Could Scottish independence spell problems for UK renewables?

Given the politically charged nature of the potential break-up of the United Kingdom, it is hardly surprising that the plight of just one industry has not been granted a central role in the increasingly fractious debate over Scotland's pursuit of independence.

But as Prime Minister David Cameron and Scottish First Minister Alex Salmond continue to butt heads over the timing and nature of Scotland's promised independence referendum, it is worth asking how the uncertainty created by both the imminent plebiscite and the prospect of full independence will impact a renewables industry that Salmond has already designated as essential to the future health of the nation.

Scotland's enviable wind and wave resources mean that in the long term the country will have a crucial role to play in the UK's fast-expanding renewable energy sector, regardless of whether or not it actually remains part of the UK. Salmond has talked eloquently about making the country the "Saudi Arabia of clean energy" and it is already established as one of the world's leading clean tech hubs, with a raft of offshore wind, biomass, carbon capture and storage, and marine energy projects either in operation or in the pipeline.

And yet, the pursuit of independence at best introduces an element of risk into the Scottish, and by extension British, renewable energy strategy, and at worst could result in significant disruption to this emerging industry.

The potential for disruption first reared its head last autumn with a controversial research note from investment firm Citigroup, which warned that the potential impact of secession on UK-wide renewable energy subsidy mechanisms meant "utilities and other investors should exercise extreme caution in committing further capital to Scotland".

The report was immediately dismissed by the Scottish government as "alarmist", with ministers arguing the potential to export renewable energy to England meant its renewables sector would continue to prosper post break-up. A separate report from Altium Securities then emerged suggesting an independent Scotland would not necessarily harm renewable energy investment.

But the question of whether or not independence will benefit or hamper the renewables sector has not gone away and it looks certain to intensify as the row over the timing and nature of any referendum intensifies. Few people within the industry are willing to go on the record to discuss an issue as politically charged and historically significant as the end of the 300-year union between the two countries. But privately, concerns are mounting.

One industry insider I spoke to described the prospect of a referendum in autumn 2014, as promised by Salmond, as "deeply unhelpful" and "hugely concerning".

He also said he was "baffled" by Salmond's decision to push for independence as early as 2014, noting that if he waited until later in the decade the country would have been able to build out its renewable energy infrastructure under the current subsidy regimes, establishing itself as a major net energy exporter before then seeking secession.

Concerns centre on what would happen to the existing UK-wide Renewables Obligation and feed-in tariff subsidy mechanisms and the proposed contract for difference feed-in tariff scheme when and if Scotland breaks with the rest of the UK. These mechanisms all work by effectively channelling levies on energy bills to provide revenue support to renewable energy projects. But with a disproportionate number of renewables projects to the north of the border and a disproportionate number of energy consumers to the south, the continuation of this mechanism post-independence would effectively result in English consumers subsidising Scottish projects - a scenario that would prove as politically unpalatable in Westminster as the prospect of the end of the union itself.

Some developers are pretty sanguine about any changes that would result. One Scottish developer I spoke to argued there was already a perfectly effective cross-border energy market in place between Northern Ireland and the Republic of Ireland, not to mention interconnectors between England and the continent. Meanwhile, all the indications from the EU are that by the time Scotland does seek independence there will be yet more harmonisation of the bloc's energy market, making it easier still to support a continent-wide super grid where renewable energy is continuously transmitted across borders.

Steps would obviously have to be taken to re-jig UK renewable energy subsidy schemes, the argument goes, but this should not be beyond the wit of man or power-crazed politician.

However, even those who reckon Scottish independence would do little to dampen the long-term prospects of the UK's burgeoning renewables sector acknowledge the latest round of referendum talk does introduce another degree of risk and uncertainty for investors and developers considering clean energy projects north of Hadrian's Wall.

Moreover, there is little evidence on either side of the border that this issue is being looked at in any depth by the government's in Westminster or Edinburgh. Salmond's response to the Citigroup report boiled down to "don't worry, it'll all be fine", while DECC responded to my inquiries about developers' concerns by advising that it was too early for the government to stake out a hypothetical position.

Yet when decisions on capital intensive, low carbon energy projects are made on the basis of payback periods that can run into decades, it is likely the risks posed by potential independence are already being factored into project plans.

Of course, none of this is to suggest Scotland should not seek a referendum and then follow the will of its people. The Scottish government has a clear electoral mandate and its people have a democratic right to self-determination.

But regardless of whether or not Scotland's future lies as part of the UK or not, it definitely has a future as a world-leading renewable energy market. And if that green future is to be realised, investors need to urgently see some clarification on how this exciting market would operate should the Braveheart tendency prove successful in its pursuit of freedom.

Further reading

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