Mr Paul Wheelhouse, MSP, Minister for Energy, Connectivity and the Islands, at All-Energy & DCarbonise 2019.

I am delighted to be here today, at one of the biggest dates in the energy calendar in Scotland. I would like to thank Judith Patten once again for putting on a fantastic conference, which has grown not both in size and importance in recent years. And this year is arguably the most important yet.

Many of you will have heard the First Minister address the conference yesterday, and will be aware that the Cabinet Secretary for Environment and Climate Change made a statement to the Scottish Parliament on Tuesday about Scotland’s response to the Climate Emergency. This is against the backdrop of the latest advice from the Committee on Climate Change, which is absolutely pivotal to our approach. The Scottish Government has confirmed that we will do everything in our power to end Scotland’s contribution to climate change within a generation. This will mean difficult decisions, and extensive changes across the economy – changes that will affect and involve the people of Scotland more deeply and directly than ever before. The Scottish and UK energy sectors have a significant role to play in this.

Scotland’s Energy Strategy, published in December 2017, was developed in conjunction with the existing Climate Change Plan using the TIMES economic model. Both documents underlined the need to transform how we generate and use Energy in Scotland – and emphasised the sector’s importance as one of the key sectors of our economy. We already knew that meeting even Scotland’s existing climate change targets would require the near complete decarbonisation of our energy system by 2050, with renewable energy meeting a significant share of our needs.

However, achieving net zero emissions by 2045 across our economy will mean we need to go even further than assumed on energy. It will require a genuine partnership approach between the public and private sectors, and with individuals and communities. However, because Scotland’s Energy Strategy targets are compatible with our existing climate change targets, they give us the flexibility to respond to changes in the energy sector in years to come, and pursue the right low or zero carbon options.

We have committed to reviewing our existing energy targets once the Climate Change Bill has passed, alongside a wider review of targets and policies across each of the key sectors of the economy. We will do all that we can, using the powers that we have, to steer a sustainable path towards a carbon neutral economy. Yesterday the First Minister called for greater ambition and co-operative action from the UK Government – especially on the decarbonisation of heat, and the need for fast, evidence-based decisions around the future of the gas network.

We believe that the UK Government must also rethink the extent and focus of support for renewable and low carbon technologies across the UK. I, frankly, think it is inexcusable that we do not have a price stabilisation mechanism for either onshore wind, the lowest cost generation technology at scale, nor for new pumped hydro capacity which can provide an essential balancing and storage function, again at scale, on the grid.

I also have said before and will say again today that the removal of the feed-in tariff scheme will be hugely damaging for small scale projects and technologies such as community hydro power projects.

The failure to provide a minimum, as was promised by former Prime Minister David Cameron, in 2015, is also inexcusable. For a supportive investor environment , largely in the gift of UK Ministers, is essential to unlock critical investment, and deliver the transformational change in renewable electricity generation, as we have seen, and this will also be essential for the renewable and low carbon heat sector, where thankfully we have more ability to be masters of our own fate.

Notwithstanding my concerns about the lack of appropriate support for key technologies, the Scottish Government shares much common ground with the UK and especially so with other devolved governments; and we intend to work collaboratively and constructively to help deliver outcomes consistent with our ambitions.

Achieving our goals will almost certainly be influenced by the effects of the UK Government’s proposed Exit from the European Union. We, as you know, disagree profoundly with the UK Government on their Brexit policy, but are working to manage the significant risks that this presents for the Scottish economy, energy sector and consumers. We have always recognised the benefit and importance of collective international efforts in energy and climate change, and will continue to cooperate with our EU partners, under any scenario. So yes, we face challenges here. But I want to focus this morning on the enormous opportunities which faster decarbonisation represents.

The transition can bring great benefits to the Scottish economy. We must create the right conditions for inward investment, maximise the economic value of energy generation and supply in Scotland, and grow exports.
And that transition is now well underway in the energy sector, with the proportion of Scotland’s electricity generation fuelled by fossil fuels having dropped from 57.3% in 2006 to just 10.5% in 2017 and the carbon intensity of generation having fallen from 389.8 gCO2e/kWh in 2000 to just 54.4 gCO2e/kWh in 2016.

Scotland is renowned for its innovation, invention and its people.

We are small, but we continue to punch well above our weight internationally. Scots have played a major role in developing the modern world; that includes our contribution to the global energy sector.
Let me spotlight briefly some of the Scottish energy sector’s strengths and wider achievements:

• Our low carbon and renewable energy sector supported over 46,000 jobs, and generated over £11 billion in turnover in 2017.
• Installed renewables capacity reached a record of 10.9GW by the end of 2018, within the region of a further 12.6GW at various stages of the pipeline, including almost 5GW of offshore wind.
• Renewables generated the equivalent of 74.6% of Scottish electricity consumption last year, with 20% of our energy consumption coming from renewables in 2017 – putting Scotland above the EU average of 17.5% and well above the UK at 10.2 %.
• Scotland has increased its performance by 12.5% points since 2009, compared with just a 4.9% increase for Europe and a 6.9% increase across the UK.
• Scotland is home to the world’s first floating windfarm, Hywind Scotland, with a second project, at Kincardine, currently under construction.
• The European Marine Energy Centre (EMEC) in Orkney remains a global centre of excellence. More wave and tidal energy devices have been tested at EMEC than at any other site in the world.
• In January 2019, our internationally recognised Wave Energy Scotland programme announced details of two Scottish wave energy prototypes that will be deployed in Orkney next year.
• The MeyGen project in the Pentland Firth will be the world’s largest tidal stream array, Orbital Marine Power has deployed the world’s most powerful tidal stream turbine in Orkney, and Nova Innovation, which completed the World’s first tidal array, has added Tesla’s battery storage to its Shetland Tidal Array.
• Scotland’s oil and gas sector was worth an estimated £16.2 billion to Scotland’s economy in 2018, supporting approximately 110,000 jobs.
• It is a highly-regulated industry, with some of the most advanced and comparatively least polluting methods in the world, and a decommissioning market that is forecast to reach £15 billion to 2025.
• Scotland’s established industries are hosting a number of world-leading hydrogen demonstration projects, positioning Scotland as the best-placed country in Europe to realise CCUS on a commercial scale.
• ChargePlace Scotland is now one of Europe’s most comprehensive Electric Vehicle charge point networks, while Scotland saw 39% growth in the number of registrations of ultra-low emission cars in 2018.
• Orkney hosts the UK’s first smart grid, while the ‘Surf ‘n’ Turf’ project using hydrogen produced using electricity from tidal and onshore wind turbines, providing low carbon heat, power and transport.

Scotland’s Energy Strategy marked an important milestone in our transition to a carbon neutral economy.

Yesterday the First Minister launched our first Annual Energy Statement. This highlights the key developments in the sector, our progress to date, and our plans for the coming year and beyond. It allows us to reflect not only on the significant progress that has been made but also to review our priorities and plans in the face of the changes continuing to take place around us.
9I don’t intend to take you through the Statement in great detail. However, I would like to briefly summarise some of its highlights. Scotland’s Energy Strategy put consumers’ interests at the heart of our transition to a carbon neutral economy.

Our Energy Consumer Action Plan, also formally launched yesterday by the First Minister, sets out the steps we will take to deliver this. We will be establishing an independent Energy Consumers Commission for Scotland. The Commission will strengthen the collective influence of existing citizen and community groups, giving people in Scotland a more powerful voice.

I want to take this opportunity to invite you personally to get involved as we work to realise our vision for a flourishing energy sector delivering secure, affordable, clean energy with consumers at its heart.

We also continue to make progress towards establishing a Public Energy Company, designed to offer energy at a fair price and tackle issues such as fuel poverty, as well as potentially contributing to economic development. Through the development of the outline business case, we are engaging with our local authority partners to deliver this ambition.

The First Minister launched our Energy Efficient Scotland Routemap at this conference last year, and we continue work towards transforming Scotland’s buildings so that they are warmer, greener and more efficient by 2040. We are on track to deliver our commitment to make £500 million available over the 4 years to 2021 to tackle fuel poverty and improve energy efficiency. And over the course of this year, we will set out further details on regulation and minimum standards for energy efficiency. We are currently consulting on the impact of bringing forward the target date for the programme; where we can move faster in support of a Just Transition to a low carbon economy then we will do so.

2018 was another record year for renewable electricity in Scotland – with, the aforementioned 74.6% of Scotland’s electricity demand being capable of being met from renewable sources.

This compares very favourably with all other EU nations, as shown in the Annual Compendium of Scottish Energy Statistics that we published alongside yesterday’s Annual Energy Statement, and compares with just 28.1% for the UK as a whole in 2017 when Scotland had a comparable figure of 70.3%.

And, particularly in 2018 and the first half of this year, the offshore wind industry (fixed and floating) in Scotland has made major steps forward in terms of build-out, with the announcement of the Offshore Wind Sector Deal. This commits the industry to 60% UK content, identifying the supply chain gaps to grow existing capacity and identify new entrants. This has the potential to benefit Scotland’s supply chain. We have launched a Call for Evidence to identify the best and most sensible solutions to decarbonise heat in areas away from the gas network. We need transformative change in this area which matches what we’ve seen in the electricity sector.

That is why over the next year, using the evidence gathered through the call for evidence, the lessons learned from our past and current schemes, as well as the expertise of the sector, we will develop a new Heat Decarbonisation Policy Statement and Action Plan. (which we will publish next summer). This will require decisive and accelerated action at a UK level about the future of the gas network – planned for the early 2020s, but clearly in our view the climate emergency demands swifter action – albeit a process and outcome which the Scottish Government is determined to influence and support. Earlier this year, I launched our £10 million Saltire Tidal Energy Challenge Fund to drive innovation and investment in the Scottish tidal energy sector – I am very optimistic that some exciting projects will be supported by the Fund.

We also plan to publish a Local Energy Systems Policy Statement and a Bioenergy Action Plan later this year, as well as continuing to work with our local government partners to trial and test Local Heat & Energy Efficiency Strategies which will provide a strategic framework for heat decarbonisation over the long-term. The third Contracts for Difference auction takes place in just under two weeks’ time, and represents a huge opportunity for Scottish developers. I have every faith and belief in their ability to compete well and successfully, and every intention to continue supporting them in their efforts to do so.

But the current design needs to evolve. The Committee on Climate Change has reinforced the urgency and extent of the emissions reductions we need to achieve, and the role of renewable and decarbonised energy in delivering these. That means using existing and new support mechanisms to enable and de-risk investment in the lowest cost technologies like onshore wind and solar, as well as to support offshore and remote island wind. It also means bolder and more creative steps to ensure that technologies like wave and tidal power – where Scotland and the UK has a huge natural resource and competitive advantage – can compete effectively and start to secure the cost reductions and scale achieved elsewhere.

Our message to the UK Government in this area is simple and very clear – accept the scale and reality of the challenge, and raise your game and your sights to help meet it.

I respect my counterparts, and I know they have a difficult job to do, but they simply must not become the barrier to tackling climate change and Scotland achieving her potential. We know that some are sceptical about the ability of a low carbon and renewable energy system to operate securely and reliably. We addressed these questions in Scotland’s Energy Strategy, and in more detail in our Networks Vision Statement.

Yes, a low carbon network creates new and different challenges, especially across our electricity system. But we believe that sustainable security of supply is an achievable goal and one that we are now working to achieve.
We are not alone; the UK electricity system operator, National Grid, has said that it will be possible to operate the electricity system ‘zero carbon’ by the middle of the next decade. We want to work with National Grid, Scotland’s electricity network owners, the UK Government and others to help realise this goal.

That means doing more to establish how renewable power can help provide services and stability to the electricity system. I am therefore delighted to confirm today that the Scottish Government is awarding half a million pounds to a project designed to do just that. Our funding will help Scottish Power Renewables deliver a “Grid Forming Algorithm Pilot”. This will demonstrate and prove the ways in which its wind farm at Dersalloch can provide vital system services to the system operator, National Grid – enhancing the stability and security of the whole electricity system.

We believe that this project will be a world first – a clear statement of the role that renewables can play in maintaining a secure power system, and the Scottish Government’s determination to support this. Another key factor here is regulation and the extent to which it must acknowledge and support the energy transition. I have a great deal of respect and admiration for the way in which Ofgem and its representatives continue to engage with me, my officials and other Scottish stakeholders in these areas, and the knowledge and professionalism which they bring to these conversations.

But I continue to question whether the confines of the approach being used to address questions such as the delivery of new connections to Scotland’s islands, and to the reviews of network charges and access, are flexible enough to acknowledge and respond to the realities and urgency of the decarbonisation agenda. This is an issue which we intend to continue exploring, with Ofgem and with the UK Government, for it is essential that both reflect the aspirations of Scotland to develop a decentralised and decarbonised energy system and that neither Ofgem, unintentionally, nor UK Ministers, intentionally or otherwise, become barriers to Scotland playing our full and ambitious part in helping to prevent damaging climate change. In the meantime, we continue to work and engage with key stakeholders to reinforce the case for delivering these new transmission links to Scotland’s island groups – investments which can unlock the islands’ vast renewable energy potential and the associated economic benefits.

Of course, we also need to be honest about our current dependency, alongside other Northern European economies, on hydrocarbons. Scotland’s oil and gas sector is integral to today’s energy system.

But more than that, I believe that this industry can deploy its resources to help unlock the full potential of new industrial opportunities in Scotland and to help exploit low carbon technologies, with the skills, knowledge, and assets developed over decades of production in the North Sea proving invaluable as we move towards the next stage of our transition.

I met last week with oil and gas leaders at the Industry Leadership Group which I co-chair, and I was greatly encouraged by the desire to see how such an aspiration for a role in the low carbon transition can dovetail with the industry’s “Vision 2035”, and to making explicit the sector’s recognition of its role in supporting Scotland’s energy transition.

We have also seen greater energy productivity and reduced emissions in the Energy Intensive Industries sector since 2005. We are working with stakeholders to increase investment in industrial decarbonisation and energy efficiency, recognising the substantial socio-economic benefits and potential contribution to emissions reduction across the economy.
There are also huge opportunities presented by the development of a role for hydrogen and the establishment of CCUS in Scotland, given the competitive advantage we have over other nations in these areas.

Hydrogen has huge potential across the whole energy system – as a means of decarbonising heat and transport, and providing storage to help balance Scotland’s growing renewable electricity generation.

I was delighted to visit the hydrogen exhibitors yesterday, including seeing the prototype of Alexander Dennis’ new hydrogen double decker.
Hydrogen could emerge as a major decarbonising agent across a number of sectors. This is especially true for heat – hydrogen could potentially be carried through our established gas network, providing low carbon heat at scale.

Hydrogen is extremely flexible and can also be used as a zero-carbon fuel for heavier road vehicles, trains and even shipping. We have provided funding for a number of world-leading hydrogen demonstration projects – £6.3 million for the Aberdeen Hydrogen Bus Project, and £1.3 million for Orkney’s Surf N Turf Project. I see that the next session here today will discuss the hydrogen economy and its potential in more detail. This is an area which is developing quickly, and one which we are determined to capitalise on.

We are already exploring further opportunities for low carbon hydrogen, and we will continue to work with our stakeholders on a range of hydrogen initiatives. We have already begun work on an interactive mapping tool which will chart hydrogen activity and potential on a region by region basis across Scotland.

The St. Fergus terminal near Peterhead is a highly promising location to host demonstrations and learning about the potential for linking hydrogen, Carbon Capture Utilisation and Storage, and gas network infrastructure. The ACORN CCS project at St. Fergus, which we are supporting aims to deliver a demonstrator combining these three technologies early in the next decade, but I believe this could potentially happen far faster if the UK Government prioritise this. We will be working with stakeholders over the coming year on the potential economic, social and strategic value of hydrogen to Scotland. We will conduct a detailed assessment of hydrogen projects in Scotland to date, and the lessons to be learned from broader UK and international experience.

We will also explore the opportunities and challenges of further deployment, and build a stronger evidence base on the potential roles for hydrogen in the energy transition. We are also absolutely committed to establishing Carbon Capture and Storage in Scotland at a commercial scale.
The Committee on Climate Change now says that “Carbon Capture Utilisation and Storage is a necessity not an option”. This was emphasised yesterday by Chris Stark in his excellent speech. The CCC has said that progress has been too slow and that government must

ensure that the necessary infrastructure is put in place to enable its deployment. The Scottish Government are more than willing to play our part, and we have consistently made clear our support for CCS – but it is now undeniable that this is a technology which must be deployed globally if we are to address the climate emergency.

We are continuing to make the case for greater investment in CCS. Scotland has the offshore expertise – and the carbon storage potential – to be a natural centre for that new technology. But we need commitment from the UK Government – through a supportive policy framework and investment environment – to realise that potential. We are part of the UK’s Carbon Capture Utilisation Storage (CCUS) Council, and playing a part in meeting the commitments in the UK Government CCUS Deployment Action Plan. We have also established a Scottish CCUS Group to help raise awareness of CCUS and realise the deployment of CCUS systems in Scotland.

We continue to support the Acorn Project with direct funding of £100,000 and an additional £175,000 alongside the UK Government and Total, match funded by EU funding. There is also work underway in Scotland on aligning CCUS with the production of hydrogen. We believe that these two technologies should be considered together as part of a strong and efficient system of decarbonisation.

CONCLUSION

I know that I have covered a lot of ground today, and yet I have still barely scratched the surface when it comes to the many things that are happening in our energy sector right now, as well as the enormous challenges and opportunities in front of us. One thing remains certain, and that is that these are going to be extremely interesting times.

We all have an obligation to respond to the climate emergency.

However, I believe that we here in Scotland also have an opportunity to lead from the front, and to be a catalyst for change across all corners of the world. Thank you for all that you are doing and thank you to Judith Patten and her team for inviting me to address you today and I wish Judith, her team and all who are here today the most successful event and year ahead.