There is much that is yet to be decided, but we can be sure that whatever the outcome of the Scottish Independence referendum, there will be change on its way. From a business perspective, there are unresolved issues around currency, regulatory environments and EU membership, but clients can be reassured that DWF understands the changing situation, and can be relied on to offer solutions whatever happens.
A closer look at energy
As we approach September 18 2014 – the date of the Scottish independence referendum – the position of the energy sector within Scotland remains uncertain. If there is a Yes vote, an independent Scotland will need to elect a new government; there is no way of knowing which party, if any, will gain a majority, and thus we can’t be sure which party will be in a position to decide future energy policy.
In the light of this uncertainty, we have identified a number of questions and issues to be aware of. Because we work extensively both with and within Scotland, these questions are at the forefront of our minds; clients can be reassured that we are ready to help and advise without political bias, offering them solutions that anticipate and respond to the changing situation.
Please use the links below to navigate to each question and answer.
- How would Scottish generators participate in the British energy market?
- How would the energy sector be regulated post-independence?
- How would an independent Scotland ensure security of supply of electricity and gas?
- What effect would independence have on energy bills?
- How would the North Sea assets be split if Scotland votes for independence?
- What impact would independence have on investment in the energy sector?
Questions and issues to be aware of:
Scotland, England and Wales currently have a fully integrated energy market. The Scottish and Westminster Governments have opposing views as to how this would be dealt with in an independent Scotland.
The Scottish Government has proposed that Scotland would continue to participate in the British electricity and gas market, given the integrated transmission network already in place, subject to the security of supply to Scottish consumers not being compromised. To facilitate this, the Scottish government intends to establish an Energy Partnership with the Westminster Government to ensure a joint approach. It is also proposed by the Scottish Government that National Grid would continue to balance supply and demand across Scotland and the rest of the UK (UK).
The Westminster Government has stated that the current arrangement cannot continue in an independent Scotland, as both governments would have opposing objectives which will make it difficult to agree a joint approach.
Scotland is currently a net exporter of electricity to other parts of the UK. The Westminster Government has stated that the decision for the UK to continue to take electricity from an independent Scotland would be taken on a commercial basis, and whether it would be in the national interests of the UK to do so.
A further issue for the energy sector is how it would be regulated in an independent Scotland. The energy sector in the UK is currently regulated by Ofgem. The Scottish Government plans to simplify the regulation of the energy sector in Scotland, if there is a vote for independence, by creating one economic regulator for the energy, communication, transport and water sectors. It is intended that this regulator will ensure that the regulation of energy delivers reliable supply, a fair outcome for Scottish consumers, continued decarbonisation of energy generation and conditions for continued sustainable growth of the energy market in Scotland. It has been suggested by the Scottish Government that this body would operate in cooperation with Ofgem.
Security of supply of gas and electricity is a major issue for both governments. The Scottish Government has stated that Scotland’s current energy resources and balanced generation mix should be sufficient to provide security of supply to Scottish consumers, and also allow for substantial cross-border exports to the UK. The Westminster Government has raised concerns in respect of security of supply in an independent Scotland due to the support that is required to fund the required measures, given that those costs are currently shared throughout the UK.
Both the Scottish and Westminster Governments view the reduction of consumers’ energy bills to be a key priority. The Scottish government proposes to transfer the current energy efficiency funding and delivery from energy companies to the Scottish Government with the costs of such being met from central resources rather than being passed on by energy companies to consumers.
The analysis prepared by the Westminster Government shows that energy bills for both domestic and business customers in Scotland would rise in the event of a vote for independence. This is due to cost savings from the integrated market being lost, and funds required for investment in the network, renewables and support to consumers in remote areas falling to Scottish bill payers only.
One of the main issues surrounding independence is how the North Sea assets would be split if Scotland votes for independence. The Scottish Government’s white paper states that the vast majority of oil and gas comes from the Scottish continental shelf and, based on well-established principles of international law, will be in Scotland if the country were to vote for independence. The Westminster Government has not considered the split within its response to the Scottish government’s white paper. This matter will probably need to be decided by reference to international law and detailed negotiations between the relevant parties if there is a yes vote.
The Scottish Government intends to continue to invest in the renewable energy sector in an independent Scotland, and is of the view that an integrated market will ensure investments costs are spread across the British energy market. The Westminster Government is of the view that the integrated energy market cannot continue in its current form. In this regard, the Westminster Government has stated that an independent Scotland is unlikely to be able to rely on the current levels of financial support provided by all UK energy bill payers, and the costs of investment will fall on the Scottish bill payers only.
This information is intended as a general discussion surrounding the topics covered and is for guidance purposes only. It does not constitute legal advice and should not be regarded as a substitute for taking legal advice. DWF is not responsible for any activity undertaken based on this information.