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Scottish Energy Study Volume 5: Energy and Carbon Dioxide Projections for Scotland

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Executive Summary

Background

The Scottish Energy Study is the first major study of energy supply and demand to be conducted in Scotland for over a decade. The aim in producing this study is to provide the Scottish Government and other stakeholders with a coherent picture of the energy flows into and out of Scotland, including details of energy supply and consumption across the four main energy demand sectors, namely domestic, transport, industry and services.

Volume 5 of the study examines the prospects for future energy supply and demand in Scotland, and the implications of these trends for energy related CO 2 emissions. Because Scotland's energy economy is strongly linked and influenced by that of the UK overall, these projections 1 for Scotland have been developed from projections for the UK made by the Department for Business Enterprise and Regulatory Reform ( BERR) 2.

Projecting future trends in any area of a modern economy is fraught with uncertainty, and energy is no exception due to the many differing factors impacting on the patterns of supply and demand. In particular trends in economic growth, primary energy prices and government policies ( e.g. aimed at reducing greenhouse gas emissions or increasing security of supply) can have a major impact on both demand and the mix of energy sources used to meet that demand. The study has addressed these uncertainties in three ways.

Firstly it has examined two scenarios taken from the BERR projections for the UK that consider the impact of different fossil fuel price trajectories, namely:

Central - Central ( CC) - in which primary energy prices are assumed to follow a 'central' trajectory and the energy policies set out in the UK Energy White Paper 2007 ( EWP) are assumed to have an impact in the centre of their potential range.

High - Central ( HC) - in which primary energy prices are assumed to follow a 'high' trajectory and the energy policies set out in the UKEWP are assumed to have an impact in the centre of their potential range.

Secondly the study has adjusted the projections to take account of key factors specific to Scotland, in particular the Scottish Government's targets for economic and population growth, and the expansion of renewable energy production, that are distinct from the overall UK trend used by BERR.

Thirdly the study includes a set of sensitivity analyses, which examine how changes to assumptions impact on Scottish energy demand and supply.

Approach

The starting point for energy projections must be a reference set of data for a recent year. The previously published Scottish Energy Study - Volume 1 3 provides such statistics for Scotland in 2002.

Starting from the reference year, the estimation of future energy demand is a complex issue because consumer demand is not for energy directly but for the services it provides such as warmth, lighting, travel, entertainment, motive power, process heat, etc. Some of the main factors influencing energy demand are:

  • Prices of primary energy supply
  • Economic growth
  • Population growth
  • Investment in energy efficiency
  • Changes in the mix of fuels used
  • Government policies.

BERR's energy and CO 2 projections for the UK give separate projections for each of the main energy consuming sectors, namely domestic, industry, services (including agriculture), and transport. The projections are produced using a mathematical model that uses econometric relationships to project future demands and includes feedback between demand and delivered energy prices. The impact of policy measures that directly affect energy prices ( e.g. the EU Emission Trading Scheme) are assessed by the model, while the model can be constrained to include other policy targets ( e.g. liquid biofuels). The model delivers solutions that balance energy supply and demand at the UK level.

BERR's projections included the impact of UK level policy measures, including those introduced by the Climate Change Bill, those proposed in the Energy White Paper 2007 and the impact of the EU Emission Trading Scheme ( ETS) on the electricity generation sector. However, BERR's projections were produced before the EU 2020 target for renewable energy was agreed, and therefore the measures needed to meet this target across the UK through, for example, accelerated deployment of renewable electricity and heat were not considered. As a consequence these projections for Scotland also do not explicitly incorporate the EU 2020 target, although ambitious targets for renewable electricity and heat are investigated. BERR is currently consulting on the strategy to meet the EU 2020 target, and therefore the policy mechanisms to be used and the division of effort between sectors is currently uncertain 4.

Scottish demand in each sector, and for each fuel type, was escalated from the 2002 reference year by scaling in line with the BERR projections for the UK. While this approach has the advantage of maintaining consistency and comparability with the projections for the UK, it does implicitly assume that Scotland follows the UK average with regard to the key drivers of energy demand ( i.e. economic and population growth, impact of UK level policy measures, etc.). Therefore these initial estimates were adjusted to take account of differences between Scotland and the UK average. In particular the projections were adjusted to take account of the Scottish Government's targets for economic or population growth, whichever was considered to be the more influential on the demand sector 5, while sensitivity analyses investigated other variations specific to Scotland.

Baseline scenario energy projections

Final Energy Demand

Table S1 and Figure S1 show projections of overall final energy demand divided by sector. In the CC scenario overall demand falls by about 4% between 2005 and 2020, while in the HC scenario the fall is 7%. These trends compare to falls of 3% and 6% for the UK overall in the CC and HC scenarios respectively. The principal factor driving this reduction in demand, both in Scotland and the UK overall, is the impact of policy measures proposed in the UK Energy White Paper. For example, BERR's central projections estimate that the UK's total final energy demand will be 9% less with the Energy White Paper measures, than it otherwise would have been.

The main drivers that differ between Scotland compared to the UK overall are economic growth (economic growth in Scotland, historically lower that the UK, is assumed to match UK growth by 2011), population growth (lower in Scotland), the different mix of industries in Scottish manufacturing and the different balance between public and commercial activity in the services sector. Overall these factors appear to largely cancel out although there are some significant trends within individual demand sectors.

Figure S2 shows the overall demand projections divided by fuel type. Demand for all energy sources is projected to decline, with the exception of direct use of renewable energy, which increases by over 100% 6, albeit from an initial low base. The main reductions in demand affect natural gas, down by 15% to 19% ( UK 14% to 19%) and coal, down by 37% to 38% in the HC and CC scenarios. The reduction in gas demand comes mainly from the domestic sector, while coal consumption falls in the domestic and industry sectors. Oil demand is steady in the HC scenario but increases by 3% in the CC scenario, due to increased demand for transport ( UK falls 1% to 3%). Electricity demand decreases slightly (-1%) in the CC scenario and is level in the HC scenario ( UK -1% to +1%).

Table S1 Scottish Final Energy consumption divided by demand sector ( TWh)

CC Scenario

2002

2005

2010

2015

2020

Change 2005 - 2020 7

Domestic

56.0

54.2

46.6

42.5

37.0

-32%

Services

25.8

26.8

25.3

24.6

24.5

-9%

Industry

36.3

34.5

35.1

36.8

39.6

15%

Transport

47.1

48.6

50.7

55.2

55.9

15%

Total

165.0

164.2

157.8

159.0

156.9

-4%

ScenarioHC

2002

2005

2010

2015

2020

Change 2005 - 2020

Domestic

56.0

54.2

45.6

40.6

35.0

-35%

Services

25.8

26.8

25.3

24.6

24.5

-9%

Industry

36.3

34.5

35.0

36.3

39.3

14%

Transport

47.1

48.6

50.3

53.8

54.0

11%

Total

165.0

164.2

156.2

155.3

152.7

-7%

Note rounding to one decimal place may introduce some small errors in summations.

Figure S1 Scottish final energy demand by sector 2002 to 2020 for the CC scenario ( TWh)

Figure S1 Scottish final energy demand by sector 2002 to 2020 for the CC scenario (TWh)

Figure S2 Scottish final energy demand by fuel type in the CC scenario ( TWh)

Figure S2 Scottish final energy demand by fuel type in the CC scenario (TWh)

Energy Supply - Electricity Generation

Figures S3 and S4 give estimates for future Scottish electricity generation by fuel type to 2020. Projections for generation from renewable energy sources are based on the assumption that Scotland achieves its targets to generate 31% of Scottish gross electricity consumption from renewable sources by 2011, rising to 50% by 2020 8.

Coal fired generation is anticipated to continue through the projection period following the decision by Scottish Power to fit flue gas desulphurisation ( FGD) equipment to Longannet in order to meet the requirements of the EU's Large Combustion Plant Directive, but nuclear generation is expected to decline with the possible closure of Hunterston after 2016 9. Natural gas generation continues at Peterhead power station, and some additional capacity is added by 2015. The main difference between the CC and HC scenarios is an increase in coal generation with the higher fuel prices of HC. This is because in BERR's assumptions the relative cost of gas to coal is higher in the HC scenario, while the assumed prices for emission allowances in the ETS are unchanged between the scenarios at €20/tCO 2 from 2010-2015 and €25/tCO 2 from 2015 to 2020.

Scotland remains a net exporter of electricity over the full period to 2020 in both the CC and HC scenarios.

Figure S3 Electricity generation by fuel type in Scotland to 2020 in the CC scenario ( GWh)

Figure S4 Electricity generation by fuel type in Scotland to 2020 in the HC scenario ( GWh)

Figure S4 Electricity generation by fuel type in Scotland to 2020 in the HC scenario (GWh)

Energy Supply - Oil Refining

Scotland has one major oil refinery at Grangemouth. The Scottish Energy Study - Volume 1 has estimated that in 2002 this produced 99.6 TWh of saleable products, of which 61% was consumed in Scotland, and emitted 2.8Mt of CO 2. BERR's projections for the UK assume a small increase in refinery activity over the projection period with CO 2 emissions increasing from 5.7 MtC/yr (20.8 MtCO 2/yr) in 2002 to 6.1MtC/yr (23.4 MtCO 2/yr) by 2020. This trend was the same for the CC and HC scenarios, and it has been assumed here that the same trend will be followed in Scotland.

Primary Energy Demand

Total primary energy consumption 10, shown in Table S2, declines by 10% in the CC scenario and 8% in the HC scenario. This should be compared to falls of 6% and 3% respectively for the UK.

A number of factors lead to the greater fall in Scottish primary energy consumption in the CC scenario compared to the HC scenario. Firstly there is more generation from Scotland's coal fired power plant in the HC scenario because the relative price of gas to coal is greater in the HC scenario. Scotland has less gas fired generation capacity, and consequently the increase in coal generation is not offset by an equivalent reduction in gas, an effect that occurs in the UK projections. Secondly Scottish gross electricity consumption is higher in the HC scenario, and as a consequence Scotland is assumed to increase its power generation from renewable sources to meet its targets. In contrast to this overall trend oil consumption falls in the high oil price scenario, and there is a greater reduction in demand for gas compared to the CC scenario.

Table S2 Total primary energy demand ( TWh)

CC Scenario

2002

2005

2010

2015

2020

Change 2005 - 2020 11

Coal

44.1

35.4

33.0

17.8

13.1

-63%

Natural Gas

84.3

78.6

67.3

69.6

74.7

-5%

Oil

72.2

70.9

71.2

74.9

75.1

6%

Nuclear

42.2

49.7

47.7

47.7

24.3

-51%

RE

7.7

9.6

20.6

26.2

32.9

241%

Total

250.5

244.2

239.8

236.2

220.1

-10%

ScenarioHC

2002

2005

2010

2015

2020

Change 2005 - 2020

Coal

44.1

35.4

35.9

23.7

22.6

-36%

Natural Gas

84.3

78.6

66.2

67.2

72.1

-8%

Oil

72.2

70.9

70.6

73.4

73.1

3%

Nuclear

42.2

49.7

47.7

47.7

24.3

-51%

RE

7.7

9.6

20.7

26.6

33.6

248%

Total

250.5

244.2

241.1

238.6

225.7

-8%

Note rounding to one decimal place may introduce some small errors in summations.

Sensitivity analysis of final energy demand projections

Uncertainties over key drivers affecting energy demand mean that the baseline scenario projection described above should be regarded as a starting point from which to investigate other potential outcomes. To investigate the potential impact of other possible trends in key factors that influence Scottish energy demand, a sensitivity analysis has been made of how the baseline scenario projections may be altered by:

  • Lower growth rate for Scotland's economy ( GDP)
  • Lower growth rate for population
  • Higher growth in car ownership
  • Higher and lower growth in air travel

This sensitivity analysis has shown that those factors driving an increase in energy demand ( i.e. higher car ownership and air travel) could in total increase overall demand by 3.5% over the CC baseline by 2020. Those factors causing a decrease in energy demand ( i.e. lower growth in GDP, population and air travel) could in total reduce demand by about 6% by 2020. The factor having the greatest effect was the lower GDP growth assumption that reduced energy consumption by around 4% compared to the baseline CC scenario projection in 2020. The overall trend in final energy demand for these high and low cases compared to the baseline CC projection is shown in Figure S5.

Figure S5 Overall impact of the sensitivity analysis variables on Scottish final energy demand compared to the baseline CC scenario projection.

Figure S5 Overall impact of the sensitivity analysis variables on Scottish final energy demand compared to the baseline CC scenario projection.

Baseline scenario projections of energy related CO 2 emissions

Energy related CO 2 emissions actually exceed Scotland's net carbon emissions when sequestration by land use and forestry is taken into account. CO 2 emission projections for Scotland to 2020, classified in line with the national inventory categories are listed in Table S3. Overall Scottish energy related CO 2 emissions are projected to decline, compared to 2005, by between 7% and 9% by 2011 and by between 13% and 18% by 2020 for the HC and CC scenarios respectively.

This is equivalent to a reduction of between 18% and 30% compared with the National Atmospheric Emissions Inventory ( NAEI) for 1990 12.

In the CC scenario the reductions occur in the domestic, services and energy industries sectors (except for oil refineries), with the greatest reductions projected to be in electricity generation and the domestic sector. Emissions increase in the industry and transport sectors. Despite the greater reduction in emissions from demand sectors in the HC scenario, it is the CC scenario that attains the greatest overall reduction in emissions. This is because under HC more coal fired generation occurs in Scotland because of the more favourable price differential of coal over gas in this scenario. This highlights the strong influence of power generation on overall Scottish CO 2 emissions.

About 7% of Scottish emissions in 2002 were associated with the export of electricity. By 2020 it is projected that 4%-7% of emissions will continue to be associated with electricity exports, although the absolute quantity is less and the figure is highly sensitive to assumptions regarding power generation in Scotland.

Table S3 Projections of Scottish energy related CO 2 emissions to 2020 disaggregated according to the national inventory classification (Mt CO 2)13

ScenarioCC

ENERGY

2002

2005

2010

2011

2015

2020

Change 2005-2020 14

1. Energy Industries

22.1

18.7

16.9

16.0

12.5

12.0

-36%

A Electricity

17.2

14.3

12.4

11.5

8.1

7.9

-45%

B Refineries

2.8

2.4

2.8

2.9

2.9

3.0

24%

C Other energy industry

2.1

2.0

1.7

1.6

1.4

1.1

-45%

2. Manufacturing

5.2

4.6

4.7

4.7

4.9

5.2

14%

A Iron and Steel

0.0

0.0

0.0

0.0

0.0

0.0

-3%

B Other industries

5.1

4.6

4.6

4.7

4.9

5.2

14%

3. Transport

11.5

11.9

12.0

12.2

13.1

13.2

12%

A Road

8.7

8.7

8.8

9.0

9.5

9.3

8%

B Rail

0.1

0.1

0.1

0.1

0.1

0.1

1%

C Marine

0.6

0.7

0.6

0.6

0.7

0.7

2%

D Aviation

2.1

2.5

2.4

2.5

2.8

3.2

28%

4. Other Sectors

11.5

11.1

9.4

9.2

8.5

7.5

-33%

A Commercial/Institutional

2.6

2.7

2.5

2.5

2.4

2.3

-15%

B Domestic

8.7

8.1

6.7

6.6

5.9

4.9

-40%

C Agriculture

0.2

0.2

0.2

0.2

0.2

0.2

6%

Total

50.3

46.3

43.0

42.2

38.9

38.0

-18%

Note rounding to one decimal place may introduce some small errors in summations.

Table S3 (continued) Projections of Scottish energy related CO 2 emissions to 2020 disaggregated according to the national inventory classification (Mt CO 2)15(continued)

HC Scenario

ENERGY

2002

2005

2010

2011

2015

2020

Change 2005-2020

1. Energy Industries

22.1

18.7

17.9

17.2

14.5

15.3

-18%

A Electricity

17.2

14.3

13.4

12.8

10.2

11.2

-22%

B Refineries

2.8

2.4

2.8

2.9

2.9

3.0

24%

C Other energy industry

2.1

2.0

1.7

1.6

1.4

1.1

-45%

2. Manufacturing

5.2

4.6

4.6

4.6

4.8

5.1

10%

A Iron and Steel

0.0

0.0

0.0

0.0

0.0

0.0

-3%

B Other industries

5.1

4.6

4.6

4.6

4.7

5.0

10%

3. Transport

11.5

11.9

11.9

12.0

12.7

12.8

8%

A Road

8.7

8.7

8.8

8.9

9.3

9.1

5%

B Rail

0.1

0.1

0.1

0.1

0.1

0.1

1%

C Marine

0.6

0.7

0.6

0.6

0.7

0.7

2%

D Aviation

2.1

2.5

2.4

2.4

2.7

2.9

18%

4. Other Sectors

11.5

11.1

9.3

9.1

8.2

7.1

-36%

A Services

2.6

2.7

2.5

2.5

2.4

2.4

-14%

B Domestic

8.7

8.1

6.6

6.4

5.6

4.6

-44%

C Agriculture

0.2

0.2

0.2

0.2

0.2

0.2

6%

Total

50.3

46.3

43.7

43.0

40.2

40.2

-13%

Note rounding to one decimal place may introduce some small errors in summations.

Sensitivity analysis of baseline CC scenario CO 2 projections

Just as there are uncertainties over the projections of energy demand and supply, so too there are uncertainties over the future levels of energy related CO 2 emissions. The impact of the sensitivity variables affecting energy demand and hence CO 2 emissions is shown in Figure S6. Those factors driving a reduction in energy demand ( i.e. lower growth in GDP, population and air travel) result in total in a reduction in CO 2 emissions of about 4% by 2020, and the factors driving an increase ( i.e. higher car ownership and air travel) lead in total to CO 2 emissions about 3% above the CC baseline projections.

Figure S7 shows the overall impact of the supply side sensitivity factors on Scottish CO 2 emissions. This illustrates the powerful influence of the electricity generation sector, and in particular decisions on future fossil generation, on Scotland's total CO 2 emissions.

Figure S6 Overall impact of the demand side sensitivity analysis variables on Scottish energy related CO 2 emissions compared to the baseline CC scenario projection

Figure S6 Overall impact of the demand side sensitivity analysis variables on Scottish energy related CO2 emissions compared to the baseline CC scenario projection

Figure S7 Overall impact of the supply side sensitivity analysis variables on Scottish energy related CO 2 emissions compared to the baseline CC scenario projection

Figure S7 Overall impact of the supply side sensitivity analysis variables on Scottish energy related CO2 emissions compared to the baseline CC scenario projection

Overall impact of both supply and demand side sensitivity factors

The combined impact of all the sensitivity factors investigated, covering both supply and demand is shown in Figure S8. Together these could cause an increase in CO 2 emissions of about 19% above the central CC scenario projection or a reduction of about 16% both by 2020. These variations are more significant than the change in emissions caused by the difference in price assumptions between the CC and HC scenarios, which was around 6%.

Figure S8 Overall impact of the sensitivity analysis variables on Scottish energy related CO 2 emissions compared to the baseline CC scenario projection.

Figure S8 Overall impact of the sensitivity analysis variables on Scottish energy related CO2 emissions compared to the baseline CC scenario projection.

Key Observations from the projections to 2020

Baseline Scenario Projections (including the Scottish Government's targets for GDP, population and renewable energy)

The following results and trends from the baseline CC and HC scenario projections for energy and CO 2 are particularly noteworthy (see also Table 25):

  • Scottish final energy demand falls by 4% and 7% between 2005 and 2020 with the larger fall occurring with the HC scenario.
  • The fall in demand occurs in the domestic sector (down 32%-35%) and services sector (down 9%) with demand increasing in the industry and transport sectors.
  • Transport overtakes domestic to become the largest demand sector by 2010.
  • In the HC scenario, demand for electricity stays fairly level over the period to 2020. With the CC scenario it drops by 1%.
  • Scottish primary energy consumption falls by between 8% -10% between 2005 and 2020.
  • Nuclear's share of primary energy declines with the possible closure of Hunterston B after 2016. This is replaced mainly by renewable energy which grows substantially (between 241% and 248%), mainly in electricity generation, and by 2020 accounts for about 15% of primary energy supply.
  • Oil accounts for 29% of Scottish primary energy in 2002 but increases to 32% -34% in 2020, driven by growing demand from road and air transport.
  • Scottish energy related CO 2 emissions are projected to decline by between 7% and 9% from 2005 to 2011, and by between 13% and 18% between 2005 and 2020. Compared with the National Atmospheric Emissions Inventory ( NAEI) inventory for 1990 16 emissions are projected to fall by between 18% and 30% by 2020.
  • Electricity is responsible for 34% of Scottish energy related CO 2 in 2002 and is projected to fall to 21%-28% in 2020. Emissions from electricity generation are highly sensitive to decisions on future fossil fuel generation, and in particular coal fired generation capacity.

Sensitivity Analysis

The sensitivity analysis explored the impact on CO 2 emissions of variations and uncertainties specific to Scotland in the baseline projections:

  • Scotland's energy related CO 2 emissions are particularly sensitive to the mix of fuels used for power generation. The higher and lower levels of fossil fuel generation investigated in this sensitivity analysis could change Scotland's overall CO 2 emissions by +17% to -11% by 2020. Furthermore, power stations in Scotland operate in the UK market and therefore their operation will be determined at the UK level, i.e. decisions around generation will sometimes need to be taken in the context of that UK market.
  • If Scotland's rates of economic growth and population growth follow the lower historic trend, rather than the Scottish Government's targets, CO 2 emissions will be about 2% lower in 2020 compared to the baseline.
  • Higher or lower rates of growth in air travel could alter CO 2 emissions by about +/-1% by 2020.
  • Increased car ownership to the average for the UK could increase CO 2 emissions by about 1.5% by 2020 compared to the baseline.
  • An expansion of renewable heat supply to 10% of demand could reduce CO 2 emissions by about 1.6% by 2020.

Table S4 Summary of key results

Change in Final Energy Demand 2005-2020 (%)

Change in CO 2 emissions 2005-2020 (%)

CC Scenario

-4%

-18%

HC Scenario

-7%

-13%

CC Scenario Sensitivity - High 17

-1%

-2%

CC Scenario Sensitivity - Low 18

-10%

-31%

Energy Prices

Fuel price differences within the range covered by the CC and HC scenarios have a modest impact on total energy demand, but have a more significant influence on the mix of fuels to be used. For example, by 2020 total primary energy demand was 2.5% higher in the HC scenario mainly due to increased electricity generation from coal. This resulted in CO 2 emissions around 6% higher in the higher fuel price scenario.

Projection uncertainty

As indicated previously projections into the future are inherently uncertain. This uncertainty arises from a number of sources including:

  • Uncertainty in the baseline (2002) data on which the projections are based (linked to statistical margins and estimating uncertainties).
  • Modelling approximations.
  • Impact of policy measures ( i.e. measures in the UK Climate Change Programme and EWP).
  • Variations in future parameters ( e.g.GDP, population, etc.)

The uncertainty over future parameters has been covered in this work through the analysis of two scenarios, and a set of sensitivity analyses. The sensitivity analysis has shown that this area of uncertainty can cause variations of about 20% around the central projection of CO 2 emissions by 2020.

The other factors above are analytical uncertainties that are likely to have less impact than the uncertainty over future parameters. For example BERR has estimated the uncertainty around its central projection, in terms of CO 2 emissions, to be about plus or minus 10%.

These observations suggest that, for a given scenario ( i.e. setting aside the uncertainties in the scenario itself), the uncertainty applying to a particular projection may be of the order of 10-15%. However, since these uncertainties are the same for all projections, they will largely cancel out when considering differences between scenarios. Therefore the relatively small trends between scenarios reported herein are significant, and should not be dismissed as "within the projection error".