ScotWind: Scotland set to lose billions in windfarm profits

But a failure to create a state-owned energy company which could have sold the new ScotWind electricity to the grid and retained operating profits, has led to concerns that the nation will lose between £3.5 billion and £5.5 billion every year - about a tenth of the current Scottish budget.

The respected think tank Common Weal says it is "arguably the greatest economic failure of the last decade".

It says that as with Scotland's offshore oil energy boom, one of the main reasons for the rise of the Scottish National Party in the 70s, the overwhelming winner is privately owned supermajors such as BP and Shell, which has won nearly a quarter of the projects.

Scotland gains from the Crown Estates Scotland auction of the seabed plots around the Scottish coast, netting a one-off £700m. Its profits are given to the Scottish Treasury or split between some local authorities.

But based on proposed project rents outlined by seabed managers Crown Estates Scotland, it can be revealed that the ScotWind projects operating at its full capacity would be estimated to bring Scotland between £50m and £90m each year - a tiny fraction of the billions expected in profits.

While the total impact on the associated supply chain and on the number of jobs created will not be known until later in the process, the First Minister said their estimates suggest as much as £1 billion could be generated for every gigawatt of power. A gigawatt equates to roughly two coal-fired power plants and is enough to power 750,000 homes in Britain.

Some believe the Scottish supply chain spin off is an “overpromise” with current bids currently excluding any firm commitments.

READ MORE: ScotWind: We can still grab billion-pound benefits of wind

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Scottish energy secretary Michael Matheson has so far failed to answer whether there would be any specific, binding commitments for winning bidders to deliver investment and jobs in Scotland, after being urged to make sure the benefits are not “squandered”.

A new analysis by Common Weal which examines the annual accounts of companies which developed offshore wind projects such as Swedish state-owned Vattenfall and Denmark-based Ørsted suggest that the profits to be gained by the companies who won the auction will be "many times higher" than the rent.

Ørsted, the global leader in developing and building offshore wind farms has made around £2bn in operating profits in both 2019 and 2020, with a generation capacity that is less than a fifth of the planned size of the ScotWind development. Some 82% of that profit is attributed to offshore wind.

The think tank says that a lack of manufacturing capacity in Scotland means that supply chain promises may not be forthcoming if companies believe it is cheaper to import material rather than invest in Scotland.

It has long advocated the establishment of a state-owned company which would have owned energy resources, to provide secure, reliable and low-cost retail energy to households and to ensure there were renewable energy supply chain and manufacturing jobs for Scotland.

Nicola Sturgeon said in 2017 that the Scottish Government planned to set up a state-owned energy company in Scotland which was due to be established last year but was dropped in September.

"If Scotland had launched a series of agencies as called for by Common Weal and as accepted by SNP and Scottish Green party policy, the ScotWind project could have remained entirely owned and operated from within Scotland," the think tank said.

"Had Scotland launched a National Energy Company capable of owning ScotWind, it would have been well placed to deliver billions in profits to Scotland every year that will now instead be shipped overseas to private shareholders or invested in the public services of those countries who have deployed their own nationalised companies in Scotland.

"Scotland must build up that capacity now so that it is ready to capture the results of the next energy auction and can position itself to nationalise ScotWind assets when their leases are poised for renewal."

The ScotWind leasing auction attracted more than 70 bids from major oil companies, utility firms and investment funds from around the world.

Most of the sites are on the east, north east or northern coast, with just one on the western side of Scotland.

Last year the Herald on Sunday revealed that Highlands and Islands Enterprise, the Scottish Government's economic development agency faced the loss of up to £4.3m of taxpayers' money through the collapse of offshore wind tower firm CS Wind, the only UK facility for manufacturing onshore and offshore wind towers and seen as a key part of Scotland's green revolution.

When opened in 2002, then First Minister Jack McConnell declared his ambition to make Scotland a world leader in renewable energy.

While the Scottish Government was predicting 12 years ago that there would be 28,000 Scottish jobs in the offshore wind industry alone by 2020 as the nation takes advantage of its benefits – official workforce data for 2019 shows it stood at just 1400.

In December, 2019, the First Minister was urged to intervene amid concerns Scotland was missing out on a wind farm jobs boom, as CS Wind lost out on a key contract.

Common Weal director Amanda Burgauer said: “Scotland sold off its energy future for a pittance and there should be outrage and fury.

"To make matters worse, the auction explicitly excluded any assessment of whether any of the winning bids were going to bring any manufacturing jobs to Scotland, making this a double betrayal.

"The positive spin on this is that Scottish Government can’t make that size of investment, so better to get private companies to do it, but this is a long term infrastructure project that could have been managed by an intermediary on behalf on a National Energy Company.

"A Scottish public energy company which would have captured all of the profit for Scottish citizens in exactly the way Norway captured its oil wealth, making it one of the world’s richest countries.

"That would have given us the potential for training employees and creating local jobs, as well as keeping the profits in Scotland. As it is, the turbines will be foreign owned and the electricity generated might not even touch Scotland.

And no tax is payable in Scotland.

"There really should be a national outcry at the way Scotland has squandered the economic potential of its energy resources."

The Common Weal analysis authored by Dr Craig Dalzell, head of policy and research said multiple agencies could have delivered on retaining profits in Scotland, including A National Investment Bank which would provide stable finance and anchor investment.

And he said that another "significant" source of fees from ScotWind that will not directly benefit Scotland are power transmission fees payable to the National Grid, the London-based privatised operator of the power lines. He says that based on typical rates for the north of Scotland that could work out at an estimated £727m per year.

He said: "Scotland has fallen badly behind in the race to become a leading developer of renewable energy generation and should not simply content itself to being the host of such ventures and celebrating when a few crumbs fall off the table for us to pick up."

When the new ScotWind projects were announced, Nicola Sturgeon said it was “possibly one of the most significant days in energy and industrial terms that Scotland has seen for a very, very long time”.

She said it raises the prospect of "thousands, tens of thousands, perhaps, of jobs – good, high-quality green jobs".

The biggest winner in ScotWind was Scottish Power, now a subsidiary of Spanish utility firm Iberdrola, which won the seabed rights to develop three new offshore wind farms with a total capacity of 7GW.

They include a joint venture with British multinational Shell to develop the world's first large-scale floating wind farms at two sites with total capacity of 5GW.

A joint venture between BP and Germany's EnBW was successful in bid for a 2.9 GW wind project which BP previously said would result in £10bn of total investment.

Nicola Sturgeon has already been accused of allowing overseas firms “with woeful human rights records” to profit from the projects.

Cases referenced by Scottish Labour leader Anas Sarwar include the Marubeni Corporation that, in partnership with Perth-based SSE, has been awarded rights for a floating offshore wind turbine site across 858 square kilometres of seabed.

The Japanese organisation paid a multimillion-dollar penalty in connection with a decade-long scheme to bribe Nigerian government officials for engineering, procurement and construction contracts.

And France's TotalEnergies, which in a consortium secured rights to develop a wind farm off the west coast of Orkney, was implicated in historic claims that the military government in Burma had used forced labour and its soldiers had employed murder and rape in the laying of a pipeline through the country.

Dr Keith Baker, a researcher in fuel poverty and energy policy at Glasgow Caledonian University said: "We have now reached the point where the Scottish Government has had little choice but to licence a significant chunk of some of our most valuable renewable energy assets to a group of multinational companies, none of whom have any real interest in supporting Scotland's development as an equitable and independent countries, and with two of the top beneficiaries having abysmal records on human rights and climate change," he said.

Dr Baker, a carbon management author who has given evidence to the Westminster All Party Parliamentary Group inquiry into sustainable construction and the Green Deal added: "If the Scottish Government had listened particularly regarding the need for an asset-owning public energy company and the development of a domestic renewable energy manufacturing sector, we would now be in a position to justifiably claim that the sell off would bring significant and demonstrable economic and social benefits to Scotland.

"However, as it is, we will see very little of those benefits, meaning the SNP and Scottish Greens have limited our capacity to meet our climate change targets, undermined our commitments to human rights, and undermined the case for independence".

A Scottish Government spokesman said money generated will be invested to help tackle "the twin climate and biodiversity crises".

“Current market volatility and the on-going reserved nature of powers on energy regulation and the energy market mean that now is not the right time for a retail-based public energy company," added the spokesman.

“As the First Minister said in Parliament this week, a national public energy company that is involved in major energy generation would only be possible in an independent Scotland where we had full powers over the energy market and full access to borrowing."