Winds of change must blow through the energy sector

Offshore wind - Scotland’s renewable Grands Projets















Energy production should be a simple matter of physics, engineering and economics taken strictly in that order. But in Scotland we have added our own colourful politics into the mix. Some see a future where nationalist renewable electrons will flood south along the interconnector, while others argue unionist nuclear electrons will need to flow north when the wind stops blowing.
Citigroup recently claimed that without the deep pockets of our friends in the south the Scots would be lumbered with a crippling energy bill, while Altium Securities immediately fell over themselves to defend Scotland’s renewable Grands Projets. For an honest engineer this all gets a bit much. Particularly when WWF Scotland bemoan "whinging" engineers who refuse to get with the renewables programme.
While rhetoric may be good enough for Scotland's politicians and Greens, it doesn't cut it for engineers. We deal in inconvenient truths measured in Joules and Watts. For example, WWF Scotland make the claim that “Scotland’s onshore wind capacity is now greater than both our nuclear stations put together”, implying that we can pull down the shutters at Hunterston and Torness.
In the real world of numbers and units, Scotland’s onshore and offshore wind energy output was 4.9 TW-hrs in 2010, while the combined output of Hunterston B and Torness was a hefty 13.9 TW-hrs. WWF ignore the distinction between energy generated and peak power, and the distinction between base-load and intermittent production. These concepts aren’t just engineering details.
Aside from the political affiliation of electrons, and whether they flow north or south, Citigroup pointed out that Scotland’s renewable energy ambitions could eventually be skewered by shale gas. Through innovations in drilling technology gas can now be extracted from deep shale bed rock. Horrified at the prospect of many decades worth of low cost energy, Greens have not surprisingly called for an immediate ban. Parts of the media have been seduced by the spin that fracking is “highly controversial”.
The bad press for shale gas comes largely from the US documentary Gasland with its now famous ‘flaming faucet’ scene, allegedly due to ground water contamination. While this makes great entertainment, it transpires that the faucets were flaming due to biogenic methane from natural processes long before local shale gas extraction.
Stepping back from the claims and counterclaims of the City and the ever precautionary Greens, Scotland needs answers to a number of serious questions. Specifically, is it possible to create prosperity by paying production subsidy for offshore wind worth twice the market value of the electrical energy itself? And as a supplementary, can we create real jobs through an industry dependant on government mandate?
The answer to these questions is no and yes. Offshore wind represents painfully expensive energy which can only be made viable by dipping the pockets of industry and domestic consumers for renewable obligation payments. Jobs are of course created, but at someone else’s expense. This is a negative sum game. Genuine prosperity is a positive sum game, the outcome of which is that everyone becomes a bit richer.
Building an industry on the basis of government mandate and subsidy is also an inherently risky proposition. Any jobs created are then entirely at the whim of government and can quickly evaporate when policy changes. The UK solar industry learned this to its cost when Westminster recently slashed feed-in tariffs worth up to ten times the value of the electrical energy being produced.
The central risk to Scotland in betting the farm on the export of renewable energy is that Westminster could step back from its targets, partly in response to the emergence of shale gas on world markets. Shale has had a major impact on US markets, which itself can indirectly affect Europe as LNG carriers from the Gulf destined for the US look for ports elsewhere. With half the carbon emissions of coal, burning methane in compact and efficient gas turbines could offer a lower cost path to reducing emissions from electrical energy supply. Combined with new nuclear build it looks to some like a winner.
The renewed ascendancy of gas isn’t just idle academic speculation. It is the path offered by KPMG in their widely trailed report “Thinking about the Affordable”. The ubiquitous accountants re-visit prior assessments of the cost of de-carbonising electrical energy supply via renewables. They conclude that pulling back from offshore wind and relying on load-following gas plants and base-load nuclear would save capital costs of £34B from a £108B bill run up by 2020. This could be difficult for the Chancellor to resist.
So let’s be clear, there is nothing remotely controversial about copious, low cost and relatively clean energy production from shale gas or elsewhere. If it creates badly needed economic growth though lower energy prices then we should rejoice rather bemoan. And if it undermines Scotland’s massive bet on renewable energy, then we should seek answers from the politicians who were so sure they picked a winner and the Greens who egged them on.
First published The Herald 14 November 2011