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Scottish Independence and Energy Bills

scottish independence businessWe’ve already talked in these pages about the thoughts of the business community on an independent Scotland but with the poll nearing and the result too close to call our attentions turn to the impact a yes vote could have on energy bills north of the border.

This isn’t mere rhetoric, whatever Alex Salmond would have voters believe, businesses have very real concerns about being able to deliver status quo levels of service and cost post independence not least in the energy industry.

John Lewis Chairman Sir Charlie Mayfield, an organisation not usually defined by hyperbole, has already warned prices could rise saying:

“It does cost more money to trade in parts of Scotland, and therefore those higher costs in the event of a Yes vote are more likely to passed on.

“When we are talking about two separate countries it is most probable that retailers will start pricing differently.”

Indeed Gordon Brown, the former Prime Minister, has pointedly said:

“I have to say to Mr Salmond, you can dismiss some of the warnings some of the time, but you can’t dismiss all of these warnings all of the time.

“John Lewis is worried about price rises and many other supermarkets are going to say the same.”

But whilst the news about Middle (England’s) Scotland’s favourite shop will be the concern of some, the impact will be far more widely felt from an similar increase in energy prices.

In simple economic terms subsidies need to be paid for by the consumer.

And a significant part of the energy bills businesses pay is made up of various subsidies.

What’s more these subsidies are used increasingly to support Scottish generation facilities as well as to normalise the cost to deliver energy to remote Scottish regions.

As a result an independent Scotland will be disproportionately impacted by a change in status quo. Subsidies needing to be paid, but a smaller constituency available to pay them. Cost increases are the only certainty.

As a senior energy industry source has said:

“If Scotland goes it alone, Scottish customers will bear the cost of Scottish [energy] policy”.

Angela Knight, the soon to be retiring Chief Executive of Energy UK the energy suppliers’ trade body echoed the sentiment saying:

“If you separate the country into two parts, then what are you going to do about the legal and regulatory issues and who licenses who and for what?

“If we end up with two regulators, two different sets of license conditions and customer requirements, two wholesale markets and all that sort of thing, it is inevitably adding costs to the system.”

Indeed the government shares the concerns with a spokesman from DECC highlighting that Energy UK had:

“Raised important questions about the possible impacts of Scottish independence for the energy industry, our integrated single market and support for renewables in Scotland.

“The broad shoulders of the United Kingdom is unlocking the power of Scotland to take its place as one of the world’s great energy hubs – generating energy and generating jobs”. Under independent this would be at risk.

The Scottish Government however denied any such issue existed and instead wishfully suggested it was the rest of the UK that depended on Scotland and not the other way round with a spokesman saying:

“There are already examples across Europe of two or more independent countries coming together to participate in a single energy market, and their co-operation on the licensing and regulation of the participants in those markets.

“The most cost-effective location in the UK for renewable energy generation is Scotland – we are producing clean power in record amounts and consistently supplying over a third of all the UK’s clean energy in return for about 28% of total UK subsidy.

“The UK is facing the highest black-out risk in a generation, with reserve energy margins falling to as low as two per cent in the very near future – and the rest of the UK needs Scottish energy reserves to help keep the lights on.

“Short-term measures to plug the energy gap all mean additional expense for consumers – for example, payments to persuade energy-intensive users to consume less energy or payments to generators to bring back retired plant.”

Like much of the Yes campaign for Scottish independence, rhetoric has replaced planning and reality taken a back seat to idealism.

Whilst we can expect horse-trading across all areas if a Yes vote occurs later this month (and energy could be one of the makeweight compromises in a deal on currency or defence), one thing is for sure, the status quo won’t remain, and that change always means higher costs, especially in the energy industry.

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