With the Commonwealth Games in Glasgow now at an end and almost universal praise for the staging of the event, thoughts and indeed column inches are once again turning to the call for Scottish independence, perhaps rejuvenated with a wave of national pride.
I hail from the north, although not as far north as Scotland, and offer no particular opinion on the claims and counter-claims made by the protagonists on either side of the debate.
However, my day job is advising companies in the energy sector, where the implications of Scottish independence are huge, and so I thought I would put pen to paper to highlight some of the “known unknowns” which, if the “Yes” voters prevail, will need grappling with.
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First of all, it has to be said that the energy sector in Great Britain is a hugely complicated mesh of contracts and regulatory requirements, not to mention disparate, but interconnected, IT systems.
On a “Yes” vote, there will be a considerable amount of careful unpicking required. On an entirely selfish level, therefore, I ought to be backing the independence campaigners, because like it or not they’re going to be keeping an army of lawyers busy for quite some time.
But what are the key topics?
At the outset, under EU rules, Scotland will need its own independent regulator. So that will mean changes for current GB regulator Ofgem (- although if Labour wins the next election it might face abolition and so radical change may be on the cards in any event). The debate will likely revolve around whether an independent Scotland’s interests are best served with separate energy and water regulators, as now, or whether Scotland would instead be better off handing Ofgem’s Scottish responsibilities to the existing Scottish water regulator, the Water Industry Commission for Scotland.
But the underpinning of the entire energy sector is the wholesale trading mechanism, established by the Balancing and Settlement Code and its associated codes and agreements, and IT processes.
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This is a single GB wide market (and ironically it doesn’t seem that long ago that we were extending and adapting what was originally a market for England and Wales in order to bring Scotland into the fold).
On the face of it, there is no reason why this market shouldn’t continue post-independence; there are precedents elsewhere for a single energy market shared by different countries, notably the Nordic and Iberian markets and, closer to home, the Irish single market. But these markets were created in consensual fashion by countries that wanted to cooperate; a single market created by the split of a country into two parts would be a first.
Clearly the currency issue will be a factor here, as trading will no doubt continue in sterling.
But more critically, it will be difficult to maintain a level playing field for market participants if the Westminster and Holyrood governments pursue independent energy policies.
We’re not short of examples over the years of the willingness of politicians to interfere in the sector and its regulation. In due course, it is surely inevitable that tensions will arise as the two governments, and the two national regulators, find their feet and pursue their own agendas? Look no further than conflicting policy on nuclear energy.
In a post-independence world, things are surely going to get more political, not less, because the biggest and most controversial issues for the sector post-independence revolve around a single theme, which is how independence will impact on energy bills.
Renewable energy is a prime example. The Yes campaigners rightly trumpet the success of renewable energy generation north of the border, and have ambitious plans for further growth.
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Great, but most renewables are going to need subsidy for some time yet, and it is the subsidies funded by energy consumers, socialised across the whole of GB, which have driven the growth in renewables to date across Scotland and the rest of GB. Will consumers in England and Wales be prepared to continue subsidising Scottish windfarms following independence? Will Scottish consumers be willing to support renewables on their own doorstep to the same degree? Presently, Scottish renewable accounts for around 30% of GB consumer subsidies, whereas Scottish households account for about 10% of the total.
But without Scottish wind power, can the rump 海角视频 meet its challenging renewables and carbon reduction targets, which already look unattainable at present rates of reduction?
Furthermore, is it safe for Scotland to assume that the rump 海角视频 will be a captive customer for its surplus power? The 海角视频 presently benefits from a few sub-sea power cables linking the GB system up with Ireland, France and the Netherlands, but more such interconnectors are likely to be built, and the prospect of increased imports from the continent will increase competition and act to lower wholesale GB prices.
Then there is the knotty question of transmission and distribution of power north of the border.
Network costs in Scotland are higher than in England and Wales, and again those costs are largely socialised and shared by consumers across the whole of GB.
Finally, what view will retail energy suppliers make of an independent Scotland? The big six suppliers are vertically integrated businesses, and their generation businesses will be impacted to varying degrees by a divergence in regulatory policy either side of the border. Will we see a disaggregation of prices? How will suppliers respond if a new currency is introduced, with the associated exchange rate risk?
So, lots of questions, and few if any answers.
In some respects, the prospects of such upheaval couldn’t come at a worse time.
There is currently a lot of industry change underway – notably the Electricity Market Reform programme which will see a new renewable (and nuclear) support mechanism, as well as a new capacity mechanism to help keep the lights on.
We’ve also just seen what will be the most comprehensive investigation into our retail supply market kick off with the launch of an investigation by the Competition and Markets Authority (CMA), and we are set to embark on a hugely ambitious national roll out of smart meters.
There are also the logistics of implementing some complex new EU rules around the cross border interconnectors between countries and harmonisation of generator connection rules, amongst other things. There is a lot of work underway presently to work out how our domestic GB codes and agreements need to adapt as a result, and when it comes to the rules around operation of the interconnectors, there is a sub-sea link between Scotland and Northern Ireland that would also need to be thrown into the mix.
There are some clues as to how things may turn out in a report recently published by the Scottish government’s Expert Commission on Energy Regulation (“Energy Regulation in an Independent Scotland”), but frankly it raises more questions than answers.
For someone studying to be an energy lawyer, it would all make for a fascinating exam question, under either education system.