The starting gun has been fired for investors and developers seeking new offshore wind opportunities in Scottish waters with the launch of the ScotWind Leasing programme.
ScotWind is the first round of offshore wind leasing in Scottish waters in a decade and is being run by Crown Estate Scotland (CES) in its role as manager of Scotland’s seabed.
Investors and developers can register their interest in obtaining an ‘option agreement’ with CES and successful applicants will be granted leases to build offshore wind farms in areas of seabed that will be identified as suitable in the Scottish Government’s Sectoral Marine Plan (SMP) for offshore wind, which has been published in draft form.
One part of the process which is attracting a lot of attention is the requirement for applicants to prepare and submit a ‘supply chain development statement’, setting out how they plan to engage with and utilise the supply chain to successfully develop their projects.
This statement must include information on the geographical location of supply chain activity and evidence of how the commitments in the plan can be fulfilled. In their launch summary document CES said that it was encouraging “realistic” supply chain commitments.
Over the last five to ten years there has been considerable pressure for offshore wind to radically reduce costs, and particularly to reduce consumer cost to the lowest point. This has been achieved and the reduction in cost in the offshore wind sector is a major success story. However, this focus has implications for local supply chain options.
Some may be puzzled that, for ScotWind, CES insists that supply chain commitments which must be made in the bid application will not then be “scored” and so will not form part of the assessment to identify successful bidders, but that CES still require this information.
It is also worth noting that once through the bidding process, applicants will become contractually committed to update, and endeavour to fulfil, their supply chain commitments, and that developers who secure a lease will measured against those commitments. Those pledges will need to be updated when the project is about to go into construction and there may be financial penalties if developers do not meet the agreed pledges, and in certain circumstances ultimately prevented from progressing the lease contract.
There is a tension for bidders between, on the one hand, addressing the aspirations of politicians and potential local supply chain participants and, on the other hand, developing projects to be as economic as possible in order to be able to bid successfully under the Contract for Difference regime.
At the same time, CES is keen that ScotWind should attract new entrants from around the globe. New global entrants to the Scottish offshore development market may feel less of an obligation to be seen to be meeting politicians’ and unions’ local supply chain aspirations than existing Scottish/UK-based players. And more bullish bidders may even be tempted to submit limited supply chain commitments on the basis that the CES launch documentation makes it clear that this will be irrelevant to the process of awarding options over seabed areas.
More detail on the supply chain requirements for applicants will be keenly awaited, though this remains a moving target as CES has invited feedback on its supply chain commitment proposals by the end of July.
Shortly after the adopted SMP becomes available, an addendum to the ScotWind Leasing launch documentation will be published which will confirm final details of their requirements. CES is anticipating closing applications between October 2020 and early 2021, depending on when the SMP is formally adopted.
CES said that total investment in ScotWind Leasing could ultimately exceed £8 billion and deliver enough electricity to power every home in Scotland, saving over six million tonnes of carbon dioxide emissions every year.
But offshore wind is a global and very competitive market and many countries have offshore leasing rounds underway or in prospect. For example, in parallel, The Crown Estate in England is running a fourth offshore wind leasing round. So it is important that any Scottish offering is seen to be strongly competitive, lest investors and operators are attracted to a more simplified bid process elsewhere.