The only substantial benefit which it has been claimed will come to Scotland as a result of the sell-off of Scotland’s offshore renewable energy potential via the ScotWind initiative is that it will bring supply chain jobs.
As a recap, 24 GigaWatts of energy capacity worth about £350 billion in operating profits over the 25-year lifecycle of the license period (this will be staggered as different capacity comes online at different times) was sold for £700 million, or 0.2 per cent of the asset value as measured by profit potential (at current prices).
This was done via an ‘auction’ in which the seller placed a cap on the amount a bidder was allowed to bid. Given that all but one successful company therefore bid the maximum this was in effect a fixed-price sale which generated only a third of the income projected.
It will generate a negligible £50 million to £90 million annually for Scotland in ‘rent’. If it is possible to bring this electricity onshore (the UK National Grid cannot currently absorb anything like that much energy on Scotland’s east coast and it is uncertain if the UK Government will remedy that) it will generate about £700 million a year for the UK Government in connection fees.
If it is not possible to bring this energy onshore it is likely that the operators will export it to Europe via subsea cables meaning that most of Scotland’s developed marine energy will be foreign-owned and immediately exported internationally, meaning it can’t even be used to meet Scotland’s future energy needs.
Either way, these are miniscule sums in relation to the value of the development, which places a substantial burden on the claims of supply chain jobs to result.
There are serious concerns about the viability of these claims. Scotland does not currently have a large, suitable engineering base and so its ability to absorb the opportunities is in question. One commentator with expertise in the field described the projections as “fanciful nonsense”.
Achieving it would also require a very major skills development programme, but this coincides with a report by Audit Scotland which was highly critical of a “leadership failure” on the part of the Scottish Government over the last few years on a similar skills development programme.
It also comes when the failure of this and previous Scottish Governments to capture any substantial number of jobs from existing renewable energy is not in question.
Assuming the fine is less than the cost differential between buying inexpensive Chinese components and setting up and building them in Scotland, this actively incentivises the license owners to price-in the fines
This places enormous weight on the terms and conditions which will ensure jobs are genuinely brought to Scotland. This will be determined by a conditions document (“Supply Chain Development Statement – Summary”) published by Crown Estates Scotland (CES).
As a reminder, CES explicitly ruled out job creation commitments in the bid evaluation process, placing the burden further on this statement. It’s conditions appear straightforward.
Those who have been successful in getting to the option stage have set out a projection in their bid of how many jobs they will create in Scotland. During the option stage they must then explain how they are going to deliver those jobs.
If the number of jobs they commit to delivering at this stage falls below 25 per cent of their initial projection they will lose the option. But if they achieve say 25.1 per cent of what they initially promised they are allowed to progress to the full license stage. Obviously no supply chain jobs will exist at this point.
This will all be presented in a “a detailed, commercially confidential, and technical update” – i.e. it will not be publicly available. A “more descriptive public facing document” will be published but only after the legally-binding Option Agreement is signed. This involves the bidder meeting 16 sets of conditions of which supply chain jobs commitments is only one. That will then become a full license once other procedures such as planning permissions are achieved.
Once the full Option Agreement is signed the corporations will be allowed to get on with the full development. From this stage onwards their previous commitment to job creation will not be legally binding. But if they fail to achieve these jobs in reality, they can be fined (as set out in the “Contractual Remedies” section).
Assuming the fine is less than the cost differential between buying inexpensive Chinese components and setting up the capacity and building them in Scotland, this actively incentivises the license owners to price-in the fines into their operating costs and potentially not create any jobs at all.
[SUBSEQUENT ADDITION – I missed the fact that fines appear to be capped at a derisory £250,000 per bid, which is most certainly not any kind of deterrent.]
In any case, none of that will be apparent for many years at which stage a subsequent Scottish Government will have its hands tied by a legal agreement which permits only a retrospective fine for a failure to deliver the ‘jobs boom’.
The only other commitments to action on capturing supply chain jobs are pre-existing initiatives (CfD Supply Chain Plan, the Offshore Wind Sector Deal, Scottish Offshore Wind Energy Council). Two of these are UK-wide schemes not targetted at creating jobs specifically in Scotland and in any case these are the initiatives which previously failed to capture supply chain jobs.
There are no other commitments to achieving a major supply chain industry in Scotland. That is the totality.