McHarg slides - Scottish Constitutional Futures Forum

Constitutional Change and the
Electricity Industry: Constraints and
Aileen McHarg
University of Strathclyde
Electricity Policy in Scotland
Electricity policy goals tend to be fairly
• Security of supply
• Affordability and access
• Economic efficiency
• Energy efficiency
• Environmental sustainability
• Economic development
Electricity Policy in Scotland
Policy variation due to differences in:
• Geography and climate
• Housing stock
• Historic legacy
• Natural resource endowment
• Economic conditions
• Political values
Electricity Policy in Scotland
Key areas for policy differentiation:
• Energy efficiency
• Fuel poverty
• Greenhouse gas emissions reduction
• Generation mix:
– No new nuclear generation
– Renewable energy targets
• Equivalent to 100% of Scottish consumption by 2020 (UK
target = c.30% by 2020)
• 500MW of community and locally owned renewables by
Current Legal Competence: Legislative
Reserved Matters (Sch 5, Scotland Act 1998)
• D1 Electricity
– Generation, transmission, distribution and supply
of electricity
– Subject matter of Pt II EA 1989 (now redundant?)
D4 Nuclear energy
D5 Energy conservation
A1 Energy taxation
The Crown estate (Sch 5, Pt 1, para 1(a), 2(3))
Current Legal Competence: Legislative
Devolved Matters
Express exceptions:
• Subject matter of Pt I Environmental Protection Act 1990 (air
pollution/integrated pollution control)
• Radioactive waste disposal
• Encouragement of energy efficiency, other than by prohibition or
regulation (?demand-side regulation)
Implied exceptions:
• Promotion of renewables (other than via market/regulatory rules)
• Promotion of carbon capture and storage
• Tackling fuel poverty (other than via supplier obligations)
Related powers, e.g.:
Planning and building control
Marine licensing
Housing policy
Scottish private law
Climate change
Current Legal Competence: Executive
Various executively devolved functions - most
• Renewables obligation – RO level and technology
• Ss. 36 and 37 EA 1989 – consent to new
generating stations >50MW onshore and > 1MW
offshore; overhead lines >20kV (n.b. an energy
policy power not merely a planning power)
Also some concurrent functions/requirements to
consult Scottish Ministers before exercising powers
Current Legal Competence: Overall
• Scottish Parliament/Government cannot act contrary to EU
• Limited scope for legislative initiative by Scottish Parliament – e.g.:
– Housing (S) Act 2001, s.88
– Climate Change (S) Act 2009, s.38; Pt 5, ch 3
– Marine (S) Act 2010, s.35
• Executively devolved functions must be exercised within boundaries
of UK legislation:
– No power to alter regulatory framework to support policy goals
– Scope of Scottish Govt competence depends on UK legislative choice –
cf. Energy Bill/Contracts for Difference
• Consent to UK/GB legislation which alters legislatively or
executively devolved functions via Sewel Convention
• Can exert pressure on UK govt/Ofgem to ensure market/regulatory
rules take account of Scottish needs/ambitions or provide Scotlandspecific solutions
What Can Scottish Government do to
Meet Renewable Energy Target?
• Facilitate renewable developments through planning
system/property rights
• Send signals about acceptable generation mix:
– Consents policy
– ? Emissions performance standard
• Financial subsidy (subject to EU state aid rules), e.g.:
Renewables obligation
Saltire Prize
Renewable Energy Investment Fund
• Advice and assistance
• ? Demand-side measures
But cannot guarantee a supportive regulatory and market
• Planning and other market/regulatory issues are linked
• Reasonable certainty of adequate return crucial to investment in
long-lived electricity assets
Future Competence: Further
Devolution v. Independence
Further Devolution
• (Almost?) full energy policy
competence (cf. N. Ireland)
• ? continued reservations of
related competences
• No foreign policy
• Full policy competence
Constraints: EU Law
Policy Continuity
Internal electricity market:
Liberalised wholesale/retail markets
Third party access
Independent system operation
Independent regulation
Non discrimination and transparency
Compliance with competition law/state aid rules
Other EU regulation, e.g.:
• Renewables target
• Environmental regulation
• Emissions trading
Constraints: EU Law
Policy Change
• Different market design/network rules
• Priority to renewables/ CHP/indigenous fuel sources
• Stronger public service obligations/consumer
protection (possible derogation from competition
rules, subject to proportionality test)
• Long term planning
• A different kind of regulator
• EU law not static – opportunity to influence future
policy direction (e.g., post-2020 renewables target)
Constraints: Trade with England and
Why continued integration with England and
• System balancing – esp. important where high
penetration of renewables
• Security of supply
• Greater competitiveness  lower prices
• EU policy encourages development of regional
• Renewables target depends on export strategy
• Policy continuity = reduced regulatory risk =
greater investor certainty
• Limited regulatory/policy capacity
Constraints: Trade with England and
Cross Border Trade
• Separate markets/regulatory regimes
• Voluntary cross border trade, driven by market
conditions/regulatory incentives
• EU law facilitates cross-border trade:
– Third party access rules
– Reg 714/2009 – detailed regulation of network access
for cross-border trade; disputes between NRAs can be
referred to ACER
– Dir 2009/72/EC - duties on MSs/NRAs to promote crossborder trade, interconnection and regulatory cooperation
• Further devolution – regulatory/SO cooperation
required to facilitate internal cross-border trade
Constraints: Trade with England and
Single GB Market
• Precedent – all Ireland wholesale electricity market
• Parallel legislation required to establish trading rules and
oversight requirements (again underpinned by EU duties to
cooperate and facilitate market integration)
• Could be separate regulators or joint regulator
• No need to align other aspects of the regulatory system. But:
– Need to ensure no discrimination in design of regulatory
– More stringent regulation may reduce competitiveness of Scottish
generators/attractiveness of Scottish consumers
– Market distortions/increased complexity for market participants
may produce pressures for harmonisation
Constraints: Financing Renewables
Do E&W consumers subsidise S renewables policy?
• Cost of renewables obligation/network
investment feed into GB wholesale market price
• Not a direct geographic cross-subsidy – infant
industry support, justified by reference to climate
change/security of supply objectives
– Only one direct geographic cross-subsidy - hydro
benefit; socialisation of transmission costs rejected;
may be indirect cross-subsidies from S to E&W
• But:
– indirect geographic benefits (and costs)
– Scottish Government (currently) has limited power to
influence level of subsidy paid to Scottish generators
Constraints: Financing Renewables
• Costs will fall on de facto customer base
• Scottish renewable generators could not be excluded
from E&W market, if there was a willing buyer
• Scottish generators could not be excluded from
relevant renewables support mechanisms (cf. Fossil
Fuel Levy/French nuclear electricity)
• But there may be alternative, more financially
attractive options for E&W buyers
• rUK renewables policy may change (n.b can meet EU
renewables target through domestic consumption or
‘flexibility mechanisms’)
Constraints: Financing Renewables
Could Scottish consumer/taxpayers bear the additional
• Already do bear some additional costs
• Infant industry support assumes current high costs will come
down/other sources will become more expensive – i.e., longer
term benefits
• May  be in interests of rUK to continue to support relatively
expensive Scottish renewables
• May be alternative export markets in the longer term
• A political/economic judgment for the Scottish government –
do long term benefits outweigh short-term costs? (n.b.,
additional support subject to EU state aid rules)
• Can independent Scottish government offer sufficient/better
investor certainty?

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