Alex Salmond – Opening Address To The 2011 LCI Conference

First Minister Alex Salmond’s opening address to the 2011 Scottish Low Carbon Investment Conference in Edinburgh , Tuesday September 27, 2011

 Thank-you Angus (Angus McCrone, Chief Editor, Bloomberg New Energy Finance] for that kind introduction and for the details stats looking at the world of energy over the last year and the outlook for the future.

That you are here in such numbers reflects the importance of moving towards the low carbon economy. It also reflects the impressive array of speakers and panel members who have gathered for this event. Far too many for me to name all of them individually but we are very grateful to all of them for their input. And I am particularly grateful to those who have come from other countries and, indeed, other continents. I would also like to thank very warmly, the Scottish Government’s partners in staging this conference, Edinburgh Chamber of Commerce, Scottish Enterprise and Highlands & Islands Enterprise, and Scottish Futures Trust.

When I addressed the first Scottish Low Carbon Investment Conference at this time last year, I described the shift to lowcarbon energy, as the kind of step change that occurs not once in a generation, or a lifetime, or a century, or even a millennium, but as a fundamental, one-off quantum leap in human history. Once we make that paradigm shift, there will be no going back. It is a turning point, like the discovery of the New World or the move from hunter-gathering to agriculture.

So the challenge before us all, the unique challenge for this generation – and a challenge in which Scotland, by virtue of its geographic endowment of wave, wind and tidal power, has an exceptional role to play – is to accomplish that great leap forward for mankind. I am sure that this audience is fully seized of the requirement to make that move, to tackle climate change, and if any of you are not, I am sure that by
the end of tomorrow morning’s keynote address from Al Gore, then you certainly will be.

But I am pleased that our 2010 conference took the initiative and got to work with impressive determination on some of the key issues that we know as being the major challenges to growth in the low carbon sector.
As a direct consequence of that conference we left much clearer on what these challenges actually are:

– the financial challenges of accessing the substantial capital investment required, in what continues to be a hugely challenging world economic environment;

– the need to develop a supply chain that meets the demands of a technologically complex sector that is meeting new challenges in an industry which by definition can operate in the most challenging of natural
environments, where the winds are strongest, the waves highest, and the tidal flows are deepest;

– and the need to get a buy-in, not just from the finance and energy sectors, but from the wider public as a whole.

And I thought the Conference last year made substantial progress. It was a milestone, however, not a finishing line. The journey carries on and the work continues. And we have kept going and now we are gathered again, one year on, to take stock, to recharge our batteries and to set sights on the future. And our sights should be high.

I mentioned a moment ago the exceptional environmental endowment of Scotland. Briefly, we have as much as a quarter of Europe’s offshore wind and tidal energy potential and an estimated tenth of its wave power capacity. And our capacity to store carbon emissions offshore – that potential capacity – is the largest in the European Union and greater than that of the Netherlands, Germany and Denmark combined. But the point of last year’s Conference, as of this year’s, was not to celebrate that potential, but to start the journey and move us forward to realising that potential.

So what has happened since last year’s Conference? First, as we have seen worldwide, we have seen continued, substantial investment in Scotland’s renewables sector. Companies from overseas, our international partners, are investing heavily. In December, Mitsubishi announced plans to invest up to £100 million to create a Centre for Advanced Offshore Wind Turbine Technology here in Scotland’s capital city of Edinburgh.  In March, Gaia-Wind from Denmark opened a new manufacturing, design and distribution Hub in Glasgow, aiming to manufacture 350 small wind turbines in its initial year. In March, Doosan Power Systems announced its intention to locate its renewables R&D base in Scotland, creating hundreds of new jobs with investments worth up to £170 million over the next decade. And tomorrow evening, right after this Conference, I will travel to Bellshill near Glasgow, to open Gamesa’s new offshore wind turbine Centre of Excellence, a £12.5 million pound investment set to create 130 high value added jobs. Technip have opened their new European offshore renewables office in the city of Aberdeen. EDPR-Repsol and the financial might that these companies’ balance sheets carry, are now responsible for some 2.5 GigaWatts of the potential offshore wind developments off the east coast of Scotland.

And I could give many more examples of overseas investment but let me also just touch on the home team. Wood Group is moving increasingly into renewable energy, taking a substantial equity stake in the leading renewable energy consultancy firm, Sgurr Energy. Scottish & Southern Energy is set to invest over £3 billion pounds in renewables and related infrastructure in Scotland in the five years between 2008 and 2013 – and in the last two years alone it has increased its number of employees in Scotland by 1,500. ScottishPower Renewables has opened a further two large onshore windfarms in Ayrshire in the south-west of Scotland and they have indicated that their requirements for a labour force in transmission and power generation is going to increase substantially given the exploitation of renewables. In March Strathclyde University announced the inauguration of a new £90 million Technology Innovation Centre which will house the engineers who will design the great new machines to power us through this century. And again I could give more examples but let me just say finally, on this point, that I’m delighted to announce that Aquamarine Power, one of Scotland’s great green energy technology companies, is today celebrating a further investment of some £7 million pounds – with shareholders working together to develop a further funding package of £18 million pounds to take the company on to the commercialisation of its Oyster wave energy technology in 2014.

These are very substantial achievements over the last year. And if we just reflect on that last announcement, it is great news for the company and also a clear signal to the wider energy and investment community of how close we are to the commercial-scale deployment of clean green ocean energy generation. As you know, with our partners in the Crown Estate Commission, we have already licensed some 1,400 mega watts or more of wave and tidal potential. I am increasingly confident that we can see, within the next few years, the wave and tidal industry move from demonstrator machines in the European Marine Energy Centre in the Orkney Islands towards substantial commercial development.

This additional funding demonstrates that there is real investor confidence in Scotland’s low carbon generation innovations and the business strategies that will take these technologies into strong marketable products. And, second, let me say something about how we have built on last year’s conference because I believe that that has been one factor which has added to that investment. One of the strongest messages from the conference last year was that we should use the expertise of the oil & gas industry, to ensure that the accumulated capital of human knowledge over the last 40 years, that we have learned about the waters around Scotland, should now be deployed to bring that expertise into the renewable sector. So that experience, gained over decades in North Sea development in successfully implementing major offshore projects, could be put to use in offshore renewables.

So straight after the Conference, we secured the commitment of leaders in both sectors to attend a summit on the matter, which we held in Aberdeen, last December. And I saw for myself some of the perceived barriers between the sectors start to come down and some great ideas for collaboration emerge. And that seminar suggested that we need to both sell the opportunity in offshore renewables to the oil & gas sector, and clearly show the benefits that oil & gas experience could bring to renewables.

So I can announce that Scottish Enterprise is publishing today a Guide to Offshore Wind and Oil & Gas Capability. This shows that the knowledge and expertise of Scotland’s oil & gas supply chain could help reduce costs of offshore wind operations by at least 20 per cent. And let me add that Sir Ian Wood will be leading a breakout session on that issue during the Conference.

And you also told us that a sector as innovative as renewables needed encouragement and support all the way from research to commercialisation. And that, as the sector moved from testing prototypes to full scale
manufacturing, that kind of support would be increasingly important. As a Government we listened to that. Scotland is now the only country that provides support all the way from research and development, to prototype development, then testing devices, and on to commercialisation and manufacturing of such machines. Through the £70 million pounds National Renewables Infrastructure Fund that we launched after last year’s conference, we are working with a range of industrialists – many of them in this room, and others – to understand their requirements for manufacturing and work towards meeting them. And to further strengthen that continuum of support – from the most basic research to full scale manufacturing and commercialisation – it is with great pleasure that today I can announce Scottish Government backing for the
Prototype Offshore Wind Energy Renewables Support fund, or ‘POWERS’.

POWERS is a £35 million pounds fund which will provide financial support for capital and operational costs associated with the production of full scale prototypes of next generation offshore wind turbines. We envisage making awards, which will operate over a minimum of 4 years, to between 5 and 7 companies at a level of around £5 million to £7 million pounds. And, crucially, this will support the gap between R&D and manufacturing and therefore complete our integrated package of support from research to manufacturing that is internationally competitive and world leading. The next generation of offshore wind turbines – designed to operate in deep water, not onshore wind turbines in a puddle – is absolutely critical in terms of mobilising the massive potential resource off Scotland’s shores.

And more broadly, besides that stable, continuous access to financial support right from R&D to manufacture, at least year’s conference, delegates stressed the need to provide as much stability as possible across the board, for a sector that is new and innovative and often operating in difficult natural environments. So we have sought to manage out the potential risks to the sector through political instability, by ensuring that we have taken other parties with us as we have developed policy. So our climate change legislation, setting the toughest targets in the world – although major economies like Germany are now coming up close behind – was passed unanimously.

But if the fundamental policy is shared across the political parties, the industry can take a great deal of comfort that that sense of direction and impetus will remain. I have to say, that since May’s election, as far as interest in renewable development in Scotland, then I think people can be reasonably confident that that policy will remain from the government in the near future in Scotland. But it is still of great importance that there is a by-in to that policy across the political spectrum.

When the Government was re-elected we hit the ground again running and we committed ourselves to a still more ambitious renewables target for 2020. So by 2020 we will generate the equivalent of 100 per cent of our gross annual electricity demand from renewables. That doesn’t mean that renewables will be the only energy technology being deployed in Scotland. What it means is that we will produce twice as much electricity as we need. Some half of that electricity – 100% equivalent of our demand – will come from renewables. The other half will be exported. This is an entirely achievable target.

This June, we published our Renewables Routemap and that, taken alongside the draft Electricity Generation Statement, which is currently in progress, it sets the course for a rapid expansion in renewables capacity, complemented by greater energy efficiency, advances in energy storage, and the development of carbon capture and storage technologies. And it is worth reflecting on the history of that 2020 target.
Since 2007 we have moved from a target of 40 – to 50 – then to 80 – and now to 100 per cent equivalent of domestic demand. And the increased targets reflect increased actual generation. We have consistently under-promised and over-delivered. When I made my first major speech as First Minister, setting out on the new Government’s priorities, back in May 2007, I said: “As of today, the renewables installed capacity, comprising hydro, wind, biomass and landfill gas installed capacity, is some 2.4 GigaWatts”. I predicted that in two years’ time – that is in 2009 – the figure would be over 3 GigaWatts. In fact, two years later we were producing almost 4 GigaWatts, exceeding our target by almost 25 per cent.

Now we know that last year in particular in Scotland, because of our exceptionally dry climate – I’ll just repeat that; it didn’t rain much in Scotland last year – there was a decline in our complement of hydro-power. But we know that overall we are making significant progress with renewables and we can now be confident that we will reach or exceed our 31% target in 2011. So, just as we have seen increased investment, and just as we have seen still further efforts by the Scottish Government to create the right background of support and stability, so too, in consequence, we are seeing increasing production.

Now, having talked of what has happened after last year’s conference let me say something about what hasn’t happened. There is still uncertainty over aspects of pricing policy and electricity market reform.
So, for example, one of Scotland’s greatest attractions is the way in which we offer some of the strongest incentives in the world for wave and tidal energy, particularly through our Renewables Obligation Certificates – ROCs – where we offer five for wave power and three for tidal. We have been very concerned at the UK Government review of ROCs and have urged, and will continue to urge, caution. Managing the risk caused by the actions of other Governments, is naturally less under our control, than our own actions, but we will certainly continue to bring as much influence as we can to bear, across the range of issues of
crucial importance – on issues like electricity market reform, on transmissions charges and the review of ROCs.

I was struck by the analysis of Andrew Buglass of the Royal Bank of Scotland – who is on the speakers’ list for tomorrow – in a recent article in The Scotsman, where he highlighted the complexity of electricity market and the way in which uncertainty can lead to a slowdown of projects. But he did stress that was for the short term because he also stressed that the uncertainty should soon be resolved. And I continue to believe that if we get the reforms right we can increase levels of investment and build-out, and make us the destination of choice for renewable energy finance. But I would stress, as I did last year to the United Kingdom Government, that without care then the direction of reform can lead to unanticipated and unexpected consequences.

However, this industry can take great comfort from one thing that is certain. Because, amidst the fog of uncertainty on EMR and on transmission charges, one fact stands out like the beam from a light house. And that is that the tide of history is flowing ever more strongly towards renewable energy. The demand for electricity is still growing. Energy gaps are beginning to emerge south of the Border and on the continent.
Countries across the world are moving towards more ambitious targets for reducing carbon emissions and increasing use of renewable energy. Countries such as Germany, Switzerland, Italy and Japan are moving away
from nuclear energy, towards clean and green energy. And that public policy shift has been accompanied in the industrial sector with recent announcements by companies of the stature of Siemens and SSE. They are withdrawing from the nuclear sector for hard-headed commercial reasons. So the global political and commercial trend towards reliance on renewable energy is clear – and, particularly for Northern Europe, that will rely upon Scotland’s potential as one of the green energy powerhouses for the continent.

So although the Scottish Government and Parliament have been world leaders in their approach to renewable energy and the low carbon economy, we want to do more still. That’s why, in our revised Government Economic Strategy, which we published just a few days ago, we established a new Strategic Priority – the Transition to a Low Carbon Economy. When we entered government in 2007 we set a central purpose, of focusing government and public services on creating a more successful country, with opportunities for all of Scotland to flourish, through increasing sustainable economic growth. We mustn’t let transient economic difficulties deter us from that purpose. If anything, they make it all the more important. Economic conditions have changed markedly since 2007, following the deepest global recession in over 50 years, and the Government Economic Strategy gives clear priority to accelerating economic recovery. Because it is returned growth in the private sector that is the key to unlocking Scotland’s potential. Our relative comparative advantage in the low carbon economy is key to unlocking that investment. All the evidence is that it is possible to grow the Scottish economy while simultaneously moving to a low carbon economy and that, indeed,
the Scottish economy will grow faster by moving on a low carbon basis.

Renewable energy is set to be worth £3.2 billion pounds in Scotland by 2013, and by 2020, the Low Carbon Economic Strategy shows that there could be 130,000 jobs in low carbon – close to doubling the current number – taking it to over 5 per cent of the Scottish workforce. So there are significant economic gains to be realised and, therefore, investment opportunities to be seized. So, we undertook during the election campaign to achieve nothing less than the reindustrialisation of Scotland. Reindustrialisation, not by desecrating our environmental heritage in our mountains and glens. But by rebuilding where our industrial strength was before, creating, for example, an industry on the Clyde to match shipbuilding in the nineteenth century, as we move to turbine building in the twenty-first century. And as, gradually and over decades, the energy sector in Scotland moves away from hydrocarbons, we have the opportunity to convert our substantial industry making and servicing the offshore installations to an industry serving the new renewable energy opportunities in the North Sea and the Moray Firth and the Pentland Firth. And, across Scotland, we will see that native ingenuity and engineering ability that has delivered so many benefits to mankind, turned to providing the benefit of clean energy for these islands and for northern Europe.

So the Scottish Government wants to play to a full part in steering the path to reindustrialising Scotland through the Renewables Revolution. And part of the purpose of this Conference is to give delegates here the
chance to tell us if there ways in which we can play our role better still – just as you did last year and just as we picked up on during the course of the last twelve months. But then, all of us – whether in industry or government or academia – have a role to play, to achieve the goals that we have set ourselves through partnership and cooperation. I do believe that it is important, not just that we work among ourselves, but that we reach out to the wider public. For me, that was one of the clearest messages to come out of last year’s conference. And perhaps an unexpected message to come out of a conference that then,
as today, was mainly composed of generators, producers and investors rather than consumers.

And although I touched on consumer interests last year, I was very encouraged and impressed by the way in which it was industry leaders like Ian Marchant of SSE who led the argument on that. And I think they’re absolutely right. The Scottish Government has sought to manage the political environment by working with other parties to achieve climate change targets that have been agreed unanimously. But in a democracy, managing out political risk means not just taking the political parties with you, but the people as well. And I believe that the people of Scotland are responsive to that engagement. They know that climate isn’t the same as weather, but they are still concerned at increased incidence of flooding, consistent with global warming. At the petrol pump and on their electricity bills, they are acutely aware of the upward trend in prices.

The figures which Angus showed us a few moments ago – looking in particular at the relative production costs of the renewable and hydrocarbons sectors – emphasised the point that rather being the cause of upward prices, renewables offer us the opportunity to contain these price rises. So they see the need to use energy more efficiently and shortly after last year’s Conference, we issued our Energy Efficiency Action Plan, setting Scotland’s first target for energy use reduction. And in last week’s Scottish budget we took further steps to ensure that target is met, with a Programme worth one third of a billion pounds to tackle fuel
poverty and increase home energy efficiency. And the public see the sense in moving to being more self-sufficient in energy supply and ensuring greater security of supply by better grid connections, sensibly charged, within the UK and across the Irish and North Seas. And above all, at the last election we got a tremendous response to the message that we gave the electorate, the same message that I have just given you, that developing renewable energy gives us the chance to reindustrialise this country.

So I believe that our shift to the low carbon economy offers benefits to everyone, but it also calls on all of us – private sector and public sector – companies and consumers – those sitting in offices and those fitting out offshore installations alike – to play our full part. That is why it is so important that all of us gathered here, to work with each other, and join all of our skills and ideas together, to map the way forward.

I am looking forward to playing an active part in today’s proceedings. And let us all resolve to make this conference, not just as productive as last year’s conference, but to make it absolutely clear that when we meet once again in a year’s time, we will be able to look back at the engagement and discussions we have had and see, not the end of the journey but another substantial milestone along the way.

Many thanks indeed.