the Border and until they can be abolished, they tie Scotland into the Union.

Deeper analysis would doubtlessly show that some of the things I have suggested are technically too difficult or uneconomic. But some things will work. Indeed, they will have to work if we are to make Scotland sustainable, not just environmentally, but also fiscally.