VIEW FROM SCOTLAND: Steven Vass
If fishermen sit in pubs miming the huge sizes of those catches that got away, no doubt journalists do much the same with stories.
One of mine involved some shellfish catchers active in the west of Scotland. Getting way off the subject we were supposed to be discussing, several years ago one diver boldly told me that the two offshore wind projects on the west of Scotland had no chance of going ahead.
The reason he was sure, he explained, was that the seabed was rock solid. He knew this because he had spent 30 years observing the lobsters making their homes on sites adjacent to the Crown Estate concessions but never on them. This is because lobsters only ever breed on soft seabed.
My editor was intrigued, but insisted it needed confirmation from a seismologist familiar with the terrain. Despite my best efforts I couldn’t find one, so the story was spiked.
No doubt this oversimplifies why Scottish Power recently cancelled the Argyll Array and why SSE’s Islay Array is in the long grass, but both companies have since confirmed that the ground is a factor.
The industry certainly needs this to be true – this or other equally unique circumstances – because it helps to differentiate the two projects in cost terms from the other five Scottish projects still currently going ahead.
At a time when the subsidy regime for contracts for difference (CFDs) has just reached the statute books, the
alternative would be that the cancellation is early recognition that the system will not get much built north of the border.
On whether this pessimistic scenario might turn out true, you’ll struggle to get a clear answer. There are too many variables for anyone to be certain about whether £140/MWhr is enough for the higher costs associated with Scotland’s
fiercer choppier waters.
The good news is that the likes of Repsol, Mainstream and EDPR have made no similar withdrawal signals, while SSE has merely delayed investment decisions until after the 2015 election and announced this before the final deal was complete.
For now at least, they all seem to still think the game is worth continuing. More foreboding is the fact that none of the three Scottish offshore wind projects on the long list for the Final Investment Decision Enabling (FIDE) mechanism for getting early CFDs made the short list. This could mean that the UK Government has doubts about whether they will go ahead.
Mainstream certainly said getting on the scheme would enable it to make a 2014 investment decision about the 450MW Neart na Gaoithe project off the Scottish east coast.
At the very least, the decision to prioritise English projects like Dudgeon and Hornsea will not help Scotland, but it may just be a recognition that they are further ahead and thus more likely to use the CFDs.
Potentially more worrying is that there is a bias against Scotland’s higher costs built into the system in the form of constrained allocation.
This says that after half of the maximum subsidy under the levy control framework has been given by the authorities to applicants, the rest will be allocated in bi-annual chunks. In both cases, applicants will get the published strike price.
But if demand for allocations then exceeds supply, constrained allocation will be imposed, meaning that those who bid the lowest strike prices in a blind auction will get the slots.
Since the Scottish projects will cost the most, their developers will be least likely to win any auction. Since an over-supply of projects is quite likely, especially once a big slug of capacity is taken up by the FIDE, this could well mean that not much of the 10GW of new offshore wind forecast to 2020 will be in these waters.
Having said that, I leave northern readers with a bit of festive cheer: unlike offshore wind, the onshore wind CFDs are not as good a deal as the existing renewables obligation (RO). Once the RO ends in March 2017, this will mean that onshore developers will probably concentrate on the places where projects are most competitive.
Thanks to the strength of wind power in these parts, that will primarily mean Scotland.
Steven Vass is deputy business editor at the Sunday Herald and a regular contributor to New Era magazine