Energy Mix

One of the defining images of the summer months has been the image of eco-warriors descending on an English valley wielding placards and building camps under the watchful eye of swarms of police officers.

Treehouses being set up at the anti-fracking protest site near Balcombe in West Sussex, stoked up images of environmental protests of old, such as the Newbury Bypass – and the Green MP Caroline Lucas was among 30 people arrested in a policing operation that cost in excess of £2m.

But while the high-profile protest against shale gas exploration may have been in the South of England, reserves are scattered across the UK – and protest groups both north and south of the border have voiced fears it will affect the move to a low-carbon economy and the concentration on renewable energy sources.

The Liberal Democrat autumn conference in Glasgow this year is likely to see protests from environmentalists as the party discusses relaxing its policies on both nuclear power and shale gas exploration with a policy paper saying that while there is “no realistic prospect of a shale gas revolution in the UK”, there is a value in “measured shale gas extraction”.

It is a contrast to the Scottish Lib Dem conference in Dundee earlier this year which passed a motion that ruled out controversial processes like fracking. But demonstrates the growing pressure on politicians to explore this particular avenue.

When George Osborne announced last year that he was exploring a “generous new tax regime” to get at UK shale gas reserves, it was greeted with a roar from the partisan Conservative Party conference.
Looking to the USA where shale gas was being lauded as the next new energy boom capable of making that nation the world’s largest energy producer by 2020, Osborne said he did not want Britain “left behind as gas prices tumble on the other side of the Atlantic”.

Although hydraulic fracturing or ‘fracking’ – the process for extracting shale gas from solid rock – had been suspended after exploratory testing in Lancashire had caused small earthquakes, these comments set open the floodgates on the “dash for gas”.

In December 2012, the Gas Generation Strategy put before the UK parliament announced the creation of a new office within the Department for Energy and Climate Change for Unconventional Gas and Oil, a single point for investors and ensuring a simplified and streamlined process.

In July, Osborne announced a 30 per cent tax rate for onshore shale gas production and Prime Minister David Cameron showed the clear support from the Coalition Government when he said exploration had “real potential to drive energy bills down”.

Writing in the Daily Telegraph, he said: “If we don’t back this technology, we will miss a massive opportunity to help families with their bills and make our country more competitive. Without it, we could lose ground in the tough global race.”

But what is Scotland’s role in this? Although the Scottish Government’s Electricity Generation Policy Statement sets out its plans regarding how to keep the lights on, it makes no mention of the use of unconventional gas or oil, yet there are estimated to be reserves of coal bed methane and shale gas across Scotland.

Earlier this year, PricewaterhouseCoopers estimated that Scotland could exploit up to £5bn of natural gas reserves using fracking with reserves in a large part of central Scotland stretching from Aberdeenshire to Dumfries and Galloway.
Unconventional gas is a catch-all phrase that refers to natural gas trapped in rocks underground. Coal bed methane is not extracted by fracking, but by releasing pressure in coal seams and the exploration so far in Scotland has been for this rather than shale gas.

Dart Energy has plans to produce coal-bed methane from a site at Airth, which lies in the Falkirk and Stirling areas. It is awaiting a decision to a planning appeal and over the summer submitted a 78-page document outlining its case.
Its proposals for the site are for ten new production wells and it estimates that over a period of 20 years, the wells will likely produce in total 9-14 billion cubic feet of gas.

The company had also taken over exploration in the Dumfries and Galloway area from Green Park Energy, but is not active in the area.

Part of the licence was going to allow them to inject fracturing fluid, but the company is in the process of partially surrendering this back to the Scottish Environmental Protection Agency (SEPA).

Scotland’s Energy Minister Fergus Ewing is reluctant to discuss shale gas and unconventional gas exploration, saying, “I don’t want to discuss things which are not happening at the moment, I would prefer to discuss things which are vital for Scotland.”

However, the issue of fracking is an increasingly contentious one across the UK and the Scottish Government’s position remains, at best, neutral and when asked about the impact of shale gas in Scotland, Ewing said: “I am the minister of the Scottish Government charged with energy, so I am keen on talking about the things that I think are important.
“With respect, the reason I think they are important is because they are important and that’s why I’m dealing with them and not things which journalists may think are important. But of course, we are quite entitled to take a different line.”

But he repeats the previous Scottish Government position that does not rule out future use of unconventional gas as part of the general mix.
“I think the Scottish Government recognises that unconventional gas such as coal-bed methane or shale gas may potentially provide an important source of energy which if developed or produced, with due regard to the environment, could fit with our diverse energy mix.
“But there are two important points. Firstly, there are no applications for fracking in Scotland at this time. There are others, which are subject to the planning process at the moment and about which I must decline to comment.
“Secondly, all potential techniques here are strictly regulated to a series of robust regulatory requirements, designed to protect the environment.”

Companies wanting to look for or extract unconventional gas have a range of permissions to go through before it can go ahead, from the Department of Energy and Climate Change, local authorities, the Scottish Environment Protection Agency and the Coal Authority, if they are going through a coal seam.

Official guidance produced by SEPA says the organisation supports the Government’s policy of establishing a “diverse and balanced energy portfolio as a diverse range of sources will make our energy system more resilient”.

It says that the regulatory tools that it and other bodies have provides a “high level of protection” for the environment.
The main regulatory tool that SEPA has to monitor sites is the Water Environment (Controlled Activities) (Scotland) Regulations, which the agency believes can also be used to monitor methane leaks – one of the concerns raised by environmental groups.

Emma Taylor, principal policy officer at SEPA, said that further work had also been commissioned to look at issues like the health and climate change impacts in a Scottish context, which would be ready later this year.

And while the arrival of shale gas and similar may be a relatively new phenomenon, she said: “The activities are not so new to us – like borehole construction, we have had experience of that for years.
“We don’t regulate the industry, we regulate the activities that it carries out. Our experience is quite great in that area.”

Lord Stern, who authored a review on the financial implications of climate change, this month dismissed the claims from the Prime Minister the gas price could be reduced by increasing exploration across the UK, calling the claims “baseless”.
He said: “There are major questions around fracking and those questions ought to be explored. We’ve not had a proper discussion on these serious issues.”

And others have raised concerns that the tax-breaks for shale gas could be a distraction to investment in cleaner and greener technology.

Environmental groups have said they want a ban on exploration in Scotland. Friends of the Earth Scotland says that although much of the energy legislation is reserved to Westminster, it says the Scottish Government could use the planning system just as it has done with its opposition to new nuclear power stations.

Its director, Richard Dixon, said even if the Government were not willing to go that far then the group would like to see a moratorium because of the uncertainties – following the lead of countries like Ireland and France and other countries worldwide.

Dixon added that there was concern that there were “distracting messages” about unconventional gas.
He said: “That’s the strong message we’ve tried to get to the Scottish Government.
“If you’re a bank or an engineering company thinking where am I going to go in the energy sector, if you see big tax breaks and positive messages from the Government down south, then that’s probably where you’re going to go and that’s drowning out the positive renewables message from Scotland.
“If you were Deutsche Bank, thinking where will we put money in the UK, you’ve got a very different message from the UK Government from the one you’re getting from the Scottish Government.”

However, Ewing said that he does not believe the generous tax regime for shale gas will detract from the Scottish Government’s pursuit of renewables, highlighting that through the latest Energy Bill, Contracts for Difference, the new subsidy mechanism, of £7.6bn has already been set in place.

He added: “Although I’m not privy to all the details of what is happening south of the border, I suspect that there is a long way to go before there is any significant unconventional gas activity.
“I suspect there is quite a lot of investigation, discussion and consideration to be carried out before there is any significant activity. That could be a matter of years not months.”

Niall Stuart, Chief Executive of Scottish Renewables, said: “The recent scenes in Balcombe show that the public has deep concerns about the use of fracking, and we mustn’t overlook that the burning of gas to power and heat our homes and businesses is the UK’s number one source of carbon emissions – greater than transport fuels and coal combined.
“However, it is equally clear that even as we continue the transition to renewables our economy is going to depend on gas for a long time to come given its important place in our energy mix.
“For all these reasons, I don’t think our industry sees fracking as a threat to our objectives and plans for future growth, though that view may not be shared by the communities that are likely to be the neighbours of significant drilling activity in the future.”

The Scottish Government’s latest update of its Electricity Generation Policy Statement, published in July, aims for a secure electricity supply which is affordable for consumers, is largely decarbonised by 2030 and allows for opportunities for both community ownership and community benefits.

It is based around targets that the equivalent of 100 per cent of electricity consumption should come from renewables by 2020 – with 2.5GW of thermal generation fitted with carbon capture and storage and also aims to demonstrate that CCS is demonstrated at a commercial scale by 2020 and all conventional power stations should be retrofitted with the technology between 2025 and 2030.

While nuclear power stations will provide an important baseload generation over the coming years, the intention is still to phase it out and the current Scottish Government still has a policy of no new nuclear power stations.

In terms of renewables, there is currently 5.9GW already operational and a further 1.7GW under construction.
In addition, 2.6GW has been given approval but is not yet under way and 9GW is still at the planning stage.
According to the latest figures, 14,824GWh of electricity was produced from renewable sources in 2012, with 8,327GWh from wind, 4,850GWh from hydro, and 1,646GWh from landfill, sewage and other biofuels.

At present, the greatest percentage of Scotland’s energy, 33 per cent, still comes from nuclear power, with renewables for the first time in 2012 moving into second place at 26.8 per cent. The renewables industry hopes the two will have switched places in the next two years.

Stuart, at Scottish Renewables, said: “We need an energy mix of a variety of different sources and we want to see renewables play as big a role as possible in that mix. All energy industries recognise that we have to complement one another, rather than compete – no one technology can provide all of our electricity and heat needs, and the best option for consumers today is a mix of existing technologies and a steadily growing contribution from renewables.

“In Scotland, our industry already meets the equivalent of almost 40 per cent of our electricity needs and for the first time ever, we’re producing more electricity than coal or gas, and are hot on the heels of nuclear. Within the next few years, we expect renewables will be the biggest producer of electricity in the country.

“The sector is already displacing huge amounts of carbon emissions, has driven more than £1.5bn of investment into the economy in the last year and is reducing our dependency on imports of fossil fuels.”

By contrast to the unconventional gas issue and the tax breaks being offered by Westminster – which will still apply to companies in Scotland – Fergus Ewing said he had been calling for a specific Contracts for Difference for the Western Isles, Shetland and Orkney to enable them to be connected up to the grid.

A report from Redpoint Baringa and consultants TNEI was commissioned by DECC and the Scottish Government to assess the impact that the Scottish islands could make towards renewable energy targets.

It found that there was a total resource potential of 80Terrawatt hours per year – around 20 per cent of current total electricity demand in the UK, of which 4TWh could be developed by 2020 and 18.5TWh by 2030, with the appropriate policy and regulatory support.

Ewing has highlighted this as his “top priority” as energy minister and said: “Top of my priority list is to ensure that the islands are not disconnected from the UK, they are connected to the UK and the huge potential that this will bring in terms of the success, prosperity, economy of the islands, will be realised if we can – working with our colleagues in the UK Government, as well as with SSE, developers, Ofgem and the National Grid”.

Ewing joined UK Energy Secretary Ed Davey on an inter-governmental committee last year to discuss the issue and a decision will be announced later this year.

The impact of Scotland’s energy mix has to also be viewed with an eye on the independence referendum in 2014. And although independence for Scotland would mean it would be making its own decisions, Ewing says there would be an interdependency between England and Scotland and highlighted the £7bn upgrade to the National Grid as evidence that this would continue.

He said: “From the discussions I’ve had with the National Grid, the Scottish and English markets are, and have been since 2005, increasingly interdependent, in other words, England needs Scotland’s electricity to maintain security of supply.
“I think the professionals recognise that it would be impossible to manage the grid in the UK without supply from Scotland. And at times there is an interdependency across the border. That is a reality,

“By the end of this decade, the capacity to export electricity to England will have massively increased –quadrupled.”