First Minister Alex Salmond
September 28, 2010
Low Carbon Investment Conference
EICC, Edinburgh
Thank you Angus [ McCrone, Chief Editor, Bloomberg NEF] for that introduction and welcome, everyone, to the Scottish Low Carbon Investment Conference.
Ladies and Gentlemen, I want to start with just a little bit of history. Twenty-five years ago I was an oil economist working in this city in the financial sector and I was asked to draw up an oil and gas index.
And at that time the oil companies were, how shall I put it, quite secretive with their production information - how times have changed!
And it required a fair amount of charm offensive. At that time the production information from North Sea oil was given out only to the Department of Energy six months behind. And it required a charm offensive to persuade the companies to give us up to date statistics to compile the index. And in doing so I enlisted the help of the Scottish Council for Development & Industry and we did a tour of every major operator in the field.
And one of the things that happened as we conducted that charm offensive, which was actually quite successful - and the oil index, incidentally, continues to this day - was that a number of the key participants at that time, in the mid-eighties, kept referring back with the Scottish Council to the significance to a forum in Aviemore, which the Scottish Council for Development & Industry held in 1972 - and which they pointed to as the moment when many people grasped the full scale of the opportunity which beckoned in terms of the development of North Sea oil and gas. Incidentally, they grasped also the scale of the challenges, but above all they grasped the scale of the opportunity.
And they pointed to a speech by John Raisman, the Chairman of Shell UK at that time, as being particularly significant. Now I am hoping that the deliberations over the next two days, future generations, when young renewable economists are charting an index of renewable output in the waters around the United Kingdom and the waters around Scotland, then hopefully people will point back to this conference here in Edinburgh today, as the moment when a great number of people grasped the full scale of the opportunity which beckons in this industry.
Ladies and gentlemen, can I welcome delegates to our capital city of Edinburgh and to Scotland. There are a huge number of important areas on the agenda.
I would also like to thank very warmly the Scottish Government's partners in staging this conference - Edinburgh Chamber of Commerce, Scottish Enterprise and Highlands & Islands Enterprise, Scottish Futures Trust, the Royal Bank of Scotland and Arup Engineers. They are all much to be congratulated.
I also welcome the keynote address tomorrow by Charles Hendry, the UK Government's Minister for Energy, because on renewable energy, the policies of the Scottish and UK Governments are very much in alignment. I have to say, not on every subject would you find me saying that, but certainly on the question of renewable energy, then I look forward enormously to Charles' comments tomorrow.
So there is a packed agenda ahead of us.
The conference is looking to bring projects and investors together, to identify and debate the risks, rewards, opportunities and challenges within the low carbon arena - major off-shore developments, infrastructure and 'venture' size projects.
We are looking to facilitate innovative investment solutions and to showcase Scotland's skills, resources, research and technical expertise.
The aim of this conference is ambition - that by the end of tomorrow we will have made significant progress not just in identifying opportunities but in looking in more detail at how these opportunities can best be grasped.
And when I address the conference tomorrow afternoon, I expect to be able to draw on your deliberations and thoughts and to be able to point to some real, exciting proposals for taking this work forward.
Now, as the world moves shakily into the economic recovery phase, I see investment in the green economy as a key to that general world recovery.
Current economic difficulties should be a spur and not a hindrance to that effort. And let me quickly identify two reasons why that is the case.
Firstly, whatever one's views of the programme of fiscal consolidation by the UK Government - whether you agree with the IMF a few weeks ago or you agree with the IMF yesterday - it is undoubtedly the case that over the next 15 years or so it will involve the withdrawal of around 400 billion pounds sterling in demand from the UK economy.
And looking at the various aspects of economic activity, if you look to the green economy, to investment and capital mobilisation in this sector, it is one of the few areas where it is possible that substantial quantities of capital are going to be mobilised.
Some 200 billion pounds is an estimate of what is required to fully develop the resource over the next 15-20 years. So this sector provides one of the few - certainly the largest - areas of potential increased capital mobilisation and demand in the economy to offset the degree of fiscal consolidation currently planned.
It is therefore hugely important in terms of balancing the economy and going forward.
And secondly, as people will probably have noticed, the financial sector has friends in high places in politics these days. Indeed the best way, apparently, to get a cheer at any party conference is to launch a full scale attack on the financial sector.
It does strike me that one of the best ways possible for the financial sector to deal with its reputation - not just with politicians, but more importantly with the general public, would be a demonstration of the ability of the financial sector at its best to mobilise capital to bring new assets into existence and to create new wealth - as opposed to inflating the value of existing assets and not creating new wealth.
A demonstration of financial technique and innovation which enabled this sector to move forward would be the most powerful validation of financial expertise and financial power. And it would do more, in my estimation, to rebalance that relationship with public opinion than any degree of, no doubt necessary supervision and regulation, or whatever characteristics are required.
So for these two powerful economic reasons I see the current economic difficulties as a spur to getting this green economic revolution right.
It's worth noting in passing that the first great renewables revolution in Scotland was the development of hydro-electricity, initially in the Highlands of Scotland.
The legislation to make that possible - the Hydro-Electric Development (Scotland) Act - was passed in 1943, at the height of the Second World War and moving into the Age of Austerity. But nonetheless the hydro-electric revolution in Scotland was taking form.
That 1972 conference I talked about a few moments ago was remembered for really opened the eyes of many in Scotland to the possibilities, to the prospect of financial gain, economic gain and resource gain and the huge scale of these opportunities, again at a time of considerable economic uncertainty in the world economy.
So problems and difficulties are not, and have not been, an obstacle for significant economic moves. Rather, as history teaches us, they have been a spur for economic innovation and success.
So today I want: first: to set out the scale of our vision for Scotland's Renewable Revolution;
second: to set out the scale of our green energy potential and the investment opportunity that presents. I think the digital fly-through shown earlier gives a striking sense of what the future might hold;
alongside that, to set out the scale of what has already been achieved; and
fourth: to set out the scale of the challenges and difficulties that need to be tackled if that vision is to be realised.
And I am particularly keen to set out the challenge. Because, yes: we need a shared sense of the overall vision; and we need to know how far we've come and where we are going; but what we really need now is to face up to the difficult financial and indeed the technical issues that could threaten to impede our progress.
So as I set out the scale of our vision for Scotland's Renewable Revolution, the key point I want to make is that this is not just a once in a generation opportunity, like North Sea Oil and Gas - although it certainly is that.
Until now, mankind has largely been reliant on carbon-based energy for fuel: first through the wood fuelled fires of our ancestors; then through the coal fired industrial revolution; and now by our great dependence on petrochemicals.
But always, at the back of our minds was the realisation that finite resources must eventually run out.
More recently, at the forefront of our minds has been the realisation that our overuse of carbon and dependence on petrochemicals threatens the climate itself.
The move to renewable energy is fundamentally different from the move from wood to coal or coal to oil and gas.
That was just moving from one form of carbon based energy to another.
Renewable energy is different: the wind and the waves will be with us forever.
Once we make that paradigm shift to renewable energy, there will be no going back. So this is not just a once in a generation type of development, but a once in the history of mankind type of development.
It is a pivotal turning point, in my estimation - on a par with the move from hunter-gathering to settled agricultural communities or indeed to the discovery of the New World in 1492.
In the 19th century Foreign Secretary and Prime Minister, George Canning, brought a famous phrase into existence by saying he had brought New World into existence to redress the balance of the old.
Now we need to bring a new economy into existence to redress the balance of the old.
And unlike the discovery of the New World of America, this New World of energy will be gained not by force and conquest but by innovation and ingenuity.
Or to draw an alternative American analogy, I see a great similarity between the harnessing of Scotland's wave and wind potential and the taming of the American West.
No doubt many of you will have seen the well-known film How the West was Won, starring Jimmy Stewart and John Wayne and many other fine American western actors.
The key point, however, when one reflects on this, is that the West was won and tamed not by John Wayne with a Colt 45, but in reality by the Scottish investment banker Robert Fleming, with a financial instrument.
Because it was Fleming who developed the investment trust and the investment trust movement was used to channel the savings of the rising Victorian middle class into creating the railway networks which spanned the American continent.
In the same way, we need to develop the financial instruments that will harness the savings of the rising middle classes across Asia - China, India and elsewhere - and use that to create solid, infrastructural investment and wealth.
For too long in recent times those savings were used by all of us in the West to create unsustainable asset bubbles.
Now they can be used to create a better future and I believe that this conference can show the way forward in doing much of that.
Let me share a quote with you:
"In my young manhood we had everything to do and nothing to do it with…capital was most difficult to get, credits were mysterious things….Compare this day with that.…The resources of our great land are now actually opening up and are scarcely touched and…in the East a quarter of the human race is just awakening.
Ladies and gentlemen that is quote from John D. Rockefeller, in his memoirs written in retirement, almost exactly 100 years ago.
But it could, of course, have been written today.
Capital may be difficult to get. But the renewable resources of our land and sea are scarcely touched and now opening up. And in the East a quarter of mankind is racing from poverty to prosperity at growth rates of close to or above 10% annually.
And let me repeat, one of the priorities must be to look for solid, secure infrastructural investment to replace the asset bubbles of the past.
And just as Rockefeller was readily able to mobilise investment once the value of oil was realised, the same will be true for renewables.
So it falls to this generation, in this decade, to bring about that decisive shift to renewables.
Now visions are very much the currency of politics.
But let's look at actions.
So when it comes to green electricity, the Scottish Government doesn't have a 2020 vision.
It has a 2020 target.
And a target that's testing and tough, but achievable and indeed one which is being achieved.
Achieved to such an extent, indeed, that last week we increased our previous target that 50% of our electricity should come from renewable sources by 2020, to a target of 80%.
And I might add that - although it's not yet an official target - I am confident that by 2025 we should be up past 100%.
Now that doesn't mean that there won't other forms of generation in Scotland. Of course there will. We have huge advantages, potentially, in carbon capture technology, for example. We need to ensure that we are balancing technologies to ensure the electricity grid is in balance.
But compared to the consumption of electricity, the production of green energy in Scotland by the mid-2020s will certainly be over 100%
How can we be so confident of reaching such a demanding target? Well, already we are on course to exceed our first interim target of 31% green electricity by next year.
We have some 7 Gigawatts of renewables capacity installed, under construction or consented around Scotland.
We have some of the strongest incentives in the world for wave and tidal energy, particularly through our Renewables Obligation Certificates- where we offer five ROCs for wave power and three for tidal, compared to two elsewhere in the UK.
Our green electricity targets sit within our overall targets for reducing carbon emissions.
Last year the Scottish Parliament passed the Climate Change (Scotland) Act 2009, the world's most advanced climate change legislation: and not just passed it, but passed it unanimously.
This is a key point, because in so many countries the issue of facing up to climate change responsibilities has been a matter of severe political contention, which has limited progress.
The fact that the Scottish Parliament has a consensus on these matters is an important aspect in giving an assurance on the continuity of policy and political support across the spectrum.
So the Act sets challenging targets to reduce Scottish carbon emissions by 42% for 2020 and 80% for 2050.
It provides certainty, not least in terms of business investment, about Scotland's low carbon future.
Therefore, I am in the unique position as a head of government of knowing, for each year up to 2022, just by what percentage Scotland needs to - and will - reduce its carbon emissions.
Again this is not just an aspiration for the future. We are half-way already towards achieving that 2020 target.
I would argue that that characteristic - the alignment of policy with Westminster and the political consensus across the spectrum of Scottish Parliament are strong indications of the strength and resolve behind the move to renewable energy.
As you know, a couple of weeks ago this capital city was graced by the visit by His Holiness Pope Benedict.
And hundreds of millions across the world watched the events on television, viewing Scotland in bright sunshine.
I can't help noting that in one sense - given the success of His Holiness in calming the waters and making the sun shine in Scotland - that we have a limited number of Papal visits.
Because it is of course, our rainfall, our winds, our climate which gives us a key natural advantage in terms of renewable energy.
A few weeks before that I was in Norway and in order to enliven the visit I looked at some early Norwegian texts in Scotland.
And here is something which was written around the year 1200 by a Norwegian chronicler in Scotland. He says:
' The greatest of all whirlpools is to be found in the sea dividing the Orkney islands from Scotland, which engulfs the strongest ships, sucking them in at ebb tide and spewing out their fragments with a belch at flood tide.'
So some 800 years ago it was well known that the tidal waters in many parts of Scotland were among the strongest in the world - the Saudi Arabia of tidal power, as a professor at one of our universities described it some years ago.
Earlier this year the world's very first commercial leases for wave and tidal generation were awarded in the Pentland Firth and Orkney waters - the same waters that the Norwegian chronicler described so vividly so many years ago.
As I said, we intend by 2025 to have Scotland producing 100% of its electricity consumption by renewable power. It's significant that Norway is the only other country in that position at the current moment.
But the level and scale of our ambition far exceeds self-sufficiency.
The Offshore Valuation study, which was jointly commissioned by ourselves and DECC, indicated that in terms of realisable renewable potential offshore that Scotland has the capacity to generate some 68GW of power by 2050 - which would be around seven times our current electricity consumption.
So we can be a massive exporter of clean, green energy.
Already, in 2007-08, the Scottish low carbon goods and services market was estimated at some £8.5 billion.
It is now forecast to rise to around £12 billion by 2015.
And that can be compared to the £11 billion that the energy industry has spent, on average, annually in the North Sea Oil and Gas sector over the last 30 years or so.
At European level, at next month's Environment Council we will be joining with the UK Government and those of other nations such as France and Germany in pressing for a positive response to the European Commission's analysis that Europe as a whole should move from a 20% to a 30% target for emissions reduction by 2020.
As other European nations set more ambitious targets, nationally and at EU level, that achievement will be to some extent dependent on how successful we are in mobilising the investment offshore around the coastline of the United Kingdom.
Let's remember that the engine of European growth - the German economy - has set a target for 40% carbon emissions reductions by 2020.
I hope that I have given you a sense of the scale of Scotland's potential as a low carbon economy and of how much has been achieved already.
I would urge you to visit the Scottish Government website where you will find a wealth of information on developments such as:
carbon capture and storage, where last year the Scottish CO2 Storage Study, demonstrated the capacity of the North Sea Scottish sector store emissions from industrial coal-fired plants for the next 200 years;
the work of the world's only grid connected and accredited test centre for wave and tidal technologies, the European Marine Energy Centre in Orkney; or
the Saltire Prize - the biggest Government innovation prize in the world - for the demonstration, in Scottish waters, of wave or tidal energy technology. And not wave or tidal technology in terms of developments of university wave tanks or even at EMEC, but wave and tidal technology that can produce significant power - at least 100 Gigawatts of electricity over a consecutive two-year period.
And there are a host of other initiatives, across public procurement, better building standards, low carbon vehicles and transport, and reforestation
And I could name still more initiatives. But I want to look not just at the scale of what is being done but at the scale of the challenge that faces us and the problems and difficulties that we need to address.
Firstly, any exciting new technology and new venture, always has a range of uncertainty. It is the role of government - at least of government's who wish to see these opportunities realised - to reduce, where possible, the extent of uncertainty.
The next scheduled review point for the current ROCs regime is 2012. And I call on policy-makers to tread with extreme caution in assessing whether the current ROCs regime should be replaced by a Feed In Tarrif.
Scotland and the UK is a safe, stable and supportive environment for renewables. The ROC system can be criticised in theory. But in practice it is delivering in many regards. And I think we should be extremely cautious before making changes to it.
The transmission charging policy for the National Grid currently has the effect - because charges are based on distance - of penalising those producers of renewable energy in the very areas where we want to encourage development the most.
I am delighted that last week Ofgem announced a review of this, which is very welcome. And there does seem to be a clear intent to rebalance the charges to make the realisation of resource potential at the very centre heart of the transmission charging regime.
Also, there is a trigger for the public investment required if we are to exploit and to seize the best of the economic opportunities in terms of infrastructure development. We have Ofgem who are in the unusual position of holding unwillingly £185 million in a bank account which, by statute, by legislation, can only come to the Scottish Consolidated Fund. This is money paid under the Fossil Fuel Levy by Scottish carbon generators over the last decade or so.
You may ask, if that money is held by Ofgem on behalf of the Scottish Consolidated Fund, why haven't successive Scottish Governments accessed the fund to spend it, as it is required by legislation, on renewable energy.
Well the answer is that the Treasury's position hitherto has been that if the £185 million was accessed they would immediately deduct the same amount from health or education and other spending for Scotland. And therefore it lies unused in the Ofgem bank account.
I am glad that the UK Government is reviewing this. And I just want to make the point that the sooner that the funds can be unlocked, the sooner we can use them to lever in greater levels of investment in our ports and other infrastructure for the renewable revolution.
These issues are identified in the Offshore Wind Route map, published today by the industry-led Offshore Wind Industry Group, whose work is a fine example of the public-private collaboration now needed as we accelerate the expansion of the low carbon economy.
As well as at UK level, there is much to do at European level.
The European Commission has put moving the overall EU minimum target for reductions from 20% to 30% firmly on the agenda. Now that needs to move from being a proposal to being an accepted, implemented priority.
Secondly, in terms of the European level, there are many challenges for the UK, Scotland and some other European countries if they are to access the full extent of the renewable potential production offshore. There are technical challenges and the financial challenges of mobilising capital. But I think that, above all, the challenge is to ensure that the energy generated can be brought to market place with an efficient transmission system.
The most efficient transmission system, given the scale of the energy potential, would be the so-called Super Grid.
Certainly a Grid co-ordinated across the North Sea would bring efficiency and cost-effectiveness in transmission of electricity.
That is potentially a 100 billion Euro investment itself - which illustrates the scale of the investment required.
So it's vital that we take not just a Scottish, UK or even European approach to finance: interest in that finance should be global.
I am delighted that Georg Adamowitsch, who is the European Co-ordinator for the infrastructure for the Super Grid project, is with us and speaking tomorrow and we must do all we can to support that initiative - which was last year designated a European Priority.
In conclusion, I think I have illustrated the extent of the opportunity and the strength of the political determination, as well as noting some of the challenges.
I noted some of the challenges because I don't want to either appear to suggest that politicians have a monopoly of wisdom.
And I certainly don't want to appear that we have a monopoly of ideas on how to conquer the challenges.
One of the purposes of this conference is to be interactive. One of the purposes of this conference is to bring together the collective ingenuity of those in the financial sector, those in the renewables industry, those with the technical and financial expertise to confront these challenges and to come forward with ideas on how they can be overcome.
Certainly some of the proposals will involve advice to governments. And that is perfectly acceptable, permissible. Indeed it is essential in terms of introducing as much certainty as possible.
But much of that must involve the same sort of sense of opportunity and invention, the same grasp of the excitement and challenge, the same determination to find financial, engineering and technical solutions to the challenges as the generation-and-more-ago, had as they realised the strength that would have to be mobilised in order to fully exploit the oil and gas revolution.
We have many advantages in this sector. We have the acceptance that this is necessary, that the energy that can be generated will be essential.
Over a period of time there will be cost reductions in terms of the technology that is pursued.
Over a period of time there will be increases in the price energy because that is inevitable according to the Ofgem analysis.
We know more about the waters in the North Sea than virtually any offshore country does anywhere in the world and that is a tremendous expertise.
But, above all, we have a developing industry anxious to pursue. We have major, spectacularly successful world-standard companies who want to pursue. We have the financial sector which has the ability to bring forward financial techniques to mobilise the capital required, even on this scale of investment
And with that joint determination, I expect the next two days to be a landmark in the bringing forward of this new energy revolution.
Thank you.