Photo of dilapidated building

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.

6 thoughts on “ScotWind UP!”

  1. Robert P Ingram

    Craig, The Preston Council initiative comes to mind.
    CLES Preston Council model – How we built community wealth in Preston – Achievements and lessons.

    The quality of management at Scottish Ministerial level is shockingly poor.

    1. Then why not WAIT till we are indy before selling the family silver?? Why not use the time to develop the supply chain ??
      After all if we ARE having an indyref in 2023 , indy by 2025 ….. or is that a red herring 🤔

  2. Republicofscotland

    Sturgeons actions are not the actions of an FM who wants Scottish independence, if that were the case she wouldn’t have gave away our coastline for a pittance, no like Norway has done she would have made sure that public investment and returns would’ve have been at the forefront of the deal, securing a good income for Scotland post-independence.

  3. This is an outrage and a disgrace , Sturgeon is on news channels lauding this deal and trying to convince people who KNOW BETTER (you and others) that this RIP OFF is beneficial to Scotland and Scots , meanwhile we have families with children and the elderly panicking and terrified at what the next round of increases to their energy supplies are going to do to their meagre incomes , I watched the CEO of (anything but ) Scottish Power (Ibedrola) on stv praising this deal , a company whose greed and avarice is second to none and a company that thinks customer service should not exist

    I dearly wish we had a MSM and broadcasters who were worthy of journalism instead of corrupt, lying , biased presstitutes then the public would be aware just how rotten and corrupt WM and HR are

  4. As Rob Gibson has posted this is worth a read – it should help understanding about what CES has done and what it means for Scotland:
    Having ideals is necessary and great but we mustn’t let the pursuit of them be used as a means of undermining the case and support for our independence. A NEC is a great ideal but a long way off – and pursuing it could undermine credibility in the stability of Scotland’s policy and regulatory frameworks and thus scare away the investors we need, and not just in energy.
    I think your note on Scotwind is interesting but your choice of comparison (to help understanding) could be a lot more meaningful and useful. How much would the landlords bid if they didn’t know how big the property is or would be after renovation; if they would ever be allowed to do the work; if they would ever be allowed to rent it out; when they would be allowed to do the work or rent it out; how much the work will cost; what rental they will earn; what they will have to do to the property after the rental ends; if they’ll be able to get utilities (such as water, electricity, gas, broadband) and if so at what cost and when etc etc. All of these are comparable to the risks faced by offshore wind developers and which influence their bid prices.
    Your use of smaller scale numbers to help understanding is also useful but don’t overlook ‘value at risk’. I might be willing to bet 10p on a coin toss but certainly not my house – why not when it’s the same risk? That principle is magnified when the investment required is multi-billion £s such as in Scotwind and until there is a viable alternative market approach to energy investment it doesn’t seem unreasonable to me that investors should earn a reasonable return for risking their capital. Most of us get a return on our capital (ie labour) and don’t work for cost.

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