Utility Week

UTILITY WEEK | 1ST - 7TH AUGUST 2014 | 13 Scottish referendum convince the other UK-based suppliers that staying in the smaller Scottish market no longer makes nancial sense. Ward adds: "It is the broader stu• – the regulation, the legislation – that will largely determine the overall outcomes here. Retail will be a consequence of the lot of it." MB Is that a fact? FOR AGAINST £1.8bn What Scots would pay for their energy by 2020 if they footed the bill for subsidies for Scottish windfarms SNP plans for debt-fuelled public spend- ing "incom- patible" with sharing the pound Danny Alexander, chief secretary to the Treasury Number of Scottish windfarms out of UK total of 4,350 Scotland would get all the revenues from North Sea oil Alex Salmond 30% of Scots think the country's economy would be better under independ- ence 34% of Scots think the economy would be worse 2,315 past the heat and the furore from the [Scot- tish independence] referendum and into the settlement, I suspect it will be in the common interest to try to nd something that works". Less optimistically, Scottish independ- ence would nd disparate political parties and special interest groups working to their own agendas. The default position would be a continual e• ort to rescue the situation. Not only would a divided UK be seeking to pluck its energy sector from the ' ames sparked by the division, it would be doing so at the worst possible time. As well as fun- damental market reform, the sector is going though a competition authority referral, undertaking a smart meter rollout, facing a looming generation capacity crisis and work- ing out what to do with shale gas. An inde- pendent Scottish market would add another layer of complexity. That would be compli- cated further by the Scottish government's pledge to create a multifunction regulator with jurisdiction over water and energy. To add yet more convolution, the Scot- tish government envisages stage-by-stage fusion of other regulatory functions, such as telecoms, to form rst a combined utility regulator, and nally a combined economic regulator presiding over rail and airports. The expert commission says a multi- utility regulator has been adopted by many smaller nations and it "makes sense in Scot- land", but it is less enamoured of making it a one-stop regulatory shop. It warns about the "competing demands on the expertise and capacity of the regulator, especially at a time of energy system investment and change". Armour elaborates, saying a Scottish NRA would need "a degree of expertise, which it can't achieve if everyone is a generalist". How will investors in the two Scottish energy companies operating either side of the border view the risks of double exposure to regulatory and political interventions? Would there be a new independent Scottish system operator or would National Grid be hired as a service provider? Were there to be a Scottish system operator, would the net- work companies in Scotland want to take on the role? If so, as vertically integrated com- panies, would they be able to? As the energy policies of an independ- ent Scotland and Westminster diverge, there would be huge potential for frustration, cost and con' ict. All the problems would be solv- able, of course, and it would be in everyone's interests to do so; the great unknown is whether there is the political will. TL According to a Scottish report, no-one is arguing for a split of wholesale gas and electricity markets impact. If Scotland was unable to continue with Sterling, then the introduction of a new currency and the associated exchange rate risk associated could drive some suppliers to exit the Scottish market. This extra risk, plus the doubling up of operational costs with additional customer service centres, could 20 40 60 80 100 SCOTLAND'S BIG TWO 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 Q4 2014 100 80 60 40 20 North Scotland (SSE) South Scotland (Scottish Power) GB average Percentage of customers

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