ScotWind UP!
Craig Dalzell - 20th January 2022
The debacle over the auctioning off of Scotland’s offshore wind potential for not much more than a song has been horrible to watch and worse to write about – especially the deeper I dive into it (You can read my initial reaction in The National here and we will be publishing a deeper report this weekend).
Officials in Scotland have been celebrating the £700 million down-payment that has been won as a result of the auction itself (this payment gives winners the exclusive option to submit a development plan within the next ten years) and the rent that will accrue to Scotland when the turbines are finally built – amount currently unknown but based on the published figures for the rent per MWh and typical numbers for wind turbine performance, I estimate that this could be between £50 and £90 million a year.
But I’ve also estimated that the complex web of fossil-fuel companies, foreign state-owned energy companies and financial holding companies standing behind as shareholders stand to earn profits of something like £5 billion per year once everything is developed and operational.
Some vague promises have been made about ensuring that the “supply chain benefits” are kept in Scotland but we’ve heard little about what that would actually mean, what the auction winners have actually committed to or what Scotland is actually capable of delivering right now without serious investment in building that chain up. We certainly don’t have the manufacturing capability to build all of the turbines in Scotland at the moment so ScotWind winners will either have to invest seriously in building turbine factories or...and this echoes with a warning from previous schemes in Scotland….simply buy the turbines in from somewhere else.
In short, what sounds like a large windfall for Scotland amounts to less than a stiff breeze compared to what we could have had had we kept our resources in Scottish public hands.
I’ve been wondering if we risk not seeing this for the scandal that it is simply because we, as humans, aren’t very good at visualising large numbers in relation to each other. Our brains are better than most other apes at keeping track of numbers but they still only evolved to coordinate tribes numbering not much more than a few hundred people. “A million” and “a billion” tend to sit in the same space in our heads, right next to “Very Big”. To try to understand them, we must either resort to abstract mathematical concepts or to analogy.
I have some experience of trying to wrap my own head around these things. During my PhD I designed an experiment which essentially involved measuring and comparing two numbers that were different in size by 14 orders of magnitude. If one of those numbers had been “1”, the other would have been written as a 1 followed by 14 zeros. It was like trying to compare the width of a coin with the distance from here to Saturn.
If we look at the ScotWind auction, maybe it’ll help if we take six of the zeroes off of all of the numbers in the problem (That is, instead of £1 million, we’ll think about £1 and instead of £1 billion, we’ll think of £1,000) and look at an analogy – albeit one that doesn’t precisely accord with Common Weal housing policy.
You have a house that you want to rent out, however it needs a fair bit of work done to make it ready for a tenant. Your best estimate is that it’ll cost £24,000 to get everything ready. You could do that work yourself and then you could rent it out and keep the money that yourself but you decide to take another approach. You’ll go to a group of landlords and offer them a competition. They will present a house makeover plan to you and bid a certain amount in an auction. If they win the auction, you’ll give them time to build up their plan for the house. However, for some reason you’ve decided that the auction will have a maximum price on it. Not a minimum reserve, a maximum cap. No-one will have to bid more than £700 for the right to redecorate and rent out your house.
You’ve also decided to charge the landlords a fee for the rent. £50 a year will do it. Just to remind them that you still own the place.
The bids come in and all of them are £700. Was that a snigger from the winning landlord consortium as they hand it over? Might they have been willing to pay more? Who knows, but never mind. The deal is done and the decorators start to move in.
You start to get a bit suspicious when you notice that they haven’t hired the local electrician and painter like you hoped they would but some of their regular contractors. They also brought their own team in to landscape the garden. But they have relied on council services to empty the bins as they do their usual rounds so I suppose that can be counted as “jobs supported by the sector”.
Finally, the house is ready, the tenant moves in and starts paying their rent. You get your £50 every year from the landlords as promised.
After a while, you realise that the landlords’ accounts are all a matter of public record so you go and check how much the tenant is actually being charged. It turns out that they’re happily paying over £3,000 a month to live in your house. After costs, the landlords are pocketing £5,000 a year in clear profit. They made back the auction fee they gave to you within a few weeks and even the cost of redecorating came back to them within a few years.
Worse, you discover that as the landlords don’t even live in this town, almost all of that profit is disappearing from the local economy. The local grocer just went out of business. They can’t afford to redecorate their house so that painter who was at yours has gone under too. You’re kind of struggling as well – it turns out that £50 doesn’t go very far these days.
Looking back, maybe it would have been better to redecorate and rent out that house yourself. Sure, it would have been harder at first. You might even have had to learn how to landscape a garden. But if you had done it yourself, you’d now be in a much better financial position than you were. And because you’re still living in this town and spending your income here, you’d be supporting all of the other businesses too. You could call that Community Wealth Building.
Scotland has seen its wealth and resources stripped away from it time and time again. It seems like we’re on the cusp of doing exactly what happened with our oil again with our wind. The difference is that this time it’s being done by an organisation that is now entirely devolved and ultimately controlled by the Scottish Government. We should be building up our own National Energy Company (as the Government has been instructed to do by party members twice now) and building the capacity to own and develop our own energy assets. The ScotWind auction isn’t something to celebrate. It is the consequence of chronic failure of public policy and a warning of more to come.