Following on from our blog on the current state of, and future plans for wind energy in Scotland, this post provides details on some of the issues around the supply chain and the economic impacts from wind energy deployment in Scotland.
Wind farm deployment and ownership
There is much discussion in the media and beyond about the extent to which the growing volumes of wind power being deployed in Scotland are benefitting the Scottish economy and creating jobs for people based in Scotland.
Scotland currently has much more developed onshore wind capacity than offshore, although in the coming years offshore capacity may surpass onshore. Currently there are about 9 Gigawatts (GW) onshore (about 60% of UK capacity) and 2GW of offshore (19% of UK offshore capacity)(see accompanying blog for more details).
Across the wind energy sector, there are some major British developers – in 2020 two of the top 25 wind farm developers globally were UK headquartered (SSE and RES Group). Offshore, the major developers working in the UK include Orsted (Danish), Vattenfall (Swedish), Iberdrola / Scottish Power Renewables (Spanish), Equinor (Norwegian), RWE (German) and SSE (British).
In terms of ownership, the Common Wealth think tank has recently calculated that 82% of UK offshore wind energy (operational and under construction) is foreign-owned. While for this blog no comparable analysis for onshore wind was found, many of the companies involved offshore are also present onshore; although there are more smaller private owners in the onshore sector due to the lower costs of entry, for example, community windfarms.
There are various cost components to a modern wind farm. Onshore, the majority of the capital cost is from the turbine itself (upwards of two thirds of the cost). Offshore, the turbine makes up much less of the overall cost as the necessary grid connections and installation are more costly than onshore developments. The world’s largest turbine manufacturers are Vestas of Denmark, and Siemens Gamesa, a Spanish/German company. About three quarters of the global market is supplied by ten manufacturers – of the rest, seven are Chinese and one is American.
While there are no major British turbine producers, manufacture does take place in the UK. Vestas have had a manufacturing presence on the Isle of Wight for 20 years and Siemens Gamesa have had a blade manufacturing plant in Hull since 2016. For many years there was turbine manufacture in Campbeltown, with various owners, but this shut permanently in 2021.
Government efforts to increase local content
In 2019, as part of the Offshore Wind Sector Deal with the UK Government, the industry committed to increasing UK content in wind farms to 60% from 48% currently (the definition of UK content developed for UK Govt in 2015 is roughly the percentage of total expenditure by the wind farm owner on the wind farm, that goes to contracts awarded to UK companies). It is not clear how much of the current UK content estimation is based in Scotland. Currently, about a quarter of turbines, about a third of installation and commissioning, three quarters of operations and maintenance and 16% of ‘balance of plant’ (substations, cables etc.) is considered UK content. By 2030 it is predicted that more UK content could come from turbine and balance of plant activities (see Table below).
Offshore wind farm content: now and by 2030
UK / non-UK
Development and project management
Balance of plant
Installation and commissioning
Operation, maintenance and service (per annum)
Unite has suggested that greater UK content can be secured by making it a condition of the price contracts agreed with the UK Government (contracts for difference; CfDs). The costs of offshore wind fell significantly between the first and fourth auction (2014 – 2021) rounds for CfDs (roughly a 70% reduction) and there is arguably a tension between pursuing the greatest cost reductions on new offshore projects, and requiring UK content. The then Minister for Business, Trade, Tourism and Enterprise, Ivan McKee MSP, when asked about requiring local content as part of the ScotWind auctions, noted that this was not possible as it would be incompatible with international agreements:
“As you will be aware, there are international rules around this stuff, such as the WTO’s (World Trade Organisation) bidding rules in the GPA (Government Procurement Agreement). We cannot just make things up. We have done as much as we can within those rules to move things forward.”
The EU had requested WTO consultations due to the prospect of ‘discriminatory’ local content requirements being included in the UK’s CfDs, but their objections were eventually dropped after the UK clarified that ‘CfD beneficiaries do not need to achieve any particular level of UK content’. The WTO Agreement on Government Procurement aims to open government procurement markets to countries who sign up to the agreement. The UK Government was a member as part of the EU, and from 1 January 2021 the UK Government joined the accord in its own right.
In January 2021, the Economy, Energy and Fair Work Committee published its report on BiFab, the offshore wind sector and Scottish supply chain. The report looked at the failure of BiFab to gain contracts from offshore wind projects in Scotland, leading to the firm being placed into administration in December 2020, although a buyer was found for of the three sites in February 2021. The Committee noted that:
“The Committee is extremely concerned that BiFab has been put into administration. This is a huge blow for workers and communities in Burntisland, Methil and Arnish. It is also a concerning reflection of the ability of the Scottish supply chain to benefit from the growth of offshore wind.”
EU State Aid regulations were highlighted as a barrier to the Scottish and UK Governments providing support. The Methil and Arnish sites are now trading under the Harland & Wolff brand. In terms of greater Scottish content there is arguably a ‘chicken and egg’ situation whereby the options for the production of more wind farm content in Scotland is hindered by the lack of supply chain capacity.
ScotWind and plans for the future
The Draft Energy Strategy and Just Transition Plan sets out the Scottish Government’s ambitions for 20GW of onshore capacity (up from 9GW) and 8-11GW of offshore capacity (currently about 2GW) by 2030. The recent ScotWind leasing round (an auction for ‘Option Agreements’ to develop offshore wind on a set number of Scottish seabed areas) may deliver 28GW of offshore capacity if fully realised but this is not expected to begin to come online until the late 2020s.
ScotWind will deliver a one-off £750 million in revenues, and potentially ‘billions more in annual rental revenues’. The Draft Energy Strategy sets out that within ScotWind there have also been commitments from developers that ‘equate to £28 billion of potential Scottish economic activity, about £1 billion of investment for every gigawatt of capacity built.’
The Strategy has an ambition of ‘maximising the use of Scottish manufactured components in the energy transition, ensuring high-value technology and innovation.’ Applicants for ScotWind leases were required to produce a Supply Chain Development Statement. By declaring how much expenditure is planned in Scotland, it is hoped these Statements will ‘support a sustainable offshore wind sector in Scotland’. At least 25% of local content is required otherwise development may not be permitted, with a system of remedial compensation (fines) for commitments less than 100%. The Common Weal think-tank has questioned the efficacy of this system and that it may be more economical for firms to accept fines than to commit to Scottish content.
ScotWind job numbers have been estimated in analysis carried out by the Scottish Trade Union Congress with a central estimate of about 9,000 over the lifetime of the projects (this assumes that maximum capacity is deployed). The Offshore Wind Industry Council estimate jobs (direct and indirect) in the UK sector to rise from 26,000 today to nearly 70,000 by 2026, with about 21,000 (30%) of these in Scotland (by far the most of any nation or region in the UK). Seventy nine percent of these jobs are deemed to be highly skilled, technical and management roles. Current job estimates for offshore wind in Scotland are much lower, with recent reports suggesting there w only 3,000 (although the trade body Scottish Renewables believe current jobs in offshore wind to be closer to 7,000).
There are some signs that wind energy related manufacturing may grow in Scotland in the coming years with recent announcements of plans to build electricity cable production plants in Ayrshire and Easter Ross.
While the actual deployment of wind energy in Scotland presents direct economic opportunities, there are also further opportunities that result from the expansion of wind energy.
The UK has led the world in offshore wind deployment (until recently there was more offshore wind in the UK than in any country in the world) and with many other countries likely to some extent to follow suit, there is potential for the export of offshore skills and knowledge. In 2019, it was estimated that the ‘UK exports of wind energy products and services are worth £525m a year’ with 47 firms exporting to 37 countries, and 70% of contracts in the offshore sector. For comparison, exports from the UK low carbon and renewable energy sector were estimated to be £7.0 billion in 2019, the majority of which was from the export of goods and services in the low emission vehicles sector (£4.2 billion). This was about 1% of total UK exported goods and services (in 2019 this was £700bn). The UK Government’s 2019 Offshore Wind Sectoral Deal included an ambition to ‘increase exports fivefold to £2.6 billion by 2030’.
Floating offshore wind is thought to offer particular supply chain opportunities in Scotland as this is a new approach for which there is no ‘experience of producing dozens or hundreds of hulls’ globally potentially allowing for a first mover advantage. Over half of ScotWind deployment is expected to be floating wind.
Finally, there is the potential to use wind energy to produce green hydrogen. The then Cabinet Secretary for Net Zero, Energy and Transport, Michael Matheson MSP, recently highlighted that the Scottish Government is re-focusing away from blue hydrogen (made using gas and CCS) to focus ‘much more on green hydrogen, particularly because of its export potential’. The Scottish Government has an ambition for 5GW of hydrogen production capacity by 2030 and 25GW by 2045, although there is no specific commitment to how much of this will be green hydrogen. At the GB level, the National Grid model about 25-50GW of hydrogen electrolysis by 2050 (the production of green hydrogen using renewables). Globally there is 300GW of green hydrogen production capacity planned for 2030 (half in the EU).
Niall Kerr and Andrew Feeney-Seale, Senior Researchers