Written evidence submitted by Scottish Enterprise (NRG0034)
Dear Convener,
Re: Response to call to evidence – GB Energy and the Net Zero Transition.
Scottish Enterprise is Scotland’s national economic development agency, dedicated to transforming the Scottish economy. We have the reach and track record to deliver transformational economic change, investing approximately £300 million each year at national, international and regional levels.
In February 2024, Scottish Enterprise launched our new Mission-driven approach. Three missions have been developed to facilitate the prioritisation of our work, including a mission to create an internationally competitive energy transition industry in Scotland.
Both the UK and Scottish Government have set ambitious targets to become Net Zero by 2050 (2045 in Scotland). To do this, we believe vehicles like GB Energy will be vital to work alongside existing organisations, such as Enterprise Agencies, to enable companies to transition.
Below you will be able to find Scottish Enterprise’s response to the questions set out in the call to evidence:
Question One:
What impact will the UK Government’s approach to net zero have on Scotland’s oil and gas industry? What state of readiness is the oil and gas sector in for the net zero transition? Is the scaling up of the clean energy sector keeping pace with the decline of jobs and investment in the oil and gas sector, or does the UK Government need to do more to close this gap?
Scottish Enterprise’s Response:
The UK Government's approach to net zero has had a mixed impact on Scotland's oil and gas industry. Scotland’s oil and gas sector has been successful on a global stage and is recognised for its ability to deliver commercial outcomes and innovate. Given these strong foundations, the sector is partially ready for the transition, particularly where there are transferable skills and supply chain opportunities. There is not yet enough certainty to attract the full potential of Scotland’s oil and gas expertise and supply chain into offshore wind, however, and there is a lack of certainty over the scale and timeline of the future hydrogen and CCUS opportunities. Consequently, to maintain operations, margins and jobs, many businesses remain focused on oil and gas given it is an established market with established revenue streams. Mitigating the risks associated with the energy transition, will stimulate the confidence of businesses that are already eager to invest but are holding back due to uncertain revenue forecasts.
At this point in time, the deployment of renewable projects is progressing more slowly than the decline of the oil and gas sector. Therefore, investment to unlock bottlenecks in Energy Transition projects is essential to achieve and maintain the necessary pace and momentum to create new market opportunities for supply chains in areas such as energy generation, storage and transport, grid infrastructure, and ports.
Question Two:
What UK Government interventions will be necessary to maximise the ability of oil and gas workers to find jobs in clean energy?
Scottish Enterprise’s Response:
To secure jobs in new industries, the oil and gas workforce require visibility of market opportunities, and the consistent communication of clear policy priorities backed up with predictable funding. To drive investment and job creation, there must be a strong near-term forecast pipeline for renewable projects with public support. This will help generate a predictable list of orders and investments. Pathfinder and early projects in emerging energy transition sectors like Hydrogen must be de-risked with investment and tender opportunities suitably designed and advertised to the oil and gas supply chain.
The development of an Energy Skills Passport is crucial. The development of an Energy Skills Passport would benefit oil and gas workers as it provides visibility of markets and their transferable skills that would allow them to identify jobs in new industries.
Furthermore, the need to upskill prior to the projects being developed should be considered. There would be benefits to the workforce being upskilled now in anticipation of the jobs being created, so that when the projects are developed, the skill base is ready.
Government could harness future clean energy surpluses, to create opportunities for industrial employment at scale closer to sources of significant power generation by providing incentives and favourable tax treatment for these employers. Ensuring the pipeline of upstream energy transition projects is realised is also fundamental.
Grangemouth provides the UK and Scottish Governments with a strategic location where industry partnership can deliver an industrial cluster evolving from oil and gas expertise into future energy transition related industries.
Success will depend on mechanisms which provide both strong policy and financial support for the development of renewables as this will help bridge the gap in revenues, ensuring a smoother transition for workers moving from the oil and gas sector to lower carbon energy industries.
Question Three:
Are Scotland’s energy industry and associated supply chains well-placed to transition to clean energy generation, or is more support needed?
Scottish Enterprise’s Response:
Co-ordinated, comprehensive and consistent support is needed to ensure that Scotland's energy industry and associated supply chains are as best placed as they can be to transition to clean energy generation and to optimise the opportunities it presents.
The energy supply chains require significant investment in both capability and capacity. Many of Scotland’s supply chains that support oil and gas are world-leading, especially in complex one-off projects. However, the energy transition will depend on the supply chain ramping up significantly, especially in manufacturing and in sustainable manufacturing, to produce large numbers of components and products. There is a need for modern and highly efficient facilities, machinery and processes.
Currently, the supply chain may feel hesitant about investing fully in this, without a guarantee of orders or revenue, which impacts the pace of the transition. Although efforts are being made, such as through the Strategic Investment Model (SIM - the SIM is a mechanism bringing together developers and the supply chain delivered by Scottish Enterprise Agencies and public sector organisations). Government support and publicly funded investment, particularly from subsidy and regulatory regimes (e.g. CfD auctions, Cap and Floor for storage, Ofgem’s Price Controls for Transmission Owners) and mechanisms such as the National Wealth Fund and GB Energy, are crucial. The timing of investments is both critical and challenging with project deployment and investment decisions contingent on wider factors like grid connections and consenting. Consequently, it is unlikely that supply chain investment will avoid delays, unless there is a clear and consistent demand to support the creation of the supply chain.
From a hydrogen and CCUS perspective, much of the supply chain can transition from the oil and gas sector, bringing valuable knowledge and expertise. There are also some synergies between floating offshore wind and oil and gas supply chain expertise. However, many companies remain focused on oil and gas due to the lack of financial incentives to shift to the clean energy supply chain. To transition, there needs to be project demand and a sustainable orderbook. To encourage this demand, the clean energy opportunity needs to be de-risked and local content valued and encouraged.
Creating more certainty around the clean energy opportunity can help mitigate the risks. This can be achieved through policy support, for example UK Government publishing details regarding current and future hydrogen allocation rounds, providing support for key projects of scale, such as the Acorn project, or by providing clarity on elements such as grid connections.
As all sectors expand, there may be limited capacity for the supply chain that has already transitioned to meet this demand which could lead to economic benefits accruing to other countries where there is a supply chain. However, without greater certainty and with prevailing risks, other parts of the supply chain will be hesitant to move over, potentially creating a vicious cycle.
Question Four:
What actions should the UK and Scottish Governments take to ensure the necessary generation and transmission infrastructure to support the development of Scotland’s renewables sector?
Scottish Enterprise’s Response:
Key considerations related to generation and transmission infrastructure include:
- Consenting processes - Providing clarity on timeframes and expected standards as well as ample assistance to developers is crucial, not just in reviewing consent applications and identifying issues, but in collaborating with them to create robust applications that can be approved smoothly;
- Ensuring adequate and flexible allocation and resource for upcoming Contracts for Difference (CfD) as demand for support is expected to increase substantially, based on predicted development timelines;
- Ensuring sufficient capable port space is in place to enable offshore wind generation projects to be built and components stored to meet market timelines.
To harness economic benefits from the construction, operation and maintenance of assets there is a long process prior to infrastructure build out that needs to be underway now to ensure factories and manufacturing can be built or scaled up from their current design. While we acknowledge and support the current direction of actions being taken, there are concerns about the speed at which these policies and plans are being developed, with some key plans not expected to be published until 2027. This delay creates uncertainty about the future design of the energy system and infrastructure policy. This can create challenges for how other large sources of demand on the system, such as Data Centres, will integrate into the new energy system.
Without the appropriate infrastructure and the necessary processes and policies for connecting to it, renewable projects will be hindered from reaching their full potential. The current issues, such as connections and network capacity, are one of the key barriers to further development of renewables.
Question Five:
How can GB Energy, and other ways of backing industry (including funding), most effectively support employment, economic growth and the development of clean energy supply chains in Scotland?
Scottish Enterprise’s Response:
As Scotland’s National Economic Development Agency, we are committed to backing industry’s ambition with partnership, support and finance to accelerate the energy transition.
There are several avenues for most effectively supporting employment, economic growth and the development of clean energy supply in Scotland. These include:
A key issue is that projects are not engaging with supply chain companies early enough due to uncertainty about the requirements for new technologies. By GB Energy partnering with projects and investors to de-risk or unlock knotty or innovative projects, lessons can be learned, allowing the supply chain to better predict and support industry growth.
As Scotland’s economic development agency, we look to back initiatives that develop local supply chains and increase Scottish based content. We regularly engage with companies at supply chain events and roundtables and have commissioned research to help understand the scale of the opportunity in the area. Furthermore, we have a supply chain focused team, comprising of specialists in areas such as manufacturing, energy, and international engagement. Scottish Enterprise has been proactive in identifying and reaching out to companies to develop and strengthen the Energy Transition supply chain in Scotland.
Question Six:
How should GB Energy work with the Scottish Government and other Scottish bodies to identify appropriate funding and other mechanisms?
Scottish Enterprise’s Response:
We welcome the collaborative approach GB Energy has taken to-date in working with Scottish Enterprise. Given our extensive and deep industry relationships, we can provide GB Energy with insights and introduction across the Scottish supply chain. To identify appropriate funding and other mechanisms, GB Energy should continue to work closely with the Scottish Government and other Scottish bodies such as Scottish Enterprise. The necessary mechanisms are already in place, such as the collaborative agreement that was shared between Scottish Government and DESNZ in October 2024.
Given the spread of knowledge, information, and connections that Scottish Enterprise has within its staff, it is well placed to support GB Energy, as it looks to develop and focus its support. From attracting private investors to build on initial investment from GB Energy to company relationship management, Scottish Enterprise is well placed to support GB Energy in identifying appropriate partners that will accelerate the energy transition.
It is also crucial for GB Energy to consider policy direction and development right across the UK in order to ensure the priorities and associated opportunities are optimised.
Question Seven:
What does a just transition look like for workers and communities across Scotland’s highland and island communities, and what role might community energy and community benefits play in this?
Scottish Enterprise’s Response:
A just transition for workers and communities across Scotland involves thorough consultation to ensure all voices are heard. It requires transparent benefits from the development of generation projects and infrastructure, ensuring that community benefits are central to the transition. This approach should create job opportunities across Scotland, with a focus on long-term employment in both the supply chain and the operation and management phases, rather than just short-term construction jobs. With regard to the highland and island regions, there are substantial and numerous opportunities – for instance the Cromarty Firth Green Freeport is transformational as is the recent investment by Sumitomo in their cable factory near Nigg.
Question Eight:
Can the UK learn lessons from international examples about how to effectively manage Scotland’s energy sector transition?
Scottish Enterprise’s Response:
Yes. While the UK was world-leading in instigating some of the renewables auctions and support mechanisms. Other countries have been quick to adapt and incorporate best practice from the UK and elsewhere to build their own support mechanisms.
Denmark presents an interesting comparison with their transition from oil and gas to clean power alternatives. Their success has been attributed to several factors. Firstly, there appears to have been policy consensus across the political spectrum. This has resulted in policies passing smoothly, instilling confidence in private investors that there is robust policy support for clean energy. This is not a new concept either, as it has been the case in Denmark for decades. This early investment facilitated by strong and consistent policy has supported the energy sector transition.
Furthermore, analysis has shown that there has been ongoing, clear, and effective dialogue between Danish employers, unions, and the government since the 1970s, specifically focusing on climate policy and its impact on industry. This inclusive discussion ensures that all relevant parties are involved, making it more likely to achieve overall buy-in to the broader policy shifts.
January 2025
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