Scottish Energy Advisory Board minutes: April 2022

Attendees and apologies

Members in attendance

• Rt. Hon. Nicola Sturgeon MSP, First Minister (co-chair)
• Prof. Sir Jim McDonald, Principle Professor and Vice Chancellor, University of Strathclyde (co-chair)   
• Michael Matheson MSP, Cabinet Secretary for Net Zero, Energy and Transport
• Claire Mack, Co-chair, Renewable Energy SLG and Chief Executive, Scottish Renewables
• Prof. Keith Bell, Co-chair, Energy Networks SLG and committee member, CCC
• Melfort Campbell, Co-chair, Oil and Gas and Energy Transition SLG and CEO, IMES Group
• Lewis Shand-Smith, Chair, Energy Consumers Commission
• Keith Anderson, CEO, Scottish Power
• Adrian Gillespie, Chief Executive, Scottish Enterprise
• Stuart Black, Chief Executive, Highlands and Islands Enterprise
• Jane Morrison-Ross, Chief Executive, South of Scotland Enterprise
• Frank Mitchell, Chair, Skills Development Scotland
• Deirdre Michie, CEO, Offshore Energies UK
• Fintan Slye, Director, National Grid ESO
• John Morea, CEO, Scottish Gas Networks
• Colette Cohen, CEO, OGTC
• Ronnie Quinn, CEO, NECCUS
• Alistair Phillips-Davies, Chief Executive, SSE
• Matt Sykes, Managing Director, Generation, EDF
• Keith MacLean, Founder and Director, Providence Policy
• Jim McColl, Founder and CEO, Clyde Blowers
• Dave Pearson, Director, Star Renewables

Apologies

• Ian Marchant, CEO, Dunelm Energy
• Charles Hammond, CEO, Forth Ports
• Rozanne Foyer, General Secretary, STUC
• Brian McFarlane, Co-chair, Scottish Offshore Wind Energy Council and Head of Projects, SSE
• Andrew Jamison, Chief Executive, ORE Catapult

Scottish Government

• Kersti Berge, Director of Energy and Climate Change
• William Black, Deputy Director for Onshore Electricity Policy, Strategic Coordination and Energy Consents
• Andrew Hogg, Deputy Director for Energy Industries
• Sue Kearns, Deputy Director for Heat in Buildings

Items and actions

Welcome and introductions

Minutes from 31 October 2021 and 31 January 2022 meetings of SEAB approved.
Opening remarks from the First Minister.

Cost of living 

The First Minister introduced this item:
This is of an order greater than anything experienced in our lifetimes, and it is not yet as bad as it will get. It is the Government’s responsibility to all that they can to alleviate the severe pressure on households. It would be useful to divide the discussion into two: the causes for the prices increase and what can be done to make a difference in terms of global drivers. Questions to ask are: what can energy companies do to help alleviate the pressures at source; what can government do; and what can the UK Government (UKG) be encouraged to do? 

Alistair Philip Davies gave his thoughts:

Price increases can be traced back to China using more gas and European markets competing with the eastern markets, and there is a lot of demand post-Covid. Ukraine has also had a knock on effect on prices. As this is a gas prices and energy crisis, how can resources into renewables be increased? There are significant renewable resources in Scotland, meaning they can rely less on gas imports if there is an acceleration in renewables output.The planning and consenting process will be the slowing down factor with ScotWind. Progress is being made with UKG to make consents faster; the same is required in Scotland otherwise they will lose out to English developments who will get CfDs and consent quicker.

Keith Anderson also responded:

The impact of April’s price cap rise is now impacting Direct Debit (DD) customers; the impact on debt will be seen in a few months. The purpose of DD is to spread the price increase across the full year, but the impact is immediate.In October Prepayment Meter (PPM) will be hit harder when usage increases and the price cap increases; the worst-off people are being hit the hardest.Current projections show the next price cap will likely be around £2,500, however this is hard to predict and it is constantly changing.Ofgem’s ongoing reviews on the price cap methodology consider the risk of wholesale prices, hedging, cost of debt and will not alleviate the impact on the customer. It will make it more reflective of the wholesale cost and it will likely change more frequently.Regarding solutions, can the electricity wholesale market be delinked from gas? This is not a short-term solution; the last time was a 3-4 year process, and this will not affect the gas price of the 80-85% of gas-heated homes. Onshore and offshore wind is the cheapest source of power, and more is needed faster: net-zero is aligned with energy security and getting us away from the volatility of gas market. The message is that energy efficiency is the cheapest way to reduce bills: a publically-run, centrally-delivered energy advice campaign would help. Energy companies can encourage people to talk to them and can point customers to the right agencies and to hardship funds.The energy sector cannot sort this on its own and does not have the financial capability to fix it: SP lost £267m last year, £0.5b over the last three years. However, a deficit fund for those who cannot afford their bills underwritten by the Government and repaid over ten years will take £1000 off bills. This would require £10 million if done for those in fuel poverty (c.40% by October).

It was highlighted that that the average cost per domestic property to get them to EPC C equivalent is £3,000 - but about one fifth of properties are hard to treat’ and will need more than £10k investment each to get to EPC C equivalent. The First Minister said that SG cannot do this itself and recognise that the energy sector cannot do this alone. A major public campaign is being considered; longer-term, renewables progress is the way to go and planning and consents must not delay.

Jane Morrison-Ross noted that the most vulnerable members of communities are already limiting energy usage and the public perception of the profitability of energy companies does not align with the drop in profits discussed at SEAB. Rural and dispersed communities are already hit hard by the 150% rise in kerosene prices; however secondary sources of coal and wood are not helpful in the move to net-zero.

Deirdre Michie said that the focus is that this does not become a gas supply crisis and ensuring production continues over the next two years, along with ensuring continued oil and gas investment: a windfall tax will undermine this. Things need to move faster and the joining up of governments and within government is required. Support the demand management piece and ensure it is a key driver in the energy strategy.

Fintan Slye said that public advice is essential. Demand-side participation is great, a key part of which will be building out the offshore infrastructure; this will require joined-up thinking. A Team Scotland approach is needed to streamline planning/consenting.

The Energy Consumers Commission met on Monday. Lewis Shand Smith said:

Support organisations are now seeing a big increase in numbers coming to them, numbers they would usually expect in winter, whilst the Extra Help Unit has seen huge spike in vulnerable customers at risk of being cut off. They have been able to increase money paid out to clients, thanks to the support from suppliers and government, however the ECC have sympathy for retail suppliers as they recognise that they cannot keep supporting customers financially.

The delay to the Warm Home Discount is a problem facing support organisations; some have reduced resource as they cannot afford to keep staff.

There are big discrepancies in the standing charge (20p in London and 50p in Shetland) and the £10 uplift is not going to be enough to help bills.

The building out of renewable capacity in Scotland needs sped up, whilst energy efficiency measures are needed more than ever. A national public campaign would be very welcome.

Claire Mack said that future thinking is required to avoid baking costs into the system and making it overpriced. Support from SG is needed for reducing pricing for access to locational pricing. Consumers should not be penalised by not bringing the best resources onto the system in future

Matt Sykes said that Britain has lowest number of energy efficient homes in Europe, and these need futureproofing; £1b investment could reach 500,000 homes and save £400 a year. One of the contributing factors to price increase is supplier failures, and Ofgem needs to improve who they let into the market. The short-term cap to protect customers does nothing in the long run.

The First Minister summed up by affirming that the focus is net-zero, however things must not be made more difficult in the short-term regarding gas supply. Some of the perversities in the system make this more difficult for Scotland, which UKG must be pressed on. The benefits of energy efficiency must be sold, however the main solutions are longer-term which cannot be lost sight of.

UK government energy strategy

The Cabinet Secretary provided thoughts on UKG’s Energy Security Strategy:

 It looks at the medium-to-long-term, and does not address the cost of living crisis in the short-term, failing to address issues such as energy efficiency. It gives a signal that renewable energy production must be ramped up, which is welcome, however expansion of and investment in grid capacity was not overly clear, which needs to be raised with UKG. There are also reassurances around gas supply in the short-term, which is something which needs to be worked around in SG’s own strategy. There is clearly a disconnect in some areas, particularly nuclear energy which SG continues to oppose, while other technologies are not mentioned, such as battery storage. There was no engagement with SG in its development, which is a concern which has been raised with Greg Hands. SG have engaged subsequently and there appears to be a lack of detail behind some of the policies.

Frank Mitchell agreed that there is a need for grid capacity to be included and SDS are working with transmission companies and National Grid. There is a need for the consenting process to speed up and investment streamlined at the transmission and distribution level. This cannot be put off and activities must be worked on now.

Fintan Slye said that a huge amount of infrastructure is needed to be built, and holistic design that looks at how we can enable offshore wind is key. It is a short period of time to deliver infrastructure by 2030, and it needs to be decided now what is needed and then accelerate this through the consenting process.

Keith Maclean said that batteries and pumped storage are not enough to maintain resilience; the only option that would compare is hydrogen. There is a need to think more seriously about how the system solution would work - the more hydrogen can use existing networks the less infrastructure is required, although the current reliance on fossil fuels for resilience is to such a scale that current technology cannot be used.

It was noted that hydrogen cannot be the answer for heat in terms of the 2030 target, as UKG are not making a decision on the gas grid until 2026; however, there is no solution to producing the electricity required for heat without gas or hydrogen.

Collette Cohen said there is a need to start creating opportunities for the supply chain to start accelerating some of the fields so that building can begin now and investors can lean in. Key projects are needed to allow for the de-risk of innovative technologies; there are new technologies coming through, but there is a need for places to test it.

Ronnie Quinn said there was a nod towards CCUS in UKG strategy document, which is something his industry would like to see an acceleration of Track 2 process.

The Cabinet Secretary responded that it is frustrating and disappointing speaking to UKG about the Acorn project, and there are still no answers on why it was not Track The strategy is dependent on CCUS, but the technology has not been developed.

The Cabinet Secretary also said that the domestic and international hydrogen economy has quickly moved up the agenda, with many requests for meetings from ministers in Germany and Europe as Scotland is looked upon as a potential route for securing their hydrogen imports. Scotland should not just be producing hydrogen, but manufacturing the parts for hydrogen production, and there is a need to give investors the level of confidence that there will be a market mechanism available

Scottish Gas Networks are to test the pipes between Grangemouth and Edinburgh to ensure the transmission of hydrogen would be possible, which will be a blueprint for trialling elsewhere in the UK. R&D regarding using green hydrogen to heat in homes is ongoing. Working with other UK gas networks on blending should not be a problem, whilst they working with HSC to widen the specification of gas.

Energy security and just transition plan

Officials gave an update on the ESJTP.

Collette Cohen said there is concern around creating our own scenarios; whilst these are Scotland only, the opportunities for UK in the global context and export opportunities may fall foul. When thinking about value generation, jobs and supply chain, this should not just be in terms of needs, but the export opportunity. 

Deidre Michie asks if this a whole-energy system for Scotland or will it include the interfaces with the UK? There is a need to look at financing and the financial market, as there is a financial transition going on as well as an energy transition. One key thing is that the strategy actively supports the North Sea Transition Deal. Deirdre will come back to officials separately on this.

Frank Mitchell said there is a material impact of how much blue or green hydrogen is included on the grid, and the nuances are very important to ensure there is support from the relevant sectors. Support from SDS on the opportunities for job creation, upskilling and retraining should be used. There needs to be a signal to providers of upskilling and training to get ready to ensure people are able to move into the opportunities available. There is also a need to look at this on a regional level. 

Melfort Campbell emphasised that there is economic opportunities: there is a need to explain that investment in renewables can generate economic value add, which can line-up investment. An enterprise ecosystem should be front and focus of the strategy.

National Grid ESO expressed their happiness to engage with anyone who would like to discuss the current market arrangements and they should evolve, including Locational Marginal Pricing.

Kersti Berge responded that the purpose of scenario modelling is to show how the energy system can meet the targets while driven by economic opportunities, not a global economic model, but driven by economic factors and ambitions alongside a system that technically hangs together. It is not technocratic prescriptions.

The Cabinet Secretary summed up by clarifying that the scenarios are there to hold it all together, but the wider economic benefit is critical. The hydrogen objective must also be about the manufacturing opportunities that will have the long-term national and international benefits. He would encourage all members and wider industry colleagues take up the opportunities to engage further with SG.

Any other business and close

No items were raised under any other business.

The chair closed the meeting.

Summary of actions

SEAB secretariat to publish minutes on the Scottish Government website.

Scottish Goverment to follow-up with Lewis Shand Smith regarding Warm Home Discount.

Lewis Shand-Smith to follow-up on how the standing charge within the Warm Home Discount is determined.