Constitutional Change and the
Electricity Industry: Constraints and
Opportunities
Aileen McHarg
University of Strathclyde
Electricity Policy in Scotland
Electricity policy goals tend to be fairly
consistent:
• 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
2020
Current Legal Competence: Legislative
Powers
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?)
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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
Powers
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.:
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Planning and building control
Marine licensing
Housing policy
Scottish private law
Climate change
Current Legal Competence: Executive
Powers
Various executively devolved functions - most
significant:
• Renewables obligation – RO level and technology
bands
• 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
Competence
• Scottish Parliament/Government cannot act contrary to EU
law/ECHR
• 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.:
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Renewables obligation
Saltire Prize
CARES
Renewable Energy Investment Fund
• Advice and assistance
• ? Demand-side measures
But cannot guarantee a supportive regulatory and market
environment:
• 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
competence
Independence
• Full policy competence
Constraints: EU Law
Policy Continuity
Internal electricity market:
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Liberalised wholesale/retail markets
Third party access
Unbundling
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
Wales
Why continued integration with England and
Wales?
• System balancing – esp. important where high
penetration of renewables
• Security of supply
• Greater competitiveness  lower prices
• EU policy encourages development of regional
markets
• Renewables target depends on export strategy
• Policy continuity = reduced regulatory risk =
greater investor certainty
• Limited regulatory/policy capacity
Constraints: Trade with England and
Wales
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
Wales
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
obligations
– 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
Post-independence:
• 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
costs?
• 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?