Expert author weighs in on Scotland's renewable energy future

Here is this week's Scotonomics, we hope you will enjoy. This week the newsletter comes from William Thomson (follow me on X/Twitter!)

Spring sale: Right now you can get a National subscription for just £20 for a whole year. To join today, click here.

FOR many Scottish independence supporters, renewable electricity is seen as the linchpin of the nation's economic future. We can imagine an independent Scotland thriving by exporting clean energy to Europe and the rest of the UK.

At the same time, domestic and commercial consumers would enjoy dramatically lower energy bills at home. While Scotland's potential for renewable energy generation is undeniable, the current UK electricity market's complexities and underlying structures suggest that the path to prosperity and lower prices is far from straightforward.

Professor Brett Christophers spends his academic life studying particular parts of an economy. He has previously considered the UK’s economic model, the role of housing and land in the UK and the increasingly important role that asset managers play in our economy. In his latest book, The Price Is Wrong: Why Capitalism Won’t Save The Planet, he explains the challenges ahead for a world built on green electricity.

Details are important. Across almost 400 pages, Brett lays out the challenges. In this exclusive interview for The National, William Thomson from Scotonomics asked Brett to turn his analytical eye toward the UK and consider Scotland’s renewable future.

DEALING WITH THE LEGACY OF PRIVATISATION

TO understand Scotland's renewable future, one must first grasp the situation on the ground. Unlike many European counterparts, the UK market was shaped by an aggressive wave of privatisation in the late 1980s and early 1990s. Professor Christophers's views on privatisation are clear: "Very few of the efficiencies that were promised have materialised. Those that have have been entirely captured by privatised companies themselves and their shareholders rather than flowing down to consumers."

This sets out our first challenge. Would renationalisation be at the heart of electricity generation and transmission plans in an independent Scotland? A general, rather than a specific comment on Scottish independence, Professor Christophers suggests that the state should play a bigger role: "For me, [public ownership] is [the answer]. I think the UK is the standout case, not just in electricity but in water too, for public ownership of these assets.

“In almost every conceivable regard, privatisation has been a bit of a disaster."

It would be hard to imagine that an independent Scotland would shy away from more state ownership of resources. However, this is certainly not the case according to the latest Scottish Government prospectus, A Stronger Economy With Independence. It focuses heavily on our economic potential for renewables, but it does not mention nationalisation once. On the pain brought by privatisation, it is also silent.

HOW TO GET THE RIGHT PRICE

AN independent Scotland would surely seek to change how the price of electricity is calculated. The UK is consistently among the most expensive countries for domestic and commercial electricity use. So why is this?

Professor Christophers explains: "Electricity pricing in the UK is heavily influenced by the price of natural gas, even though gas constitutes a minority share of electricity generation. This is because the UK's spot market pricing mechanism often allows the cost of the most expensive form of electricity generation (usually natural gas) to set the overall market price."

In The Price Is Wrong, he writes: “Why does the most expensive generator set the price received by all? It is a good question, eliciting much head-scratching at the time of drafting this chapter!”

A newly independent Scotland would have to quickly solve this head-scratcher! But when it comes to the price we pay, there is an even bigger challenge.         

THE INSTITUTIONAL CHALLENGE OF SUPPORTING RENEWABLES

GOVERNMENT and regulators' support for renewables is critical to understanding why high prices persist. Christophers noted: "The Government is perennially caught between a rock and a hard place. It wants electricity prices to be relatively low to keep household prices down, but it also wants them to be high enough to encourage investment from developers."

We can see this play out now. Gillian Martin (above), our acting Cabinet Secretary for Net Zero and Energy, was asked about zonal pricing in the chamber last week. She responded: “Modelling indicates that Scotland’s consumers could potentially benefit from lower wholesale electricity prices.

“However, we are also aware of modelling which suggests potentially negative impacts for Scotland’s renewables industry.”

This highlights the problem at the heart of the idea that a market-based renewable energy sector must be central to our independent future. What is good for the company is often bad for the consumer and vice versa.

The current UK model requires maintaining electricity prices at attractive levels to private investors, including renewable energy developers. "Even renewables developers don't want that uncoupling [from gas prices] for the most part because they require the prospect of kind of inflated electricity prices in order to make their business model worthwhile," Christophers stated.

For an independent Scotland, this presents a significant policy challenge. Transitioning away from the UK market structure would require careful consideration of incentivising renewable investment while protecting consumers from persistently high prices. One solution would be greater public investment and ownership in the renewables sector. But currently, there is no plan for that. Perhaps this is one area where the independence movement can challenge the SNP?

Another layer of complexity arises from geographic considerations. Much of Scotland's renewable energy, particularly wind, is generated in the north, far from major demand centres in the south of the UK. This would be the starting position for Scottish independence.

The lack of robust interconnectors and the inefficiencies in grid infrastructure mean that much of this energy faces distribution bottlenecks. Some of it is even curtailed. Christophers wrote in his book: “In 2020, nearly 20% of wind power generated in Scotland was discarded.” Scotland drastically needs higher transmission capacity. But who owns that infrastructure, and how costly will it be to transport power to the rest of the UK?

THE REALITY OF EMPLOYMENT AND ECONOMIC GROWTH

IN 2008, our first minister, the late Alex Salmond, said that Scotland had the potential to be the “Saudi Arabia of renewables”. That narrative is very much at the heart of the Scottish Government. Last year, the Energy Secretary said: “Scotland has the skills, talent, and natural resources to become a global renewables powerhouse.”

It is, therefore, important to consider the broader economic picture. Christophers cautioned: "Once you have a wind farm built and up and running, you typically don't see many people working there. It's incredibly labour-unintensive. Lots of people are required to build the wind or solar farm, but once operational, facilities require minimal staffing."

This points to the need for a stronger renewable supply chain in Scotland. Otherwise, those well-paid, highly skilled jobs won’t materalise.

Professor Christophers delivered another dose of realism: "The renewables business is not a wonderful business. Profits in that business are typically quite low. They're typically quite volatile. And so the idea that this is an industry where there are great riches to be found has been proven, sadly in a way, comprehensively untrue."

To have any chance of reaching our net zero targets, Scotland must become a renewables powerhouse. However, it is unlikely to be a sector that delivers the type of robust growth the Scottish Government seeks. Damn, those details.

INFRASTRUCTURE CHALLENGES

PROFESSOR Christophers provides a historical perspective to explain why there are no direct pipelines from Scotland to other European countries. "There are pipelines... several pipelines and they all leave from England going to the continent. Historically, the UK has been concerned about bringing stuff in rather than sending stuff out. Therefore, it hasn't been so concerned about sending stuff from Scotland elsewhere in Europe."

In other words, if we want to start selling electricity to the continent, we must invest significantly in infrastructure. Who pays for that investment and how private companies generate profit is central to understanding this export strategy's impact on the Scottish economy.

Renewable energy is undoubtedly central to Scotland’s future as well as a liveable planet. However, the belief that independence will instantly lead to lower energy bills and a thriving export economy is overly simplistic. The peculiarities of the current UK market, institutional frameworks and investment dynamics all play significant roles in shaping outcomes.

Independence alone will not automatically resolve the challenges of high electricity prices or ensure economic windfalls from renewables. These outcomes will depend on the policies and market structures an independent Scotland chooses to adopt.

Professor Brett Christophers will appear at the Economics of the Real World event in Leith on March 20 and the Scotonomics Festival of Economics in Dundee and online from March 21 and 22. Tickets are available from www.scotonomics.scot/event