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5. Simulation results: Impacts of Increasing Renewable Energy Supply 1 - Input-Output Analysis

(Sub-title: The economic and environmental impacts of alternative electricity generation technologies in Scotland: An Input-Output analysis)

Concerns about energy security and meeting environmental targets in Scotland are in the spotlight of academic, policy and public debate. As of 2000, fossil fuel (coal and gas) and nuclear technologies provided 34%, 22% and 34% respectively of the total electricity generated in Scotland. Scotland also has a history of developing electricity generation from renewable sources. A significant amount of electricity, around 9.5%, was generated by hydroelectric facilities in 2000, which were largely built in the post- WW2 years. At the same time, the last ten years have seen the development of a significant number of electricity generating facilities from other renewable sources, as well as some extension of the hydroelectric capacity. The geographical position of Scotland offers it significant renewable energy resources, including on- and off-shore wind, wave and tidal energy. A recent study for the Scottish Executive (Boehme et al, 2006) quantifies the potential scale of renewable energy resources available and extractable around Scotland. We do not seek to quantify the potential here, but to gauge the possible economic impacts of changes to the Scottish electricity generation mix.

There are likely to be significant changes to the electricity generation mix in Scotland in the coming decades. The two nuclear power stations at Hunterston B and Torness currently have lifetime licences until 2016 and 2023 respectively, while current large-scale coal facilities at Longannet and Cockenzie will come under the Large Combustion Plant Directive ( LCPD) after 2015. In the case of nuclear, the Scottish Government has stated that it does not want any new nuclear facilities constructed in Scotland. The Scottish Government has also recently set out ambitious targets for renewable electricity generation. These are that by 2020, 50% of electricity generated in Scotland will come from renewable sources, with an interim target of 31% by 2011. No specific targets for any particular technology have been set for either time period, although it has been suggested that much of the renewable electricity will come from significant increases in the amount of onshore wind generation. On the other hand, recent consultations by the Scottish Government on reforms to the support for renewable energy projects have recognised the potential for Scotland to develop an indigenous marine electricity industry, and have sought to provide additional incentives through the "banding" of existing support mechanisms to the production of electricity from marine ( i.e. wave and tidal) energy devices. Total electricity generated in Scotland from all renewable sources (hydro, wind, biomass, wave and landfill gas) has grown by 40 per cent between 2000 and 2006. The installed capacity of renewable energy (hydro, wind/wave, landfill gas and biomass) facilities increased over the same period from 1.4 GW to 2.4 GW. Some 0.9 GW of this increase has come from the development of wind energy projects, with an installed capacity in 2006 of 946 MW, generating 2,022 GWh in 2006. ⁵

This section of the report uses Input-Output ( IO) techniques to examine the economic and environmental consequences of significant changes in the electricity generation mix in Scotland. The motivation in using IO rather than CGE analysis in this section is because of the availability of an IO model with a greater disaggregation of the electricity sector than is currently incorporate in AMOSENVI. However, at such a time as which we are able to incorporate such a breakdown to AMOSENVI model, it would be desirable to repeat the analysis in a more flexible CGE framework.

In the present analysis, we use the IO modelling framework to develop four scenarios for the Scottish electricity generation mix. In each of the scenarios we have developed, we assume that the total electricity generated in Scotland is the same as in 2000, and we vary the generation mix. In each of the scenarios, the Scottish Government's target of 50% of electricity from renewable sources is met, and we assume that there is no generation from nuclear generation technologies. The types of renewable technologies that contribute to the renewables target are different in each case, but the common modal renewable technology is wind generation. We model the impacts of four alternative scenarios for the electricity generation mix in Scotland (see Table 5.1 below). In each of these scenarios 50% of electricity comes from renewable energy sources, the majority of which comes from onshore wind. Further, in none of these scenarios is there any generation from nuclear sources in Scotland. None of these scenarios are referenced against expected or predicted changes in the pattern of electricity generation mix in Scotland, or make any assumptions about the costs or viability of any of the scenarios considered here - such as, for instance, whether each scenario provides sufficient generation to meet expected future demand or to provide appropriate margins between peak demands and supply capacity. We use these scenarios purely to illustrate the usefulness of the IO method for estimating the economic impact of large changes in the pattern of electricity generation. We begin by briefly sketching the features of each of the scenarios considered.

Table 5.1: Current (2000) shares of electricity generation by technology and four scenarios considered, %

Note: Shares may not sum 100% due to rounding.

Scenario A: Technology mix - high marine

Under this scenario, generation from coal falls slightly compared to its base year levels, while generation from gas technologies rises slightly. Together, these technologies provide 50% of electricity generated in Scotland under this scenario. Generation from hydroelectric facilities increases by fifty per cent, up to providing 15% of electricity generated. Biomass and landfill gas increase their contribution to the Scottish electricity generation mix, rising to provide 3% and 2% of total generation in this scenario. Marine provides 10% of electricity generation capacity, with wind providing the remaining 20%.

Scenario B: Technology mix - low marine

All technologies are assumed to provide the same share of electricity generated in Scotland under this scenario, with the exception of marine and wind. Under this scenario, the proportion of electricity generation from wind is 25%, and the proportion generated from marine sources is assumed to be 5%. Such a change from Scenario A could be consistent with a less successful outcome for marine-specific support mechanisms, in terms of bring forward marine electricity generation, with wind generation dominating.

Scenario C: No Gas

Under this scenario, 50% of electricity generated in Scotland comes from renewable sources - with wind providing 30%, and hydro and marine providing 15% and 5% of total electricity generated in Scotland respectively. The remaining 50% of electricity generation is met through coal generation, with gas generation providing 0%. Output of biomass and landfill gas falls from current levels to zero.

Scenario D: No Coal

In this final scenario, renewable technologies provide the same specific and aggregate proportions of Scottish electricity generation, but rather than coal providing the remaining 50%, this is met through gas generation. By comparing Scenario C with Scenario D, we can examine the economic and environmental impacts from coal, or gas, generation providing the non-renewable portion of future Scottish electricity generation.

Table 5.2 presents the main aggregate results on GDP, employment and CO2 emissions for each of these four scenarios.

Table 5.2: Aggregate results on GDP, employment and CO ₂ emissions

Recall that the only difference in Scenario A compared to Scenario B is that there are higher amounts of wind and lower amounts of marine electricity generated. In Scenario B there is 25% of electricity generation from wind and 5% from marine, while in Scenario A there is 20% of electricity from wind and 10% of electricity from marine sources. The higher amount of marine generation, combined with that sector's output multiplier being significantly higher than that for wind generation, result in a greater economic boost to Scotland than in the lower wind case. The impact of an additional 5% of electricity from marine sources, rather than from wind generation, is to increase GDP by £109.55 million, and increase employment by 11813 FTE jobs with Type 1 analysis, and, under the Type 2 IO model, to raise GDP by £168.64 million and employment by 13615 FTE jobs.

The increased economic impact, and activity, generated in Scenario A compared to Scenario B, comes at the expense of a slightly smaller decline in CO2 emissions, as is reflected in the smaller reduction in the CO2 intensity of Scottish production indicator (CO2/ GDP) in Table 5.2. Under Scenario A, emissions of CO2 are 3.52% lower under Type 1 analysis, and 5.69% lower with Type 2. Under Scenario B, CO ₂ emissions are down by 3.59% and 5.89% under Type 1 and Type 2 respectively. This greater decline under Scenario B is to be expected since economic activity is greater under Scenario A (due to the additional stimulus offered by the marine generation sector) and so CO2 emissions are slightly higher - although reduced relative to the base year. This is reflected in the results for the CO2 intensity of Scottish Production, which declines by 3.9% with Type 1 and 6.28% for Type 2 under Scenario A, and by slightly less, 3.82% and 6.24% respectively under Scenario B. Under Scenario C, when it is assumed that the non-renewable 50% of electricity generation in Scotland comes solely from coal generation, the GDP and employment impact is not as large as Scenario A - an additional £287.91 million on GDP and 15.738 FTE jobs under Type 2 results. The CO2 impact however is different, with Type 1 CO2 emissions actually increased relative to the base year, and an increase in the CO2 intensity of Scottish production of 0.51%. This arises due to the assumed CO2 emitting nature of coal generation technologies. The Type 2 change in CO ₂ emissions shows a decline relative to the base year of 3.08% - a smaller fall in emissions than either Scenarios A or B - and a much smaller, 3.5%, decrease in the CO2 intensity of Scottish production. Under Scneario D, the smallest increased in GDP is observed (0.17% with Type 1 and 0.27% with Type 2) but the biggest Type 2 reduction in CO2 emissions (8.86%), which gives us the biggest Type 2 reduction in the CO2 intensity of Scottish production (9.11%). This is due largely to the absence of coal generation technologies.

These results suggest that the composition of the renewables technologies employed to meet the 50% target is important. Technologies with strong backward linkages back to the Scottish economy provide the greatest possibilities for an economic gain to be realised. What Scenarios C and Scenario D suggest is that it matters what is assumed about the technologies which provide the other 50% of electricity generated in Scotland. Without nuclear generation, this would be likely to be met through either a combination of gas and coal technologies, or, as extreme cases, from each technology alone (e.g coal in Scenario C and gas in Scenario D). As with the wind/marine results in Scenarios A and B, the economic results for these scenarios can be explained with reference to the initial linkages of each sector. Coal generation sector has greater employment-output and GDP-output multipliers than the gas generation sector in our initial IO framework. The scenario that assumes coal technologies, rather than gas generation, provides the non-renewable element of future Scottish electricity generation sees higher economic benefits, although these are associated with smaller declines in CO2 emissions.

Next, we focus on the sectoral differences in these results. Absolute sectoral changes in GDP (in £million) are shown for Scenarios A and B in Figures 5.1 and 5.2 respectively.

Figure 5.1: Absolute sectoral changes in GDP, £million, in Scenario A (high marine)

Figure 5.2: Absolute sectoral changes in GDP, £million, in Scenario B (low marine)

While the change in most sectors GDP is similar in Scenario A and B, it can clearly be seen that as well as significant changes in the wind and marine generation sectors, Scenario A sees significantly greater activity in the "Construction", "Communications, finance and business" and "Transport and other machinery". In both the Type 1 and Type 2 results, moving from Scenario A to Scenario B the change in GDP in these sectors decreases by almost fifty per cent. As seen in Section 5.2 above, these are sectors with which the marine generation sector has strong backward linkages.

The absolute change in sectoral employment in Scenarios A and B is shown in Figures 5.3 and 5.4. This shows the extent to which employment at the sectoral level is affected by the larger marine or wind generation in Scotland. The sectoral pattern of impacts may be different to that seen in Figures 5.1 and 5.2 since sectors that are GVA-intensive, are not necessarily employment intensive. As would be expected, in Figure 5.3, where the largest aggregate impact on employment is found, this is largely explained by the expansion of the marine sector, but also partly by the model, but significant, increase in employment in the "Construction" sector.

Figure 5.3: Absolute sectoral changes in employment, FTEs, in Scenario A (higher marine, lower wind)

Figure 5.4: Absolute sectoral changes in employment, FTEs, in Scenario B (lower marine, higher wind)

In Scenarios C and D, we assume that the non-renewable element of future Scottish electricity generation comes from two extreme possibilities - purely coal generation, and then purely gas generation. Note again, that we assume that no electricity in Scotland is generated from nuclear sources, and that the total demand for electricity us unchanged, so Scotland remains a net exporter of electricity to the rest of the UK. The renewables' share of the future electricity generation mix in both Scenarios C and D remains the same in each scenario, with 30% from wind, 15% from hydro and 5% from marine technologies. The differences in results between Scenarios C and D therefore come solely from coal generation providing the whole of the remaining 50% of Scotland's electricity generation in Scenario C, while gas generation provides this 50% under Scenario D. While the aggregate economic and environmental results are discussed above, we focus here on the sectoral differences in these results. Absolute sectoral changes in GDP (in £million) are shown for Scenarios C and D in Figures 5.5 and 5.6 respectively.

Figure 5.5: Absolute sectoral changes in GDP, £million, in Scenario C

Figure 5.6:Absolute sectoral changes in GDP, £million, in Scenario D

While the results between Scenarios C and D are approximately the same for hydro, marine and wind generation sectors, there are considerable differences among the non-renewable sectors, and also in sectors that have strong links to the non-renewable sectors. The expansion of the "Coal generation" sector in Scenario B, with results in an increase not only in the "Coal generation" sector itself, but also sees an expansion in the "Coal extraction" sector (of almost 15%) and an expansion, large in absolute terms, in the "Communications finance and business" sector. Both these sectors have links to the "Coal generation" sector in the base year IO table. The "Gas refining" sector exhibits a contraction in Scenario C and an expansion in Scenario D, as would be expected. In Scenario D GDP in the "Gas refining" sector rises by over 21%, while it falls by almost 19% in Scenario C.

The absolute changes in sectoral employment in Scenarios C and D are shown in Figures 5.7 and 5.8. This indicates the extent to which employment at the sectoral level is affected by coal or gas generation providing the non-renewable portion of future Scottish electricity outputs. As with Scenarios A and B, the biggest employment impact is in additional jobs for the expanded marine generation sector. Employment in the construction sector is higher in both scenarios, while the same negative effect as found for GDP exists for employment in the "Coal extraction" sector in Scenario D and the "Gas refining" sector in Scenario C.

Figure 5.7: Absolute sectoral changes in employment, FTEs, in Scenario C

Figure 5.8: Absolute sectoral changes in employment, FTEs, in Scenario D

Technical Appendix 5 provides more detail on the IO multiplier analyses underlying the results presented here, as well as sensitivity analysis where we consider the impacts on the CO2 intensity of coal generation if carbon capture and storage is introduced.

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