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April 5, 2022

Farouk, we need you

In 1968, an unknown Iraqi oil engineer arrived in Norway seeking medical treatment for his son. An accidental meeting, turning up at the wrong job interview, led Farouk al-Kasim to set in motion a chain of events that resulted in Norway accumulating the world’s most valuable sovereign wealth fund by taking an equity stake in their oil resources. When our Finance Minister says she ‘expects’ supply chain benefits to flow to the Scottish economy from offshore wind developers or there might be ‘sanctions’, it makes you wonder why we can’t find our own ‘Farouk’ or even just read his book.

Martin Williams, The Herald

THE finance secretary has warned that major offshore wind farm developers could face financial penalties or lose their right to valuable leases in the new round of offshore wind projects if they fail to deliver on supply chain benefits to Scotland.

Kate Forbes has said that remedies were in place to ensure delivery on offshore wind work and jobs through the multi-billion-pound ScotWind development for Scotland.

But she has come under fire after she stated that it was only “hoped” that the nation would benefit from certain key supply chain gains.

It comes after the Herald revealed that Scotland is to set to lose billions in profits every year from the latest round of offshore wind projects hailed by the First Minister as a “truly historic” opportunity for Scotland’s net zero economy.

A failure to create a state-owned energy company which could have sold the new ScotWind electricity to the grid and retained operating profits, led to concerns that the nation will lose between £3.5 billion and £5.5 billion every year – about a tenth of the current Scottish budget.

Seventeen ScotWind projects across 14 sea areas, with a combined potential generating capacity of 25GW, have been offered new rights to specific areas of the seabed for the development of offshore wind power.

Kenny MacAskill, the former justice secretary, and deputy leader of the Alba Party who sought the supply chain assurances from ministers said the financial penalties resulted in maximum fines of £250,000 and were “small change” to the major energy corporations and he slammed the “lame position” that the supply chain work will “hopefully” come.

While the total impact on the associated supply chain and on the number of jobs created will not be confirmed until later in the process, the First Minister said in January that their estimates suggest as much as £1 billion could be generated for every gigawatt of power. A gigawatt equates to roughly two coal-fired power plants and is enough to power 750,000 homes in Britain.

Nicola Sturgeon said companies had to set out in statements what they will do to support our supply chain saying it offered “massive potential to Scotland and it’s potential we intend to seize with both hands”.

She said the project will “help deliver the supply chain investments and high quality jobs that will make the climate transition a fair one”.

Some believed the Scottish supply chain spin off was an “overpromise” with current bids currently excluding any firm commitments.

In a letter surrounding the ScotWind announcement, Kate Forbes said tthat component parts for turbines “will hopefully come from Scotland” and gave a warning about supply chain promises.

“While lease awards were not contingent on the content of the SCDS [Supply Chain Development Statement], checks and balances are in place to ensure developers deliver on their commitments, failure to do so can trigger remedies ranging from financial penalties to an inability to progress to a seabed lease,” she said.

“These statements are not only an indication of what Scotland can achieve, they are our expectation of what the winners will deliver for Scotland.”

She added: “We are determined to maximise the economic opportunity for the Scottish supply chain from our offshore wind potential. ScotWind puts Scotland at the forefront of the global development of offshore wind and represents a massive step forward in our transition to net zero.

“Our position is that the component parts for turbines will hopefully come from Scotland. We are working hard to attract inward investment whilst collaborating with the ScotWind leasing round developers to ensure we utilise facilities such as the proposed tower facility at Nigg.”

The biggest winner in ScotWind was Scottish Power, now a subsidiary of Spanish utility firm Iberdrola, which won the seabed rights to develop three new offshore wind farms with a total capacity of 7GW.

They also included a joint venture with British multinational Shell to develop the world’s first large-scale floating wind farms at two sites with total capacity of 5GW.

A joint venture between BP and Germany’s EnBW was successful in bid for a 2.9 GW wind project which BP previously said would result in £10bn of total investment.

Mr MacAskill said: “The supply chain was bragged about as being a boon for Scotland with businesses flourishing and jobs aplenty. Yet the reality is that contracts have failed to specify and ensure work will come to Scotland and the promised jobs will ever materialise.

“Energy rich Scotland but fuel poor Scots sounds like an April Fool but it’s the reality. “As electricity prices rocket Scottish wind energy is neither delivering the revenue it should nor the jobs that were promised.

“Instead, we’re left with the Government simply ‘hoping’ that they’ll come.

“The Scottish Government must ensure the supply chain work is based in Scotland and work is available for Scots.”

Scotland’s net zero and energy secretary Michael Matheson has told the offshore wind industry that supply chain pledges are more than simply “indications”.

Mr Matheson said the Scottish Government view is that the local content commitments made as part of the ScotWind process are “expectations” of what should be delivered.

But there remains scepticism as the Scottish Government was predicting 12 years ago that there would be 28,000 Scottish jobs in the offshore wind industry alone by 2020 as the nation takes advantage of its benefits – but official workforce data for 2020 shows it stood at just 1500.

Highlands and Islands Enterprise, the Scottish Government’s economic development agency faced the loss of up to £4.3m of taxpayers’ money through the collapse of offshore wind tower firm CS Wind, the only UK facility for manufacturing onshore and offshore wind towers and seen as a key part of Scotland’s green revolution.

When opened in 2002, then First Minister Jack McConnell declared his ambition to make Scotland a world leader in renewable energy.

In December, 2020 administrators were formally appointed to take control of part state-owned Burntisland Fabrications (BiFab), the insolvent renewables manufacturer run from Canada seen as a key part of the future of Scotland’s wind farm revolution.

Deloitte took control of affairs of BiFab after it collapsed when the Scottish Government did a u-turn in backing the firm.

Two of the three BiFab fabrication yards – Methil in Fife and Arnish on Lewis – were subsequently bought out of administration by London-based firm InfraStrata.

Scotland gains from the initial Crown Estates Scotland auction of the seabed plots around the Scottish coast, netting a one-off £700m. Its profits are given to the Scottish Treasury or split between some local authorities.

But based on proposed project rents outlined by seabed managers Crown Estates Scotland, the ScotWind projects operating at its full capacity would be estimated to bring Scotland between £50m and £90m each year – a tiny fraction of the billions expected in profits.