ScotWind: Scotland faces loss of £60bn in new offshore wind farms

The Herald on Sunday can reveal that according to declarations made to gain rights to ScotWind over £47m of the £76.5bn of supply chain commitments covering at least the first six years of operation will leave Scotland. Those commitments cover investment in development, manufacturing, installation and operations.

And it has further emerged that while ScotWind raised £755m from seabed lease deals - similar schemes in the US and in England have generated up to 18 times that for the public purse.

Calls for a probe into the ScotWind “financial disaster” have been made as the nation also stands to lose billions in profits every year through the flux of foreign investment in the new schemes.

Respected think tank Common Weal said it had serious concerns about the “failures” in failing to reap enough from the leasing of the farms and in the loss of the supply chain billions.

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It says the Scottish Government should conduct an inquiry into how it got the ScotWind auction” so badly wrong” and what steps it will take to redress the errors ahead of the next round of renewables development in Scotland.

The Scottish Government believes that offshore wind farms will help complete Scotland’s journey to net zero, creating thousands of jobs in the process and that it has the potential to position the nation as a major exporter of renewable energy, including green hydrogen.

Scotland netted a one-of £775m from the Crown Estate Scotland auction of well over 2700 square miles of seabed plots around the Scottish coast - at an estimated £27,000 per MW. Its profits are given to the Scottish Treasury or split between some local authorities.

But that compares to the £508,000 per MW that was gained from the US biggest offshore wind auction - which covers an an area nearly a quarter of the size of the ScotWind projects.

The New York Bight lease sale, which is expected to generate between 5.6 and 7GW, enough to power 2m homes secured $4.37bh (£3.56bn) - made nearly 19 times more per MW than was reaped by ScotWind.

If ScotWind had matched the auction prices in the US, Scotland would have raised over £14bn.

In February, 2021, £880m was raised in option fees for 8GW of offshore wind farms south of the border - less than a third of the size of ScotWind. Round 4 of Offshore Wind Leasing generated £110,000 per MW - four times more than ScotWind managed According to Crown Estate Scotland details, it chose a “sensible” tender design with a maximum price ceiling of £100,000 per square kilometre which it said kept the costs of offshore wind low for consumers.

As seabed leasing costs are usually passed on to the electricity consumer, a price ceiling ensures that new offshore wind volumes are delivered at the lowest cost for consumers and taxpayers,” it said.

A cap of £10,000 had originally been sanctioned before a warning from Strathclyde University that auctions in England and Wales had attracted “unexpectedly high annual option fees” and that the capped auction fees "do indeed underestimate the market value of sites in Scotland".

King Charles (then Prince Charles) opened one of the first of Scotland's new wind farms

It suggested that if the capped auction approach was retained, Crown Estate Scotland should make efforts to further understand the range fees proposed for the bids in Round 4 to aid its thinking.

But Common Weal, in its analysis of the Scotland's gain from ScotWind said it has been a "financial disaster" and that the nation had failed to retain control of and steward the renewable sector, that the rights had been leased for a "pittance" compared to similar auctions internationally and that the framework had wrongly ensured that the most of investment in jobs and supply chain occur outwith Scotland.

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It said that all but one of the bids was won at the £100,000 per square kilometre ceiling showing that the market would have been able to bid a much higher price.

It said the Scottish Government should conduct an inquiry into "how it got the ScotWind auction so badly wrong" and how it will redress the "errors".

It estimated that had ScotWind matched the performance of the latest UK Offshore Wind Leasing it would have raised up to £28bn in total over a decade.

Craig Dalzell, head of policy and research at Common Weal said: "The Scottish Government must investigate why these failures happened, do everything they can to mitigate them and ensure that future rounds of Scottish energy licensing are developed in a way that maximises the benefits for Scotland, including by maximising the direct public ownership of these resources.

"In the year since its announcement, at least three more offshore wind auctions have concluded, two in the USA and one in England.

"All three of these auctions have raised many times more money for their respective governments than ScotWind did."

And he argued that promises of supply chain protections have just not been met.

"Conditions on these minimum commitments all but guarantee that it would be profitable for companies to break the majority of these commitments," he said.

According to a Common Weal analysis, as much as 71% of the manufacturing spend on ScotWind will end up outwith Scotland while nearly a third of development investment and 29% of operations is abroad.

In terms of the Scottish share of supply chain benefits, the worst return came with the Sealtainn project fronted by Republic of Ireland state-owned energy firm ESB. Of its £2.24bn spend - just 14.8% of that will be in Scotland.

The Morven project controlled by London-based energy giants BP and Germany-based EnBW has one of the largest committed investments in the ScotWind supply chain at £7.14 billion Of this, just £1.2 billion – 16.7% of the total investment – was committed to Scotland.

The Muir Mhor scheme controlled by Swedish state-owned Vattenfall and Norway-based Fred. Olsen Renewables have made a committed spend of just over £2bn of which 18.4% is in Scotland.

The Campion and Marran project billed as a "Scottish partnership" proposed by ScottishPower Renewables and Shell has made a 40% Scottish commitment from a £19bn supply chain spend.

Yet the Buchan scheme to be operated by the Floating Energy Allyance (FEA) with a £2.3bn spend is committing nearly two thirds (63%) of that to Scotland. The smaller Area 18 project fronted by the Ocean Winds consortium - a 50/50 joint venture between Spain's EDP Renewables and France's Engie - at 63.9% has the biggest percentage commitment to the nation with a £1.13bn supply chain spend.

The Scottish Government has been criticised for its failure to set up a publicly-owned energy company saying it did not have the powers - while Wales is developing a similar plan.

Common Weal has said 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 from ScotWind projects was privately owned supermajors such as BP and Shell, which has won nearly a quarter of the projects.

It and others have long called for 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.

It is felt by some that the failure to create a state-owned energy company has meant that the nation has lost its grip of the profits of Scotland's green revolution.

The failure to set up a company which could have sold the new ScotWind electricity to the grid and retained operating profits, has previously led to concerns that the nation would lose between £3.5 billion and £5.5 billion in profits abroad – about a tenth of the current Scottish budget.

Roz Foyer, general secretary of the Scottish Trades Union Congress said she was concerned that multi-national companies appeared to have "strengthened their grip" on Scotland’s offshore wind sector.

“Given the scale of investment expected over the next decade, it would be nothing short of economic vandalism if we fail to build a thriving supply chain in Scotland," she said.

“The Scottish Government must build the infrastructure to enable large scale fabrication in Scottish yards, require local content from developers, and address issues of democratic control through publicly owned energy and infrastructure companies.”

Nick Sharpe, director of communications and strategy at Scottish Renewables, said: “ScotWind will play a major role in bringing about our net-zero future. Last year’s leasing round will be transformational for Scotland’s renewable energy story, with industry set to invest £30 billion in the Scottish supply chain, creating thousands of local jobs and benefiting communities across the country.”

A Crown Estate Scotland spokesman said: "Comparing ScotWind to processes in other countries is misleading as a range of factors, such as seabed conditions and technical considerations, influence the leasing process which was designed to deliver optimum long-term value.

“Scotland will benefit from £755m in option fees – which were for 10-year option agreements, not one-off sales – plus the annual multi-million-pound payments, once projects begin operating, as well as offering Scotland the opportunity to be a world leader in fixed and floating offshore wind, with initial supply chain commitments indicating an average of £1bn investment in Scotland per gigawatt of capacity built.

“The requirement for each developer to outline, from the start, their supply chain commitments will help ensure a focus from the outset on ensuring supply chain is in place to build Scottish offshore wind farm projects, however, the challenges in delivering on these ambitions – which will evolve as project details become clearer – should not be underestimated.”

A Scottish Government spokesman said: As the world’s largest floating offshore wind leasing round, ScotWind puts us at the forefront of the global development of offshore wind and represents a massive step forward in our net zero transformation. It is a once in a generation opportunity to deliver enormous environmental and economic benefits for all the people of Scotland. “In addition to delivering more than £700 million in revenues to the public purse for these initial awards alone, the ScotWind projects will start paying rent once operational and will deliver billions of pounds of investment across the Scottish supply chain, helping to create thousands of good green jobs and transform our local and national economies.

“The leasing fees are managed by Crown Estate Scotland (“CES”) and reflect the challenging conditions for many projects in Scotland. The fees were subject to review, and subsequently raised, by CES in 2021 following an unprecedented shift in the offshore wind market.

“We are clear that ScotWind promises to be transformational in delivering wider economic supply chain benefits to help power Scotland’s green recovery in communities across Scotland. The Supply Chain Development Statements set out ScotWind developers’ initial commitments to the Scottish supply chain, with more than £28bn across the 20 ScotWind offshore wind projects. Government and its agencies continue to work closely with developers and those at the top of the supply chain to ensure that local suppliers in Scotland have a realistic opportunity to compete for key manufacturing contracts.”