Scotland’s record year for renewables

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Yesterday, the Scottish Government published new statistics on renewable energy generation up to the end of 2017.

The figures show a significant increase in output during the final three months of last year – with 2017 now the best year on record for renewables in Scotland.

With positive economic news not always that easy to find in recent times, these numbers are clearly welcome.

There is an added benefit. Next week’s GDP numbers for Q4 2017 will include this increase in electricity generation. So the numbers should provide a significant boost to the production sector of the economy, potentially lifting the overall quarterly growth figures substantially.

Renewable energy output in Scotland

Back in 2007, the target was for 50% of Scotland’s annual gross electricity consumption to come from renewables by 2020.

As chart 1 highlights, this target has not just been met but exceeded well in advance.

In 2017, just over 68% of electricity consumption in Scotland was met by renewables.

Chart 1: Electricity generated (GWh) from renewable sources in Scotland: 2000-2017

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Source: Scottish Government

The rise has been driven by onshore wind capacity.

As of the end of 2017, there was just over 10,000 MW of renewables capacity in Scotland – nearly 75% of which is from onshore wind.

Around 90% of the increase in renewables capacity since the end of 2010 has come from onshore wind.

Table 1: Cumulative Installed capacity of sites generating electricity from renewable sources in Scotland, MW (as at final quarter of each year)

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Source: Scottish Government

The Scottish Government now has a revised target of generating the equivalent of 100% of Scotland’s gross annual electricity consumption by 2020.

On its current trajectory, meeting this target is likely to be difficult – primarily because the expansion hoped for in offshore wind has yet to materialise.

Of course, there remains an ongoing debate about whether or not Scotland – and the UK as a whole – has developed the hoped for manufacturing base to enable the economy to take full advantage of the supply chain benefits from renewables. But this reflects a wider weakness in UK industry and policy more generally rather than something unique to renewables.

Implications for next week’s economic growth figures

Renewable energy output is a key component of Scotland’s GDP figures. It forms part of the ‘Electricity and Gas Supply’ sector. The sector makes up around 2.6% of Scottish GDP.

What the statisticians capture in the GDP series is effectively a measure of the output from renewables – i.e. how much electricity is generated. So this week’s figures of a sharp increase in generation will feed through to faster Q4 GDP growth.

The series can be volatile and rise or fall depending upon wind-speeds and rainfall. The statisticians will try to smooth out some of the seasonal impacts, but even then it can be volatile. The key point however, is that whilst output will vary from time-to-time, if capacity is growing then its contribution to GDP will grow.

As the chart highlights, activity in the ‘Electricity and Gas Supply’ sector had been declining up until the last quarter.

Chart 2: Activity in the electricity and gas supply sector and Scottish GDP

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Source: Scottish Government

This reflects a number of different factors, but a key one was the closure of Longannet power station in March 2016 – with its impact clearly evidenced by the fall in output for the sector between Q1 2016 and Q2 2016.

What we should see next week is an equivalent effect, but working in a positive direction.

This week’s figures, show that renewable energy generation was over 45% higher in Q4 2017 than the same time last year – with over 7,727 GWh generated compared to 5,318 GWh in 2016.

Over the year as a whole, renewable generation was over 25% higher in 2017 than in 2016.

Chart 3: Electricity generated (GWh) by quarter

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Source: Scottish Government

As a result, such an increase will boost the Electricity and Gas Supply sector substantially which in turn will feed through to Scotland’s GDP numbers.

What might the impact be on Scotland’s overall growth rate?

Backing out the exact impact is not straightforward. Much will depend upon how the statisticians interpret the rise as seasonal or structural, but whatever they decide it will be clearly an uplift (with a quick back-of-the-envelope calculation suggests a boost of anywhere between 0.2% and 0.4% to Scotland’s headline growth rate).

Of course, there may be other factors impacting on the sector more generally which may offset some of this boost or add to it. But we will have to wait until Wednesday to find out.

In a companion blog, we will outline some of the other issues to look out for when the statistics are published at 09.30am on Wednesday.

Conclusions

Despite significant uncertainty for renewables in recent years, the sector continues to outperform expectations and go from strength-to-strength.

This is not to say that there are not challenges – and many of the industrial and wider benefits have yet to be fully realised – but it is clearly one part of the Scottish economy where success should be recognised.

Lessons from the experience of renewables – including the alignment between policy, political leadership, universities and industry – offer a useful blueprint for other parts of the economy.

March 30, 2018

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