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Scotland the green

Times Online
September 28, 2008

Meeting the rising demand for renewable energy is a tough challenge for business

If geography is destiny then Scotland’s preeminent position in renewable energy is assured. There are, though, problems for the country’s entrepreneurs to overcome. “We have got the resources and this is an industry that excites people,” says John Anderson, chief executive of the Entrepreneurial Exchange, a business networking group, and chairman of AWS Ocean Energy, a wave-power technology developer. “But we’re all struggling with the business model.”

Scotland is handsomely endowed with natural resources. Its high average wind speeds give it the potential to provide 25% of Europe’s wind power, says the Scottish government. It also has some of the best coastal conditions for energy generation, with the potential to provide 25% of Europe’s tidal power and 10% of its wave power, according to the government. And Scotland has been a frontrunner in hydro-power for decades, with 88% of the UK’s hydroelectric energy resource. The exploitation of oil and gas off its shores has built a bank of engineering and technological expertise, and universities are conducting cutting-edge renewables research.

“Scotland is a very good place to research and develop devices,” says Jason Ormiston, chief executive of Scottish Renewables, a trade body for the green energy industry. “But there are some serious issues. All it would take would be some generous support from another country and we would see device developers going abroad.”

It has happened before. In the 1980s, Scotland led the world in the development of wind turbines, but Denmark and Germany now head the field. So, for example, Vestas turbines are installed at Beinn an Tuirc wind farm, in Argyll, and Siemens turbines at Hadyard Hill, South Ayrshire.

There are also planning issues to deal with. “Renewable energy generation can be quite contentious,” says David Infield, professor of renewable energy technologies at Strathclyde University. “Wind farms are large developments in attractive parts of Scotland and you can’t hide them. There are some organisations that will oppose wind farms wherever they are.”

Certainly there are conflicting demands between the development of a natural resource and the pristine environment of the Scottish Highlands, but there is a great deal of political backing for renewables. The Scottish government has set challenging targets for renewable energy consumption: 31% of electricity to be supplied by renewables by 2011, and 50% by 2020. Earlier this year it announced a £10m prize for innovation in clean energy (the Saltire Prize) and helped set up the European Marine Energy Centre, a testing and research facility in Orkney.

“There is a huge regulatory push and that is very important to drive entrepre-neurialism,” says Geoff Gregson, deputy director of the Centre for Entrepreneurship Research at Edinburgh University Business School. “But there is also huge uncertainty as to whether Scotland can capture the economic benefits.”

There have been success stories. Pelamis Wave Power, which makes a wave energy converter, has raised about £40m in its 10-year life and is involved in the world’s first commercial wave farm, which has just gone live in Portugal, as well as projects in Orkney and Cornwall.

Flexitricity works to match up small electricity suppliers and the national grid; its parent company, Martin Energy, won a £40,000 award from Shell Springboard, which promotes low-carbon business ideas. Scotrenewables, also a Springboard winner, recently secured a £6.2m package to develop a tidal turbine.

Businesses in Scotland looking to go green have an array of organisations to assist them, including the Scottish Council for Development and Industry, the Carbon Trust, Scottish Business in the Community (SBC), the Business Council for Sustainable Development and Envirowise.

More than 110 Scottish enterprises, including Scottish & Newcastle, Scottish and Southern Energy and First ScotRail, have joined the May Day Network, a group committed to tackling climate change, which is backed by SBC and the Prince of Wales. The members share their eco–experiences and encourage suppliers and customers to improve their environmental performance.

The Scottish government has set a tough target of reducing carbon dioxide emis- HIGH-FLYER 
“Being Scottish and in renewable energy gives you a great deal of confidence,” says Ian Irvine,right, technical director and co-founder of the renewables engineering consultancy SgurrEnergy (sgurr, pronounced skoor, is Gaelic for a mountain peak).

It helps that he and co-founder Steve McDonald, 44, share more than 40 years’ experience in the field. Irvine’s first work in renewables was in the 1980s, when he designed a small wind turbine for domestic use. “In 2002, Steve and I decided the time was right to go it alone – initially out of my attic in the South Side of Glasgow,” he recalls.

The company, which now has a turnover of about £3.5m and employs more than 75 engineers and consultants, is no longer confined beneath the rooftops. Nor is it confined to Scotland: SgurrEnergy opened an office in Beijing in 2006 and Pune, India, in 2007. Earlier this year it set up in Ireland, Turkey and Canada.

“The prospects for companies working in renewable energy seem limitless at present,” says 43-year-old Irvine. “Asia, eastern Europe and North and South America offer significant prospects for growth. Offshore wind is likely to be one of the big growth areas. We are only constrained by cash.”

SgurrEnergy’s work ranges “from remote Scottish communities undertaking their own wind projects to some of the largest wind farms in the world,” he adds. “Scotland is a great training ground – we have gained great experience, having been exposed to such a wide variety of terrain and weather. No matter where we’ve been in the world, we find we have experienced similar situations in Scotland.” sions by 80% by 2050, and not surprisingly the Carbon Trust’s activity in Scotland is growing. The trust estimates that in 2005-06, it reduced emissions from Scottish business by up to 193,000 tonnes and reduced energy bills by up to £18m. Similarly, Envirowise says it has saved Scottish businesses £26m in energy costs since 2005.

Scottish Enterprise estimates that more than 350 employers are participating in its Going for Green Growth jobs initiative, which involves improving environmental performance to boost business. It says that “the increased focus on environmental issues and awareness among companies contributed to high levels of take-up”.

Small and medium-sized enterprises can also look to the Energy Saving Trust and the Business Environment Partnership, which offer support and grants for businesses and communities looking to go green, with a focus on renewable energy and waste recycling.

The problem for many smaller businesses, however, is that energy is a national, even global, market and may require huge capital investment or a tie-up with an existing utility. After all, there’s not much point generating thousands of gigawatts if you can’t get that energy out of the Highlands and into heavily populated areas.

“It seems to be a classic case of ‘small company innovate, big company exploit’,” says Anderson, of the Entrepreneurial Exchange. “Project financing is very difficult; it’s not a market for private equity or venture capital.”

Investors need deep pockets and a longer timescale than most private funders would allow. “Local or even national demand is not enough to offset the huge upfront costs,” says Gregson. “For a really viable shot in the arm for the Scottish economy, we will have to export the technology around the world. But there isn’t a wide enough range of commercially savvy executives that can take this international. We have a lot of good people but not enough for the level of science that is being developed.”

At the moment, the research and technological development is outstripping the commercial practicalities. “So far this has been environmentalists doing business, not business doing environmentalism,” says Ormiston. “Successful developers have to be politically astute; they need to network, meet people, develop relationships. We have seen too many that expect too much.”

The big question is whether Scotland will follow the well-trodden path of losing its bright ideas and bright people to overseas, with the accompanying economic benefits reaped by other nations, or whether it can capitalise on the enthusiasm and excitement being generated by renewable energy for the benefit of Scotland’s economy.

http://business.timesonline.co.uk/tol/business/entrepreneur/article4837013.ece

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