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Higher energy bills for an independent Scotland

A UK government report says independence for Scotland - on which the Scottish will vote in September - will raise gas and electricity bills for Scottish households and industry

A vote for independence will lead to the break-up of the present UK-wide energy networks, the report says, leaving Scotland to carry the costs of supplying remote consumers and paying for investments in renewables from its small customer-base.

The report, entitled Scotland Analysis: Energy and published on 9 April by the Department of Energy and Climate Change, says independence will add between £38 and £189 ($63-$315) to household annual energy bills in Scotland by 2020. For a medium-size manufacturing company, independence will bring additional annual energy costs in the range £110,000-£608,000 by that year. The largest component of the increases is the renewable obligation, followed by electricity transmission network costs.

At present Scotland is part of a single UK-wide energy market, aimed at providing security of supply, competition and a diversity of energy sources, and the market operates with a single regulator (Ofgem) and a single system operator (National Grid). "Scottish independence would inevitably change this," the report warns. "As two separate countries, respective governments and regulators will understandably be focused primarily on securing outcomes that best serve their own policy objectives and these would not always be the same."

There is also a hint that Scotland's exports of electricity to the remaining UK would not necessarily continue. While Scotland's net electricity exports have amounted to between 11% and 23% of the volume generated in Scotland in recent years, they represent only about 4.6% of electricity demand in England and Wales. "In the event of Scottish independence, the continuing UK would need to consider how to meet this electricity demand in the best interests of its consumers - The decision to import energy from an independent Scottish state would be taken on a commercial basis and in the national interest of the continuing UK," the report says.

Neither can an independent Scotland expect to start life without historical liabilities in energy: the report makes clear that the UK will be seeking a share of nuclear, coal, and oil and gas decommissioning costs. The Scottish government accepts it will have to pay for the decommissioning of the three non-operational nuclear sites in Scotland, at an estimated cost of £3.5 billion, and eventually of the two operating nuclear facilities.

The UK will be asking an independent Scotland to share in coal-mining liabilities estimated at £620 million, and in oil and gas decommissioning costs estimated at £30bn-£40bn. The Scottish government has stated that an independent Scotland will provide oil and gas decommissioning relief at the same rate as at present, but the report says "it is uncertain how an independent Scottish state, with its smaller economy, would be able to support the industry in the long term as reservoirs become more challenging to extract and reserves begin to deplete".

The benefits to Scotland of staying within a single network include planned investments totalling £6bn to 2020 in electricity transmission upgrades - nearly a third of the UK-wide total - and special funding for electricity and gas supply to remote areas.

Meanwhile, the report claims that the UK has the lowest retail gas prices in the EU15 and the fifth-lowest electricity prices - although in late-March Ofgem said it will ask the government's Competition and Markets Authority to investigate the gas and electricity markets, following widespread complaints by consumers of a lack of effective competition.

The UK's retail gas price for the first half of 2013, including taxes, was just under 5 pence per kilowatt hour (p/kWh), according to the Eurostat data quoted in the report. The UK's retail electricity price for the same period was 15 p/kWh, with only France, Greece, Finland and Luxembourg having lower prices.

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