SchottWind: Hergestellt in Deutschland

Craig DalzellRegular readers will know of my keen interest in following the development of Scotland’s offshore renewable resources, particularly around the ScotWind project.It was our work at the start of last year that revealed to the general public that the auction that took place for that project had been massively underpriced – to the point of the auction being run with a maximum price cap that was low enough that every single winning bid railed against it. We also revealed that the structure of the auction meant that there was a severe risk that despite headlines proclaiming the promises number of jobs that would be created by the local supply chains, the fines levied to ensure those promises were met were set so low as to almost actively incentivise companies into breaking those promises. Many of the winning bids were either multinational oil companies or foreign public energy companies. The Scottish public, lacking a public energy company of our own, were largely locked out of owning our energy resources again.Our follow up paper at the start of this year showed that the promises of the supply chain jobs – even if fulfilled in full – were less than encouraging, with more than two thirds of the promised funding (and much of the high value work like installation and manufacturing) going to places outwith Scotland. This paper also revealed that several offshore wind auctions that took place around the world in 2022 raised substantially more in upfront revenue for their respective governments than ScotWind did for Scotland. One project in New York shocked the sector when its open auction smashed through previous records. Had ScotWind achieved the same average price per MW of capacity as the New York auction did then instead of raising £755 million for the Scottish Government it would have raised closer to £16.3 billion – more than enough to fund our own National Energy Company AND make a substantial dent in the rapidly approaching bill for retrofitting Scotland’s cold, damp and inefficient homes.One of the claims made by those who opposed our work was that ScotWind HAD to be priced so low because the harsh geography of the North Sea and limited Scottish customer base meant that it would be much more expensive to build turbines here. This is, on the face of it, logical but this year we discovered that another offshore wind project, INTOG, was run in Scotland and auctioned off areas of seabed even further from land and in even harsher conditions than ScotWind. This auction was not run with a price cap and managed to achieve prices significantly higher than ScotWind despite these projects being focused on research and development and to power oil rigs rather than being fully commercial projects feeding into the National Grid (which, by definition, means less prospect for profits to recoup the investment thus a lower price than ScotWind should have been expected).Other offshore wind projects are popping up all the time now but two in particular caught my eye recently, both of them in Germany.The first is a relatively small project in the German North Sea where investors have paid €784 million (£670 million) for the rights to install around 1,800MW of capacity. This is notable because the price paid is similar to the price paid by the entire ScotWind project winners but for an area a fraction of the size. On a per MW basis, this project raised around 16 times as much as ScotWind did. The Germany Government has pledged that 90% of the money raised will be spent on reducing energy costs with around 5% to be spent on marine conservation efforts.This project, however, pales in comparison to the one that Germany concluded in July. A 7,000MW project (one of the largest in the EU, though still only a quarter the size of ScotWind) in the Baltic Sea absolutely smashed through the records set by the New York auction last year. The open auction was utterly dominated by oil supermajors BP and TotalEnergy who swept away any hope of competition by outbidding everyone else to a degree described by one of the losers as “obscene”. The auction raised fees of €12.6 billion (£10.8 billion) for the right to build in the nominated areas. This is, on a per MW basis, more than 66 times as much as ScotWind. Imagine the headlines if then First Minister Nicola Sturgeon has stood in front of the media and announced that rather than the £755 million ScotWind actually raised, Scotland had instead auctioned off that renewable energy capacity for £50.5 billion. Enough to give every resident of Scotland, adult and child, a windfall payment of over £9,000 each. Even I might have been a little more hesitant in my condemnation of the structure of the project had that been the case.Though I would not have been silent. That aforementioned industry source was right to call this obscene. What has happened is that two oil supermajors have effectively landbanked (sandbanked?) a substantial portion of Germany’s offshore renewable capacity. They are effectively gambling that the price of actually installing the turbines will continue dropping in price as fast as it has done in the past few years so that by the time they actually come to build the generators, the price cut will offset the upfront price they’ve paid (or, more cynically, it’ll prevent renewable companies moving in faster and taking away their business model). It might well be that these investments get written off when the time comes or sold on to someone else. The same might also be true of ScotWind but the consolation for Germany is that they did manage to get that upfront fee that can be used for something else like retrofitting homes and it’s not like the seabed and the wind will be going anywhere – it can always be sold or auctioned off again (albeit with the price paid in terms of even more irrevocable damage caused by the oil companies to the planet because of their climate delaying. I’ll likely write a future newsletter article about why we should support plans to make ecocide a crime in Scotland).It becomes clearer by the year, month and week that the Scottish Government made severe mistakes in their handling of the ScotWind auctions. It is absolutely vital that we make sure that the mistakes are not repeated in future auctions and that steps are taken with the ScotWind project to ensure that any form of improvements to the existing deal can be made. This may include renegotiating rental fees for operating turbines, limiting the lifetime of leases to ensure that the turbines can be brought into public ownership after companies have recouped their investment and made a fair but not unreasonable profit and doing what we can to set up a public energy company that can be the buyer of first resort if and when the companies invested in ScotWind decide to pull out or sell their shares.It is absolutely vital that Scotland pushes on at pace with our Green New Deal but part of that means doing it well and doing it right. Part of that is ensuring that policies are properly scrutinised and governments held to account for their actions so if you've supported the work that we've done here then please consider making future analyses possible by donating to Common Weal.We cannot afford to keep making the mistake of selling off our energy resources at bargain prices to companies that will extract the profits derived from our energy bills elsewhere (especially in the case of foreign public energy companies where our bills will subsidise their host nations’ green transitions instead of our own). The solutions are there (many of them are in our own policy library), we’re merely waiting for a politician willing to pick them up and make them happen.