The CBI’s recent analysis of the Scottish Government’s case for independence concluded that Scotland is emphatically better off remaining within the Union. Nowhere is this clearer than in energy – a view which is supported by the Department of Energy and Climate Change (DECC). The analysis highlights the significant benefits of the Union and the precarious position an independent Scotland would likely find itself in. When it comes to energy policy, the Union offers the best way to ensure that bills remain affordable, that we tackle climate change in the most effective way and that we have a secure supply of energy for the future.
Scotland is ideally suited for renewable electricity generation thanks to its weather, geography and low population density. Currently the costs associated with supporting renewables are socialised – a key benefit of the Union – meaning that they are spread across 30m bill payers rather than 3m Scottish bill payers. The Scottish White Paper suggests that this approach would continue if Scotland were to opt for independence but there is no guarantee that this would be the case, as the UK Government may be unwilling to continue to support these costs. DECC’s analysis indicates that if Scottish bill payers had to meet the full costs of supporting Scottish large-scale renewables their bills could go up by an additional £189 by 2020. For a medium-sized manufacturer this would add £608,000 to their energy bill.
A single approach to energy doesn’t just mean that costs are spread evenly across the UK. The single market means that costs are kept to a minimum by allowing the energy industry to operate efficiently within a single regulatory framework. This ensures greater stability, improves competition and allows Scottish generators unrestricted access to the Great Britain (GB) market. All of this places downward pressure on energy prices and provides the best outcome for consumers, industry and investors. DECC’s analysis is clear that in the event of independence the GB market could not continue in its current form. That is because over time an independent Scotland and the rest of the UK would be likely to diverge in their approaches to energy policy. Independence would mean that the GB market would have two independent governments pursuing separate approaches to energy policy which could ultimately push up costs for households and business users as well as creating uncertainty for investors.
In the event of independence, maintaining as many of the benefits of a single market as possible would be a priority. But it is disingenuous to suggest the market could operate unchanged. A key difference would be the likely move to a more commercially focused relationship. Scotland would indeed continue to supply electricity to the UK but it would be one of a number of options and it is probable that the UK would seek to pay the market price for power.
Of course it is for Scottish voters to decide whether independence represents the best choice for them. And arguments over a single energy market are unlikely to stir many souls. Yet these are real issues that will have very real impacts on businesses and families across Scotland, and the Scottish Government is currently failing to answer the questions that will allow voters to make an informed decision. Our assessment is that if we want secure, clean and affordable energy then Scotland is better off as part of the UK.
Katja will be speaking at The Economist’s UK Energy 2014 event on June 10th 2014.
The views and opinions expressed in this article are those of the authors and do not necessarily reflect the views of The Economist Intelligence Unit Limited (EIU) or any other member of The Economist Group. The Economist Group (including the EIU) cannot accept any responsibility or liability for reliance by any person on this article or any of the information, opinions or conclusions set out in the article.
