1. Highlands & Islands
ENTERPRISE
Sandy Gumming CBE Chief Executiv
5 September 2006 Direct
Telephone 01463 244204
f TTTT7 IAA/I/A/IACC Direct Fax 01463 244201
Our ref: HIE 2004/04955 e.mail sandy.cumming@hient.co.uk
EUROPEAN COMMISSION - ENERGY
Response to EU Green Paper on Energy
Thank you for the opportunity to respond to the above consultation.
Highlands and Islands Enterprise (HIE) is an agency of The Scottish Executive and is
responsible for economic and community development across the northern half of
Scotland.
The Highlands and Islands is also one of the most renewable energy rich regions in
Europe. It has some of Europe's best sites for onshore wind development,
considerable opportunities to develop wave and tidal energy and substantial forestry
well placed to support a biomass sector.
The development of these resources is a key priority for the HIE network. HIE is
committed to supporting the development of the area's renewable energy resources
given the downstream economic and community opportunities we believe it offers the
area. To date we have invested substantially in the development of the sector. For
example, we have supported the creation of manufacturing facilities, supported both
inward investment and local business diversification, and encouraged the
development of the area's marine renewables resource. For the latter we have led a
public sector consortium, which has included EU support under the ERDF
programme, to establish testing facilities for the emerging wave and tidal energy
sector. We have also supported our communities to develop and own their own
renewable schemes through the creation of the Highlands and Islands Community
Energy Company (HICEC) which provides both practical assistance and financial
support to communities. To date HICEC has supported over 200 projects across the
Highlands and Islands.
The EU Green Paper and recommendations within it are therefore of considerable
interest to HIE. Our response to the consultation is attached. HIE looks forward to
seeing the results of the consultation in due course and contributing to the future work
programme.
Highlands & Islands Enterprise
Cowan House Inverness Retail & Business Park Inverness IV2 7GF Scotland
telephone 01463 234171 fax01463 244469 ~" '
e-mail address: hie.general@hient.co.uk website: www.hie.co.uk INVESTOR IN PEOPLE

2. EU Green Paper: A European Strategy for Sustainable, Competitive and Secure
Energy
Response by Highlands and Islands Enterprise
Context
The Highlands and Islands Enterprise (HIE) Network is responsible for economic and
community development across a diverse geographical area which covers more than
half of Scotland and is home to more than 435,000 people. The HIE Network's
strategy 1
A Smart Successful Highlands and Islands —An Enterprise Strategy for the
Highlands and Islands of Scotland' sets out four strategic objectives: Strengthening
Communities; Developing Skills; Growing Businesses; and Making Global
Connections.
The Highlands and Islands region comes into the category of most sparsely populated
regions in the EU, having an average of only 10 persons per square kilometre. It is
also one of the most peripheral and northerly regions of Europe. Despite recent
economic growth at its economic hubs, its overall GDP per capita remains only
slightly above the EU threshold for Objective 1 Structural Funding for regions lagging
behind in development terms. The region is about to embark on a Statistical Effect
programme of Structural funds for 2007-2013.
Renewable energy provides opportunities for the Highlands and Islands (H&Is) across
all four of the Network's strategic objectives. These opportunities have the potential
to benefit some of the remote areas of the H&Is which have not as yet fully benefited
from the remarkable turnaround in the economic fortunes of the H&Is in recent years.
It is part of our vision to demonstrate careful, sustainable use of the area's natural
assets. Growth must be achieved in tandem with the area's natural environment and
development activity must remain aware of the legacy it leaves for the future people
of the area.
The following describes the key issues for development of the renewable energy
sector across the H&Is and then responds to questions raised in the Green Paper.
Importance of the Renewables Sector to the H&Is
Given the massive natural renewable resources across the H&Is, the area will
undoubtedly play a crucial role in helping to meet EU and UK targets for new
renewable generation. This resource is valuable not only in EU terms but also to the
economic health of the H&Is - growth of the sector offers a critical opportunity to
develop a world leading industry and one which offers significant long term and
sustainable economic and social benefits to the EU, and to the H&Is.
Our aim is to develop a sector that will secure sustainable, high value employment in
manufacturing, research, demonstration and the renewables supply chain. Building
knowledge-intensive business sectors which require research, knowledge transfer and
commercialisation activities are critical to increasing the productivity of the area's

3. economy. A vibrant economy in the H&Is will allow the area to make an increasing
return to the general wellbeing of the EU.
The renewable energy sector in the H&Is incorporates activities across a wide range
of sectors, including engineering, distribution, manufacturing, project management,
transportation and electrical works. There are some 545 direct FTEs engaged in
renewable energy activity across the Highlands and Islands, with average wages
ranging from £15,000 for production workers to £25,000 for those working in
engineering and management. This compares well with the average private sector
wage in the area which currently sits at around £15,000. The renewables sector is
therefore already having a positive impact on the area's GDP and this is a trend which
we are committed to ensuring continues into the future.
To underpin this commitment, the HIE network has assisted a number of supply chain
businesses across the Highlands and Islands, namely with civil engineering,
specialised haulage and installation, wind tower manufacturing and steelwork
fabrication. Considerable investment has been made in improving manufacturing
sites, particularly at Arnish Point Business Park (in Stornoway on the Isle of Lewis),
for developing the renewables supply chain. Future viability of this new and growing
industry is critically dependant on the development of the area's grid infrastructure,
including interconnector links to the islands.
Encouraging and supporting community involvement and ownership of renewable
energy projects is also important to develop the sector across the H&Is. HIE recently
established the Highlands and Islands Community Energy Company to help
communities benefit from renewable energy at a time of rapid development of policy
and technology. The company manages a grant assistance programme to support
communities through providing equity and debt finance. Developments have the
ability to generate significant cash surpluses which the communities can use to help
finance other community initiatives. The continued development of these social
innovation projects is also heavily dependent on the future investment in grid
infrastructure.
Renewable Energy in H&Is
The Highlands and Islands accommodate some of the best renewable resources in the
world and has a long history of exploiting them. In fact, around 10% of Scotland's
electricity comes from large scale hydro schemes built during the 1940's and 1950's
across the Highlands and Islands. One further large scale hydro scheme is currently
being built and countless small scale hydro opportunities are also being pursued.
In the main, current commercial interest is dominated by onshore wind energy, which
will be crucial for meeting Scottish and UK Government targets. The table below sets
out some statistics explaining where onshore wind development activity in the H&Is
sits in respect of the wider UK. Figures have been collated by HIE's consultants and
those in the "under development" category may not be exhaustive, but they
nonetheless show clearly the significance of the area in the UK context.

4. Operational
Approved
In Planning
Under
Development
Total in HIE
Area (MW)
261
387
2195
3161
% of Total in
UK
20
28
29
50
Table 0.1 Onshore Wind Status in HIE's Area
In the medium to long-term, other renewables are expected to become much more
prominent in HIE's area. Notably, wave and tidal energy resources are excellent off
the North and West coast of Scotland, and around the islands. The European Marine
Energy Centre (EMEC) at Orkney has been set up, with support under the European
Regional Development Fund programme, as the lynchpin of a strategy to exploit this
world-class potential, with interest in using the facilities from around the world.
The area also has a substantial forestry resource which is well placed to support
biomass development. With changing agricultural support and practices, the
opportunity to grow crops to support the drive to increase use of biodiesel and for
biomass heat and power is also increasing. This resource has been recognised by a
number of prospective developers who are currently progressing project plans in the
area.
Response to Questions in Consultation
1. Priority Areas
• Completing the Internal European Electricity and GasMarkets
HIE agrees that full market liberalisation across all member states is needed to create
a truly competitive internal market. HIE would note that in areas such as the
Highlands and Islands special conditions exist to ensure that consumers are not
disadvantaged by peripherality. Future liberalisation activity across the EU should
recognise the importance of protecting remote communities from increasing energy
costs due to their remoteness from markets. HIE notes that decisions on further
community action will be taken once the current competition inquiry is complete and
has reported.
• European Grid
HIE strongly supports aspirations to create a robust EU grid network operating on
harmonised grid access and management rules. For areas such as the Highlands and
Islands which are renewables resource rich but have low population density it is
essential that they have access to wider markets - a strong grid is keyto this.
HIE welcomes a EU led review of the differences between existing powers for
national Regulators to determine whether existing forms of collaboration between
them are sufficient. The Paper suggests that there may be a case for the appointment
of a European energy regulator with decision making powers. HIE agrees that this is

5. worthy of further consideration given the impetus it could provide to the development
of common rules and standards and cross border trade. A benefit of such an
appointment would be to support the process of increased interconnection between
member states.
Development of the grid is of strategic importance to the H&Is. In fact, its
development is the single greatest issue for commercial renewable energy
development in the north of Scotland. The area's grid is currently running at full
capacity with even small scale, embedded projects which could supply local demand
unable to connect. This issue is not however restricted to the northern half of
Scotland with grid constraints existing across GB.
While new transmission links between the area and the more populated areas of the
Central Scotland is the first priority to enable electricity to be exported from the area,
the further development of the distribution system across the H&Is and connection to
the islands is crucial to ensure renewable development is widespread and located in
areas of best resource. Projects totalling around 1000MW of new generation are
being planned on the Western Isles, 600MW on Shetland and 200MW on Orkney.
These could make a significant contribution to the UK's targets for new renewable
generation.
While grid development is urgently needed now to support onshore wind
development, it is also essential if other technologies, such as biomass, wave and
tidal, are to be supported now and in the future. Given the timescales associated with
planning, consenting and building new infrastructure, it is imperative that long term
planning begins now to design a network fit for purpose into the future. It should be
recognised that the grid in the future will have to look very different, potentially with
sub sea grids and major new onshore transmission routes.
The UK regulator, Ofgem, has made recent positive steps to support grid investment
in the UK, particularly to the islands, including announcing its willingness to open the
process for island connections to competitive bidding. Efforts are also being made to
resolve other difficulties with the UK system, such as those related to the grid
connection queue and the levels of commitment needed from connectees. Lessons
learned in the UK could help other member states embarking on this process.
In summary, HIE believes that development of a European grid with associated codes
and rules is important for energy users but also to facilitate access for renewable
energy generation. Common rules on system access and use of system charging must
be developed and be non-discriminatory to all users, irrespective of location.
• Interconnection Plan
HIE agrees that further interconnection of the EU electricity and gas infrastructure is
essential. It also agrees that investments in infrastructure need to be stimulated and
authorisation procedures accelerated - HIE also believes that harmonisation of these
procedures is necessary. It should be noted that interconnection is not solely an issue
across member sates, but is also critical within member states. As mentioned above,
in the Highlands and Islands substantial investment is needed to develop island
connections to the mainland and to strengthen its connection to the rest of the UK.

6. Major investment in interconnection is vital, but the role of embedded generation
within member states is also important. Over time increasing levels of generation at a
community and household level will support local grids and increase local security of
supply. It is important that initiatives being developed now support the growth of
micro generation.
• Investment in Generation Capacity
HIE agrees with the points made about investment in new generation, but would add
that securing these investments relies on member states' planning systems and the
ability of projects to secure consent in a timely manner.
2. Security of Supply
The Green Paper makes several suggestion aimed at improving joint action to secure
EU supplies of energy over the coming decades.
- European Supply Observatory - HIEagrees that it would be useful to the EU's
influencing position if were able to rely on authoritative data on demand and
supply patterns.
European Centre for Energy Networks - HIE agrees that there could be a role
for such an institution, particularly in relation to cross member state
interconnection projects. However, HIE would be concerned if its role were to
include investment approval and implementation of strategic schemes within
member states. This would add an unnecessary additional layer of approval,
particularly for member states with established approval mechanisms, and
could further slow down an already slow process.
3. Security and Competitiveness of Energy Supply
The Green Paper recommends a EU strategic energy review should be undertaken to
develop a clear European framework to support national decisions on future energy
mix. This would include consideration of the future for nuclear within the EU. HIE
agrees that this is a key area of work which the EU could usefully lead on. The
Commission will be aware that the UK is in the midst of a major energy review which
will consider the options and priorities for its future energy policy. This review has
included consideration of the nuclear question. The results of this review will
conclude with the publication of a White Paper on energy towards the end of this
year. That White Paper, and associated research, could contribute significantly to an
EU review and any resulting agreed strategic objectives.
The paper suggests setting objectives as part of the strategic EU review. HIE would
strongly support the establishment of an objective for a minimum level of the overall
energy mix to come from renewable energy sources. HIE believes this will send the
right, positive signals to national Governments, industry and investors.
HIE is of the view that the review should be instigated urgently and completed as
quickly as possible given that member states (including the UK) are already making
decisions about their future energy mix.

7. 4. An Integrated Approach to Tackling Climate Change
HIE welcomes the continued commitment to increasing levels of energy efficiency,
through the development of an action plan for energy efficiency, and the further
development of the Emissions Trading Scheme outlined in the Green Paper.
HIE also welcomes the recognition that development of the EU's renewables
resources will only be achievable with long term commitment to develop and install
projects. HIE supports the development of a Renewable Energy Map, and the
inclusion in it of required support mechanisms, establishment of targets beyond 2010,
research and development priorities and a commitment to support the heat market. To
be successful such a map should also consider issues associated with grid connection
and access and charging arrangements as without establishment of a non-
discriminatory connection policy for renewables across the EU, the development of
renewables will suffer.
5. An Energy Technology Plan
HIE supports proposals to develop a technology plan which will prioritise research
needs for energy. To be effective the plan must be adequately resourced and be easy
to access. The aspiration to use this plan to prevent overlaps in national research
programmes is entirely appropriate, but will require significant effort and the full buy
in of all member states to be achievable.
Areas such as the Highlands and Islands are already driving ahead with the
development of new technologies to support increased micro generation and energy
self sufficiency. For example, in the island of Unst, Scotland's most northerly island,
an innovative wind to hydrogen scheme has been designed and built by a community
partnership. The project, known as PURE (Promoting Unst Renewable Energy),
provides power to a small industrial unit and excess hydrogen is used to run a car.
This is an example of local innovation which with adequate support could be rolled
out widely.
6. Coherent External Energy Policy
The need to develop a shared vision of energy policy with external countries is
becoming increasingly important as member states increase their dependence on
external sources of energy. It would seem appropriate to use the proposed Strategic
Energy review as a means to establish common aims and objectives.
G.
Highlands & Islands Enterprise
5 September 2006