On Friday 16th July, Crown Estate Scotland closed to applications for the ScotWind seabed leasing process. This is Scotland’s first seabed leasing auction in a decade, for sites that could accommodate 8GW-10GW of offshore wind.
The process was started in June 2020 and opened to applications in January 2021. This month, barely a day has passed without a breathless revelation of a company or consortium that wants to win one or more of the 15 areas.
These bidders have gone public so far:
Now the difficult process of assessing the bids begins, with results due in early 2022. But what are the big issues to watch out for?
The intense competition in ScotWind should come as no surprise to anyone that saw the result of the Crown Estate’s 8GW leasing auction for sites off England and Wales in February. Huge demand and limited sites led to some eye-watering prices.
For example, BP and EnBW agreed to pay over £900m in option fees for the right to build two wind farms in the Irish Sea. In total, winning bidders in that auction agreed to pay £879m per year in option fees annually – or £111m per GW on average – until they finalise their projects. These fees are far higher than in previous UK tenders due to the fact they were set by competitive bids, and not the old system of fixed rates.
These reflected huge interest from oil giants to get into UK offshore wind.
They also led to a delay to the ScotWind process, as Crown Estate Scotland paused the process to review its plan to charge a maximum option fee of £10,000 per square kilometre. In March, it announced it had increased this figure by tenfold, to £100,000 per square kilometre. This means it can profit from those oil companies’ interest.
This change has certainly not dampened interest, as the roster of bidders shows. Oil and gas firms are still battling to get into offshore wind and one way to do this is to outbid the competition. However, ScotWind may end up fairer than the UK tender in February as the £100,000 per square kilometre option fee limit gives a level playing field of sorts.
Oil giants are still looking to enter UK offshore wind with financial muscle that smaller rivals cannot match – but at least it’s clear how high those fees can go.
One of the most exciting aspects of the ScotWind tender is the potential emergence of more commercial-scale floating wind farms in UK waters.
These would follow the 30MW Hywind Scotland project, which Equinor commissioned in Scottish waters in 2017, and the 50MW Kincardine project that is due to complete by the end of 2021.
Floating wind has been identified as a priority for ScotWind bidders by Ørsted, Falck Renewables and BlueFloat; Shell and Scottish Power Renewables; and Equinor. We expect the result to be an important indicator of the health of floating wind globally.
Bidders are also under pressure to spell out how their projects will help the Scottish economy. The growth of offshore wind in Scotland has been marred by accusations that projects aren’t delivering enough work to local companies and communities.
Some ScotWind bidders want to address this early.
SSE Renewables, Marubeni and Copenhagen Infrastructure Partners announced a partnership with the University of the Highlands & Islands to build renewable energy skills in the workforce.
Meanwhile, BP and EnBW have set up an online portal that would give local workers in the engineering and supply sectors swift access to jobs.
This is a big challenge for bidders. They must pay high fees to win the tender, but they also need to think about how they can support local communities to help their standing in the community – even if that costs more.
Next year we’ll find out who gets to deliver that difficult balance.
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