AMID booming interest in renewables, regulators in the UK must ensure that all stakeholders are beneficiaries of windfarm developments and the like and not just shareholders in big corporations.
The July 16 deadline for applications under the ScotWind licensing round is fast approaching and the indications are that a range of giants are competing to get control of the choicest offshore acreage.
ScotWind is the first offshore licensing round covering acreage off Scotland for a decade. When it was launched in June last year Crown Estate Scotland talked about it paving the way to around 10 new commercial windfarms being developed off Scotland and unlocking as much as £8 billion investment.
Given that the round was launched as the scale of the likely fallout from the coronavirus crisis became clear, those claims may have seemed fanciful.
READ MORE: Cut-price exit from North Sea by giant bodes ill for area
However, moves made by corporations in recent months amid the rollout of coronavirus vaccines suggest the Crown Estate Scotland forecast may not be unreasonable.
In February the results of the latest round covering acreage off England, Wales and Northern Ireland made clear that hard-headed energy giants saw huge value in the areas concerned .
The mighty BP teamed up with Germany’s Energie Baden-Wuerttemberg (EnBW) to make a successful bid for leases covering an area between the Isle of Man and Liverpool. The partners agreed to pay the Crown Estate around £1.8 billion in fees over the first four years in total, with the prospect of them investing much more if they decided to develop any windfarms.
BP’s chief executive Bernard Looney said at the time: “We are fully confident that these highly advantaged resources will deliver – at a minimum – the 8-10 per cent returns we demand of our renewables investments.”
Scottish Hydroelectric owner SSE noted that it had been unsuccessful in the “highly competitive” round, which it said signalled the attractiveness of UK offshore development. The company said it would seek out further opportunities.
Crown Estate Scotland then decided to extend the ScotWind exercise in the hope of ensuring bids were in line with the UK Crown Estate round.
The Scottish organisation came under fire at the time from the renewables lobby for keeping firms in the supply chain waiting for valuable work.
However, the decision to delay the closing of the round now looks to have been an entirely sensible one.
READ MORE: Energy firm underlines value of windfarm licences ahead of key auction
While one might expect corporations to keep their cards close to their chests when it comes to competitive auctions, a range of giants have made clear that they will be enthusiastic participants in the ScotWind round.
In November SSE said it was teaming up with Japanese industrial giant Marubeni and the Copenhagen Infrastructure Partners investment firm to compete in the round.
In May SSE’s chief executive Alistair Phillips-Davies said it planned to bid in a number of areas with floating windfarms set to feature in its plans.
The same month BP confirmed that it was planning to participate in ScotWind with EnBW.
Last week French oil and gas major TotalEnergies said it would compete for acreage as part of a consortium with Australian investment bank Macquarie and the Renewable Infrastructure Development Group, a wind specialist based in Scotland.
At a time when corporations are eager to burnish their environmental, social and governance credentials, all three of the teams have laid out plans to ensure that any windfarm projects they complete will benefit the supply chain.
READ MORE: Pensions expert poses tough questions for Scotland's fund managers
But sceptics will note that when ScotWind was launched last year Crown Estate Scotland said applicants would have to submit a Supply Chain Development Statement “outlining how they plan to engage with and utilise supply chain to successfully develop their projects”.
In April Crown Estate Scotland beefed up the supply chain development requirement.
When the final bids are assessed, it must ensure that supply chain commitments appear to be robust and supported by detailed plans rather than being merely aspirational.
The plans must also support the development of technologies that will help to make the biggest contribution to the net zero drive.
Experts have noted that there is an opportunity for Scotland to become a leader in the development of floating windfarms.
Equinor chose to develop the world’s first floating windfarm off Scotland, in the form of the Hywind facility off Peterhead.
Success in the floating windfarm market may provide some compensation for the fact that the growth of the offshore wind industry in Scotland to date has not provided the big boost to employment that was expected.
READ MORE: What is Scottish National Investment Bank achieving amid coronavirus crisis?
It is a concern that US giant GE has decided to develop a turbine blade manufacturing plant on Teesside, which is expected to create about 750 jobs directly and support many more in the supply chain. The plant will be used for the manufacture of blades for the giant Dogger Bank windfarm that SSE is developing off North East England.
Hopes that major windfarm equipment operations would be developed at Burntisland Fabrications (BiFab) in Fife and CS Wind in Argyll have been disappointed.
The Scottish Government claimed its ability to provide support for BiFab was limited by rules on state aid set by the EU.
When assessing the ScotWind bids Crown Estate Scotland should ensure that they provide an opportunity for the giants concerned to generate a reasonable return on their investments but no more.
Talk of private sector firms taking on huge risks to develop complex projects should be regarded with caution given the advances that have already been made in the offshore wind sector.
READ MORE: Scots renewables heavyweight wins backing to build world's biggest windfarm
SSE is applying learning from the giant Beatrice windfarm which it brought into operation off Caithness in 2019 to the Seagreen development off the Angus Coast. TotalEnergies bought a majority stake in Seagreen in a deal worth up to £130m in June last year, when it was known as plain Total.
In December SSE sold a 10% stake in Dogger Bank to Italy’s Eni in a £200m deal the Perth-based firm said showed how it had been able to generate value for shareholders by investing in renewables.
That deal underlined how corporations have been able to generate good returns by taking early positions in windfarm projects.
Successful ScotWind bidders should be required to pay the taxpayer a fair share of any gains they make on the sale of stakes in licences they acquire in the round.
READ MORE: SSE reiterates plans for big payouts to investors as it eyes renewables bonanza
Both SSE and BP have made much of their plans to maintain generous payouts to shareholders at a time when most savers are earning less than one per cent on deposits.
With that in mind, Ofgem must try to ensure that giants that win licences are not then subsidised by consumers through their power bills under the Contracts for Difference regime.
Why are you making commenting on The Herald only available to subscribers?
It should have been a safe space for informed debate, somewhere for readers to discuss issues around the biggest stories of the day, but all too often the below the line comments on most websites have become bogged down by off-topic discussions and abuse.
heraldscotland.com is tackling this problem by allowing only subscribers to comment.
We are doing this to improve the experience for our loyal readers and we believe it will reduce the ability of trolls and troublemakers, who occasionally find their way onto our site, to abuse our journalists and readers. We also hope it will help the comments section fulfil its promise as a part of Scotland's conversation with itself.
We are lucky at The Herald. We are read by an informed, educated readership who can add their knowledge and insights to our stories.
That is invaluable.
We are making the subscriber-only change to support our valued readers, who tell us they don't want the site cluttered up with irrelevant comments, untruths and abuse.
In the past, the journalist’s job was to collect and distribute information to the audience. Technology means that readers can shape a discussion. We look forward to hearing from you on heraldscotland.com
Comments & Moderation
Readers’ comments: You are personally liable for the content of any comments you upload to this website, so please act responsibly. We do not pre-moderate or monitor readers’ comments appearing on our websites, but we do post-moderate in response to complaints we receive or otherwise when a potential problem comes to our attention. You can make a complaint by using the ‘report this post’ link . We may then apply our discretion under the user terms to amend or delete comments.
Post moderation is undertaken full-time 9am-6pm on weekdays, and on a part-time basis outwith those hours.
Read the rules hereLast Updated:
Report this comment Cancel