The SNP Government has received another boost from Westminster as it tries to deliver the long-awaited green jobs boom although its decision to abandon the oil and gas industry could come back to haunt ministers.
As the wait for the overdue publication of the Scottish Government’s energy strategy drags on, the Labour Government has made a move that could kick start work on major developments that have been in planning for ages.
The UK Department for Energy Security and Net Zero has said it intends to introduce a support regime for investment in long duration energy storage. It claims this will “unlock billions in funding for vital projects which will help create thousands of jobs and deliver clean power as the country accelerates to net zero”.
The decision was announced two weeks after the UK Infrastructure Bank agreed to provide up to £87 million towards the cost of a subsea cable plant in Ayrshire.
The cap and collar scheme concerned will guarantee a minimum, collar, price for the energy firms supply from long duration schemes such as pumped storage hydropower developments. If the market price exceeds the cap plant operators will have to pay over any excess revenues.
A range of pumped storage schemes are under development in Scotland that will follow the approach pioneered at the ‘Hollow Mountain’ plant at Cruachan in the Argyll hills. This works by using the flow of water between a reservoir and Loch Awe to power turbines that can generate energy when needed.
Champions say pumped storage hydropower could help overcome the problems caused by the fact that windfarm output is dependent on the weather. The UK has spent a fortune paying windfarm operators not to generate power in times of low demand because it can’t be stored currently.
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The cap and collar scheme could address a major challenge that is holding back developments that require huge upfront investment.
The Coire Glas scheme that SSE plans to develop on the shores of Loch Lochy in the Highlands will cost around £1.5 billion. The Scottish giant has said it will not go ahead unless it has confidence about the revenues the plant will generate. A cap and collar scheme could provide the required assurance.
SSE has held out the prospect that construction of Coire Glas could create 500 jobs at peak times.
However, the prospect that the energy department’s cap and collar plan will pave the way to Coire Glas and other schemes going ahead will alarm many people.
Campaigners are concerned about the potential impact of schemes on Scotland’s landscape and wildlife.
Other critics are concerned that householders will probably have to pick up the tab for the cap and collar scheme. The costs of the subsidies provided for windfarm developments are added to energy bills.
In response, SSE has insisted that consumers are unlikely to face significant bills.
The company reckons that wholesale prices will be between the cap and floor levels most of the time, in which case generators will not get paid anything.
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It is no surprise that the SNP Government has shown enthusiastic support for Coire Glas and for Drax’s plans to expand the Cruachan plant.
Scotland looks set to get the lion’s share of the benefits that will be generated by the cap and collar programme.
The vast bulk of the capacity in planning is in Scotland, which is blessed with hills and lochs that are suitable for pumped storage schemes.
Former Australian prime minister Malcom Turnbull, who heads the International Hydropower Association, lobbied Rishi Sunak in March for support for schemes in the UK. Mr Turnbull said the country has almost 7GW of “shovel-ready” projects under development.
In May last year Scottish Renewables highlighted six schemes in Scotland which could add 5GW to the UK’s capacity in total.
These include Red John on Loch Ness, which Norwegian giant Statkraft acquired from Scottish investors last year.
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If all goes to plan, Scotland looks set for years of pumped storage development activity that will be underpinned by a UK cap and collar scheme.
This will add to the crucial support provided for Scottish wind power developments by households across the UK under the Contracts for Difference programme.
SSE won support under the programme for the huge Seagreen windfarm off the Angus Coast.
Scotland received almost all the funding provided for onshore wind developments for years, as they were effectively banned in England.
The prospect of a pumped storage jobs bonanza will be welcome to First Minister John Swinney after years in which renewables activity has failed to provide the boost to the economy predicted by SNP ministers.
But there are big questions about whether new jobs can be created fast enough to compensate for the loss of oil and gas work.
The cap and collar scheme is only expected to open for applications next year.
North Sea industry leaders are deeply concerned that chancellor Rachel Reeves could deliver a hammer blow in the Budget she will announce on October 30.
READ MORE: 'Mad' North Sea tax hike to cost UK billions warns oil industry big gun
Labour has said it will increase the rate of the windfall tax by three percentage points to 38%. That will take the total rate payable by oil and gas firms to 78%.
The concern is that the tax hike will be accompanied by cuts in investment allowances that will prompt firms to slash spending.
Industry body Offshore Energies UK has warned that 35,000 jobs could be at risk.
Last week came further evidence of the challenges the uncertainty about Labour’s tax plans has caused.
North Sea pioneer Deltic Energy said chief executive Graham Swindells had stood down with immediate effect as the firm launched a cost-cutting drive.
READ MORE: North Sea pioneer parts company with chief executive amid oil industry upheaval
Mr Swindells led Deltic on a hugely successful exploration campaign in what is considered to be a mature area.
Deltic persuaded Shell to buy into a licence on which the firms proceeded to make a bumper find.
However, Deltic had to withdraw from the licence after it found it could not raise the funding needed to cover its share of the related costs as uncertainty about the tax regime rattled investors.
The licence has gone to Shell and ONE-Dyas of the Netherlands, who may sit on it.
Deltic will now focus on other areas depriving the UK of its exploration expertise.
News last week that Japanese oil firm Japex had decided to put its stake in the Seagull field east of Aberdeen up for sale suggested some overseas investors have had enough.
But Keir Starmer may not be too worried about the prospect of Labour’s North Sea tax plans triggering a voter backlash.
Oil and gas firms have few friends.
After criticising Labour’s plans, the SNP suffered a drubbing in the July general election.
Its credibility on oil and gas matters is in tatters.
While Alex Salmond based the 2014 independence campaign on the claim that oil and gas would power Scotland to prosperity, SNP Governments led by his successors appeared happy to snub the industry for the sake of the green vote.
In the draft energy strategy published last year after long delays the administration led by Nicola Sturgeon recommended a presumption against exploration in the North Sea.
Ms Sturgeon then opposed plans for the huge Cambo oil field development West of Shetland. Her successor Humza Yousaf slated the UK Government for approving the proposed Rosebank development.
Norwegian giant Equinor, which is leading work on Rosebank, has said it may reconsider its plans for the field if fears about the Budget are confirmed.
Those who hope the prospect of sharp cuts in oil and gas investment will prompt the Scottish Government to accelerate action on the green jobs front look set for disappointment.
In September last year the Scottish Government said it would publish the final version of its energy strategy this summer, along with an updated version of the £500m Just Transition Plan, which was rubbished by a committee of MSPs in March.
With Autumn about to give way to winter the wait for the plans goes on.
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