History of Energy

Energy is a vital part of everyday life

It has been around since the beginning of time

The history of energy dates back to the early days of combustion, when the first humans began using fire to keep warm and cook food. From then on, the use of energy has evolved, with advances in technology and science leading to the creation of sources such as electricity, oil, and natural gas. The industrial revolution of the 18th century saw the large-scale use of coal and steam power to generate energy and drive economic development. In the 20th century, the invention of nuclear power and the development of renewable energy sources such as solar and wind power have opened up possibilities for a greener, more sustainable energy future.

The following three days are critical in the history of the island country known as the United Kingdom. This is a country that was described as "a little island no one listens to" by an unknown Russian administrator less than a year ago. Which begs the issue that if the UK is a small island what do the Russians think of Scotland if they think of them at all?

It's an odd coincidence that if you scratch the surface of the huge geopolitical crises dominating the news right now, you'll find an oil or gas-colored boil festering beneath the surface or proudly on show. Whether we're talking about sanctions and Russia's gas stranglehold on Europe, or Scotland and the divvying up of the North Sea's oil and gas resources, or ISIS and their drive for a mediaeval caliphate atop the Middle East's oil reserves, energy, the money (and thus power) it represents, and the fear of losing it, is what connects all of these things.

The Russian and ISIS based energy conundrum has been picked over and dissected more often than the shortcomings of the English national football team; but perhaps less interrogated by the media or the public at large is what, if any, impact a Yes vote in the Scottish referendum would have on electricity and gas suppliers, costs, regulations, markets and prices both North and South of the border.

The UK government has issued a wide-ranging and extensive report on the matter, which, at 101 pages, makes for a slightly sleepy read, but the primary idea of the paper is very simple to understand. In general, Independence has a negative influence on energy and gas bills north of the border but has little (if any) impact on households south of the border. This is mostly due to two characteristics of energy in the United Kingdom: the first is related to the form of subsidies, and the second is related to how markets are interconnected.

The Scottish Highlands power infrastructure is now subsidized by the whole UK since the population density required to support fair prices for electricity supply simply does not exist in these distant locations. In the absence of the rest of the UK, henceforth referred to as the rump Kingdom or RK for short, the lowlands will need to pick up this subsidy on their own. In the case of independence, this will add £36 to the expense of each Scottish household.

Another issue to consider is that renewable energy investments in the UK are supported via a series of government regimes that are ultimately paid for by bill payers. I'm referring especially to the Renewable Obligation, the Feed-in-Tariff, and the new Contracts for Difference (CFDs). The crucial aspect to remember is that most of the generation that will benefit from these many regimes and initiatives is situated, or will be located, in Scotland. Indeed the "Yes" campaign has made the strength of Scotland's renewables industry a rather key economic pillar along with North Sea oil and financial services.

However, having a customer or group of customers to divide the cost subsidies for using renewable energy sources rather than traditional ones is required. So it works (for the time being, disregarding the magnitude and frequency of the complaints previously documented showing the economic implications of the carbon neutral program) with 62 million homes sharing the expense, but I doubt it would stack up split over only 5 million.

Furthermore, assuming that RK will willingly pay their subsidies to a foreign government is quite dangerous. The plan is expected to be refocused on RK-based renewable energy, with any shortfall being market tested mercilessly for optimal value. As a result, Scotland may have to compete with French nuclear power, French renewables, Irish renewables, international carbon offset programs, and other unproven solutions. This is because, while Scotland is still a part of the United Kingdom, it makes sense to become as self-sufficient in these technologies as possible, even if it means paying a "home-grown" premium; however, this rationale no longer applies once they are a foreign nation.

The second source of concern for an independent Scotland is infrastructure investment in a bright new world. Scotland now has £6 billion set aside for high voltage power infrastructure upgrades between 2015 and 2020, accounting for one-third of the total projected energy infrastructure upgrading. It will now be able to sustain some of this investment since RK will probably continue to acquire considerable amounts of gas from Scotland and will be required to pay the corresponding gas transportation costs and investments.

However, we must keep in mind that they will compete with Norwegian, Dutch, Belgian, and, dare we say, Russian pipeline gas, as well as North American shale gas, Middle Eastern LNG, and maybe RK shale gas. All of this indicates to a possible infrastructure financing gap that may need to be addressed by a consumer price increase.

Almost as an aside, what will happen of Scottish and Southern Electricity, a company headquartered in Scotland but with the bulk of its customers in RK after independence, is an intriguing subject. Then there are the capacity payments, which presently benefit Scottish generators but will very certainly be renegotiated after independence.

So much of the argument has centered on who owns the North Sea Oil income and how much oil truly resides in reserve under Scottish seas; a completely reasonable issue with a variety of responses. However, there is a different concern in the power markets that is vital if you believe renewables will play a major role in the future of an independent Scotland, and that is who owns the consumers.

And I assume that no one north of the border has really devoted their thoughts to comprehending the ramifications of this undeniable reality. You may have all the wind and waves you like, but without a customer base prepared to pay an artificial premium for the power it generates then Scotland's renewable windfall is simply a utopia built on fool's gold.


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