Scotland’s offshore wind ambitions are at an inflection point

When delegates gather in Glasgow this week for the “All-Energy” conference – billed by its organisers as the UK’s largest low-carbon energy and renewables event – those from Scotland’s offshore wind sector will arrive feeling apprehensive.

Three years ago, Crown Estate Scotland (CES) kicked off one of the world’s largest pipelines of offshore wind projects, known as ScotWind, by awarding option agreements that can be turned into leases to build and operate wind farms.

Projects were scoped out amid a tailwind of optimism about the potential for offshore wind to power millions of homes. But recently that has been replaced by headwinds that expose the hubris in the industry’s initial ambition for Scotland’s offshore wind potential.

Fixed-bottom wind farms are commercially proven, unlike floating turbines in deep waters (Picture: Dan Kitwood/Getty Images)

Last week, Danish offshore wind giant Orsted made the shock announcement that it would discontinue Hornsea 4, one of the UK’s largest offshore wind farms. It blamed increased supply chain costs, inflation and heightened risk.

Don’t be tempted to assume this is an English problem, given that Hornsea 4 is off the Yorkshire coast. This was a wider market signal.

Most of the factors that led arguably the world’s specialist in offshore wind to cancel a 2.4-gigawatt project in England are the same faced by Scottish projects of a similar scale such as Ossian, a 2.6GW ScotWind project owned by SSE Renewables, Marubeni of Japan and Copenhagen Infrastructure Partners.

Others include zonal pricing, a scheme under consideration by the UK Government that would divide the UK into regions, with local demand and supply factors setting prices. Advocates argue it would help smooth out the cost of paying to curtail wind output in Scotland when the grid cannot cope while opponents, including industry group Scottish Renewables, say it would create a “postcode lottery” for energy bills and increase the cost of investing in renewable energy projects.

Jeremy Grant is a freelance writer and former Financial Times journalist

Another is the fact that 60 per cent of ScotWind envisages vast floating wind farms in deep waters. This is commercially unproven, unlike the fixed-bottom wind farms that you see dotted on ocean horizons now.

Not all the news is bad. A day after Orsted’s bombshell, Spanish energy group Iberdrola, owner of ScottishPower, said it had received a £600 million loan from the UK’s National Wealth Fund to build two subsea transmission cables linking Scotland with England. Last month, the UK government made available £300 million in grant funding through GB Energy for businesses prepared to make long-term investments in building a UK offshore wind supply chain.

Yet the feeling that we are at an inflection point is inescapable. I understand that some ScotWind developers have asked CES to extend their current ten-year option agreements by a further five, because current market conditions mean they can’t meet their original targets. Other ScotWind investors may look to sell out of projects, now that a lock-up period preventing such exits ended last month. Shell and bp’s retreat from renewables means their ScotWind projects look vulnerable.

In Glasgow, Chris Stark – a key figure in energy secretary Ed Miliband’s team – is expected to give an update on the UK government’s plan for “Clean Power 2030”. Expect standing room only.

Jeremy Grant is a freelance writer and former Financial Times journalist