Twist in offshore lease auction could see huge public funds windfall amid industry concerns

SCOTTISH Renewables says the next Holyrood government must work to ensure the wind power industry can to remain competitive after the initial auction price for offshore development leases skyrocketed by up to ten times the original estimates.

The rise in costs could deliver an unexpected windfall of millions of pounds more income for public funds, but raises other questions over what it means for developers who were ready to bid and ultimately customer pricing.

Crown Estates Scotland, which managed leasing of seabeds, had been ready to lease 15 of them at around £10,000 per square kilometer with a clutch of developers ready with their bids until the process was paused a month ago.

But it has been extended and the potential price increased to a top tier of £100,000 per square kilometer after a surge in pricing for a similar process in waters off England and Wales which will realise close to £900m a year for Crown Estates over the next decade.

The open auction there saw BP and other bidders pay well above what had been anticipated in their own drive for new revenue streams as they slowly begin to pivot from fossil fuels under pressure from environmental groups, politicians and shareholders.

That in turn saw Crown Estates Scotland pause their own process fearing it could lead to them missing out on potentially hundreds of millions of pounds in potential revenue.

Today it was announced the auction has been re-opened, but with the new pricing parameters and other changes around supply chain commitments (which rise from 10% to 25%) in place for the 8600km2 available.

The original process opened on January 15 and was supposed to end on March 31. A new closing date has been set for July 16 with updates on the scheme at the end of next month.

“It is now for those individual developers to decide if the new price of these leases reflects their assessment of the value of the contracts which they will need to secure from the UK Government.

Claire Mack, CEO, Scottish ReneWables

Claire Mack, CEO of Scottish Renewables which is currently hosting its annual conference, said it would be up to members to decide whether they thought the new price is one worth paying to safeguard jobs and achieve net zero targets.

She said: “The importance of the ScotWind Leasing process to the delivery of an offshore wind industry which can support thousands of jobs and our net-zero target should not be underestimated.

“Industry always understood the reasons for this delay and we are pleased that Crown Estate Scotland has delivered these changes within a matter of weeks, keeping the process on track for the majority of Scottish Renewables members who have already spent thousands of hours and millions of pounds getting ready to bid for the seabed leases they need to build their projects.

“It is now for those individual developers to decide if the new price of these leases reflects their assessment of the value of the contracts which they will need to secure from the UK Government.”

She added: “Scottish Renewables and its members are already working to increase the competitiveness of supply chain businesses.

“We will continue to work with Crown Estate Scotland and the next Scottish Government to ensure that support for the supply chain is strategically focussed in a way that enhances the competitiveness of the widest-possible range of businesses, based on evidence provided by a number of ongoing assessments, not least through the Scottish Offshore Wind Energy Council, in which industry, government and its agencies play an increasingly-important role.”

Renewable energy, and wind in particular, are seen as key drivers for a green new deal and economic recovery, already supporting more than 25,000 jobs with hopes that this could at least triple in just a few years, particularly in areas facing rising unemployment owing to geography.

Option fees are paid by successful applicants to Crown Estate Scotland in exchange for securing the rights to areas of seabed that have been identified as suitable for development in Marine Scotland’s Sectoral Marine Plan.

Funds will be returned to the Scottish Government for public spending to drive the green recovery and help deliver government priorities.

AT A GLANCE

  • ScotWind Leasing will keep the same basic pricing structure for option agreements.
  • The previous maximum fee that might be paid was £10,000 per km2 of seabed. This will now be increased to a maximum of £100,000 per km2.
  • The threshold of Supply Chain Development Statement commitments that applicants must meet to request a lease has been increased from 10% to 25%.
  • Further change of control provisions will apply to resale of options awarded.
  • Additional technical information will be published by the end of April to allow registered applicants to progress their interest in ScotWind Leasing.
  • The Closing Date for applications will be 16 July 2021.

Announcing the changes Amanda Bryan, Chair of Crown Estate Scotland, said: “This rapid review was undertaken to reflect the recent changes we have seen in the UK offshore wind market so that we could arrive at a pricing structure which properly reflects those changes.

“Throughout the development of ScotWind Leasing we have sought to secure best value for communities and help place Scotland as a competitive destination for the investment needed to turn potential projects in to reality.

“This review achieves both of these goals.

“We look forward to working with the offshore wind sector to realise the benefits of offshore wind for Scotland’s communities and for the environment.”

Cabinet Secretary for Environment, Climate Change and Land Reform, Roseanna Cunningham, said she was grateful for the changes being implemented quickly.

She said: “The Scottish Government’s climate change plan requires a zero carbon electricity system by 2030 – maximising offshore wind’s contribution will be vital to achieving this and therefore is a key priority for this government.

“ScotWind will support the continuing growth and expansion of this technology, harnessing this huge resource for our energy system and helping to unlock significant investment in the supply chain to create more green jobs across the sector, while seeking to achieve a fair value for Scotland’s assets.

“We know how keen the industry are to start developing and delivering projects, which is why I thank Crown Estate Scotland for undertaking this rapid review of pricing options and setting out their next steps in a timely manner which enables the developers to move forward.”

Minister for Energy, Connectivity and the Islands, Paul Wheelhouse, said the process could lead to Scotland delivering a “world leading” industry, particularly around floating offshire capabilities.

He said: “The ScotWind leasing round is critical to the delivery of a strong and vibrant offshore wind sector in Scotland that can be world-leading, particularly in the delivery of floating offshore wind technology.

“Scotland is uniquely placed to capitalise on this technology and grow an industry that not only provides electricity, but facilitates the growth of a hydrogen economy as well.

“Today’s announcement from Crown Estate Scotland balances the increasing value and demand for Scottish seabed with the need to secure a strong offshore wind supply chain which can power our green recovery from COVID-19 and help us meet our net zero target. I thank Crown Estate Scotland for completing their rapid review and look forward to the timely resumption of the ScotWind process.”

The auction sites include areas around Islay, Shetland, Orkney, Lewis, Moray and larger sites that lie off the Angus and Aberdeenshire coasts.

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