I have read a lot of reports on the renewable energy industry in Scotland in recent weeks, and have been very disappointed about the general standard of economic analysis in them.
Most have been very biased in favour of wind energy, but even the anti-wind reports display very poor economics.
I am a strong supporter of the development of the renewable energy industry in Scotland, with a particular interest in the potential of marine energy.
As an economist, however, I believe that consumers, politicians and others should be given an objective analysis of the benefits and costs of the many renewable energy developments underway. Sadly, that has not been the case.
I can understand that bodies such as Scottish Renewables want to present the best possible case for the industry. More disappointingly, the previous Scottish Government, for whom renewable energy was a high priority, published some reports with very misleading conclusions and recommendations.
A recent one on the economic impact of low carbon economy was so appalling that I had to retrieve it twice from the wastepaper bin.
It seems to be generally accepted that wind energy is more expensive than conventional forms of electricity generation. The capital costs are usually higher and the output can be sporadic.
However, conventional forms, such as coal and oil-fired power stations, generate carbon emissions. Many countries, including Scotland and the UK generally, are committed to reducing such emissions. This can be done in various ways, including taxes according to the “polluter pays principle”.
A more popular way in Scotland has been the encouragement of renewable energy, particularly from onshore wind farms. There is a wide range of financial assistance for them, including Renewable Obligation Certificates and feed-in tariffs, which are basically subsidies. One effect is a significant increase in the price of electricity in Scotland, which the consumers – that is you and me – have to pay.
This is not the place to discuss the subsidies in detail, but I believe that you and I should be given a reasonable understanding of how much more we are paying for renewable electricity. I have spent weeks recently researching the level of subsidies, but the average consumer cannot do that.
A bizarre report entitled Worth the Candle? The Economic Impact of the Renewable Energy Industry, was published a few weeks ago by another economics consultancy Verso Economics. It gave some very interesting information on the level of subsidies, but presented said information very badly and has been understandably criticised.
Verso reckon that for every job created in the renewable energy industry in the UK, 3.7 jobs are lost elsewhere. They also claim that in Scotland there is no net benefit from government support for the industry and probably a small loss of jobs.
A more recent report by the Renewable Energy Foundation (REF) – which, despite its name, seems to be anti-wind farms – states that on April 5/6 the National Grid paid six wind farms £890,000 not to generate electricity for a few hours because it was not required.
That was up to 20 times the value of the electricity which would otherwise have been generated.
These so-called “constraint payments” have often been made in the past but not made public.
They seem to be an important source of income for some of the wind farms in Scotland.
They may make business sense for the National Grid but as an electricity consumer I strongly believe that we need much better information on the costs and benefits of wind-generated electricity.
Many reports confuse the installed capacity of the wind farms with the electricity generated, perhaps deliberately.
The latter seems normally to be about 20% of capacity, compared with 70% for nuclear and hydro. This is a fundamentally important difference, both for base load generation and peak demands.
There have also been some unbelievable estimates and forecasts of the number of jobs being created by the green economy in Scotland.
A recent study for the Scottish Government entitled Scotland’s Low Carbon and Environmental Goods and Services Sector, estimated that it currently employs 74,000 people in Scotland, and forecasts that number will increase to 250,000 by 2020. That is absolute rubbish.
The number of jobs created by the low carbon industry to date is in reality a fraction of the 74,000 claimed.
The North Sea oil & gas industry currently accounts for about 42,000 direct jobs in Scotland, mainly in the Aberdeen area. That number has been declining slowly, but the industry continues to be much more important than its renewables counterpart.
I do not see that changing significantly in the period to 2020.
Most of the equipment at existing wind farms in Scotland has been imported. That is also the case with the platforms and modules for the latest generation of North Sea oil & gas fields. We have lost our much of our manufacturing capability following the closure of the fabrication yards at Nigg, Ardersier, Clydebank and elsewhere, leaving only the Methil and Arnish yards to soldier on, both of which have secured renewable-related work.
Please forgive me if this column comes across as anti-wind. It is not. All I want is good quality and objective economic analysis on the benefits and costs of the renewables industry, which we are not being given.
Tony Mackay is the MD of international economists Mackay Consultants
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