Cost of technology spiralling
An extraordinary spat over the future development of the renewables industry in Scotland showed a clear split in views amongst the business community this week.
Scottish chambers of commerce chairman Mike Salter dared to raise the issue of the huge cost of renewables in his address to members at the organisations annual dinner.
Scotland is almost uniquely placed in Europe as a source of wind and tidal generated electricity, and it is rightly seen as a major opportunity for Scotland and Scottish business, particularly in the area of offshore wind generation capacity, said the oil and gas industry veteran.
However the costs of these projects is going through the roof. A recently announced second round project in the Irish Sea speaks to an investment of s1.6bn for a wind farm of 389MW capacity- this is s4.1million/MW which is 25-35% more expensive than the next closest technology and 25% more expensive than the estimates of 18 months ago.
According to Mott McDonald the costs of generation from these wind farms is now approaching 19p/KWh. Compare the current wholesale spot price of Gas of between 1.75-2p/KWh.
Mott McDonald in a report on the DECC website are projecting an electricity price of 25p/KWh as a result of these costs, with the other sources of generation being brought up to this base by the addition of the costs of Carbon Capture and Storage which is in itself unknown at the moment - and the imposition of so-called Carbon Taxes.
The Scottish Government have committed to have the majority of generation coming from this very expensive source by 2020. All I say at this time is - have a care! This is indeed a very significant opportunity for Scotland, but only if the cost base is right. If as a consequence the rest of the economy is disadvantaged then perhaps such a total commitment is misguided. Other lower cost technologies are available!
We must focus on reducing our consumption as quickly as we can, but also using lower cost options for the energy we use.
Salter said that electricity prices had gone up because of the increase in price of oil and gas and but because of the Governments Renewables Obligation whereby the consumer subsidises renewable generation, both on and offshore.
Education Minister Mike Russell who also spoke at the dinner replied to Salters points saying the Government valued the mix of energy sources but said it believed we should be ambitious in terms of renewables.
He said the electricity and gas price increases that had been announced by the big six energy suppliers would add up to an extra s190 for the average electricity bill in 2011.
But the Scottish Government was forecasting that the subsidy for renewable energy will add just s15.
"We have a huge advantage in Scotland. We need to press that advantage point and make sure we do it with one voice," he said.
Not only did the Minister respond to Salters comments but so did one of the organisations own members, the Edinburgh Chamber of Commerce.
The Edinburgh Chamber which happened to organise two-day Scottish Low Carbon Investment Conference which finished at the Edinburgh International conference centre on the same day as the SCC dinner said it believed the Low Carbon debate had moved on from the points made by Salter.
Chief executive Ron Hewitt said: During the two days of the conference we have heard from a multitude of leading figures from utilities, from finance, from companies operating and investing in renewable, and from Government. All of them said the same thing the sector represents the greatest of opportunities for Scotland.
So where does that lead us? Is Mike Salter right? Are we in danger of putting too many expensive golden eggs into one basket?
I would suggest that Salter was not saying we should put a stop to investment but we should look carefully at how money is being invested and that there is a danger in the rush to meet demanding targets we could end up with some ridiculously expensive sources of electricity.
Every project should be assessed carefully and as we have learned to our cost in bubble markets things can go terribly wrong.
It was unfortunate timing with Scotland trying to sell itself to the world as a centre of renewables on the same day as his speech.
A manufacturer I met at the dinner pointed out that the cost of building windfarms will come down as production gears up for bigger projects which makes a lot of sense.
But the key issue is that we must make sure we get the balance right between renewables and other sources of electricity production so we do not face the prospect of blackouts.
If we don't get that right we really are in trouble.