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14 January 2022

The Real ScotWind Prize

Scotland, and so the UK, has a huge opportunity with ScotWind. The lease award date is now less than a week away, and that is when the heavy lifting will start. 

Dick Winchester published a good article last week, rightly ringing warning bells on local content, as we have been here before and the UK is not exactly got a great history of joined-up industrial policy. But he is spot on focusing on the Supply Chain Development Statement (SCDS) and the process around it as a potential game-changer. 

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In the last 40 to 50 years UK industrial policy has been more successful in producing quango authored white papers than actual industrial deliverables, look at the last 10 years alone. 

But why and what needs to be done to ensure this prize can be achieved?

As an author of said SCDS, and so having a window into a few of the bidding processes, the seriousness taken by developers and their teams on local content went up as the process went on. 

In my opinion, the slow start and then the Crown Estate Scotland reflection, post-R4 pause especially was a significant part of the reason why so much thought and money have been put on the table for supply chain development by developers. 

The England & Wales Round 4 leasing process showed how much value the global offshore wind industry places in UK seabed leases. The timing with the oil and gas majors coming in fast and hard gave Her Majesty’s seabed an almost cryptocurrency level of valuation and it faced immediate pushback from leasing round losers and the wider industry fearful of unintended consequences.

Changed the game

Whether those fears come to reality or not, the game was changed.

Crown Estate Scotland and the Scottish Government faced mainstream media pressure that after England and Wales’ R4, they were about to give away valuable assets at Poundland prices. This kind of generalisation ignored the fact that Scottish potential sites tend to feature much more challenging ground conditions, depths and grid connections. But sensibly delay they did and they came back with a more nuanced alteration.

They did not want to repeat the R4 process of just allowing those with the deepest pockets to win out, so changed the valuation fee cap to £100k/square km. It was generally agreed this would not cause the same market disruption as it did down south. By not changing the pricing structure itself, it allowed ScotWind to continue to focus on a developers capability to realise a successful project, one that is sustainable and has local impact. The key change was to the threshold of SCDS commitments that applicants must meet to request a lease, increasing from 10% to 25%.

Process and timing is everything

Process and timing is everything, and both could be a major factor in Scotland’s opportunity to develop a sustainable supply chain.

The fact that ScotWind was lagging R4 was initially a frustration, but it turned out to be important. There were a number of dropouts from R4, even before the bids went in due to the uncapped valuation element, who then looked north. The R4 losers were added to this long list of developers looking for UK leases. After R4, ScotWind was the only game in town. So even though some developers had been diligently developing potential sites for quite a while, there was a rush of latecomers and consortia were expanded. The eventual number was 74 separate bids from a very interesting and diverse range of parties.

So if you could not simply open your pockets in a bid valuation to win, how else could developers with the ability to do so, leverage their balance sheets? One way became quite clear.

Real money committed

With the clear focus on local content within the ScotWind process, bidders started to explore how areas of supply chain development can make their bids shine and differentiate. It would both allow them to increase their local content ambitions and make big statements to stakeholders in the process. Just look at some of the early development commitments being made:

While the early development investment is important, it is not everything. Unless a project developer has a supply chain strategy that starts well before the tender process; to support and be a stakeholder in getting Scottish suppliers fit for purpose for an accessible, but rightly competitive tendering process, then the same barriers we have now will largely continue. An example of a focus on early supply chain development actions is Falck Renewables, BlueFloat Energy and Orsted’s consortia bids. Their floating bid concepts are based on maximising local content, with an understanding the baseline skills available in Scotland and carries a sharp focus on upskilling and re-skilling workforces.

Fundamentally, all developers in this process have taken local content seriously based on the limitations of their project concepts, their general supply chain and their bidding strategy.

It’s easily possible we could see £500m and above of developer cash spent on feasibility studies, benchmarking, implementation studies with specific supply chain companies, especially delivering large ticket items and seeking to leverage the supply chain’s competitive advantages through innovation, development, training and collaboration. Some developers will also be considering direct investment as part of larger possible public/private partnership investments into material supply chain elements that can close the gap on local content.

But nothing is a given, and there is a big piece of work to be done looking at the respective SCDS from the successful bids, with the government (both Scottish and UK) and developers liaising to ensure scale and co-ordination is sought to maximise both the ‘big ticket’ items (substructure whether fixed or floating and turbines) that can move the local content dial alone, and on the smaller elements that aggregate up into sizeable amounts of local content.

Aggregate ‘pipeline’ SCDS

If say 5-7 developers with successful lease options all go their own way, we will get some results, throw enough of it at a wall and some of it will stick. Bit it won’t deliver all that it could be. What we will need is a ScotWind round ‘unwrapped’, aggregate the SCDS’s and a look at a national supply chain strategy, or industrial policy (dare I say it), based on this aggregated ‘pipeline’ SCDS for all the projects together. What would follow is a needed well-managed collaborative framework or approach. Discussions and negotiations will be needed with the successful developers, at least to coordinate with the state’s actions and investments, but also to try to get the developers to work together as much as they can when they are still facing a competitive future CfD process, to adjust elements of the SCDS to bring more consistency and scale to areas of supply chain demand. SOWEC has done a lot of work with other parties looking at this exact approach.

A significant early approach will have to be on port infrastructure. Ports are key to offshore wind development, and they are an enabler for further supply chain local content.

If you want to read how an alternative and granular approach to developing a supply chain failed, even with significant public money support, read the sorry story of BiFAB in this well covered Sunday Post article, or the report generated by the Scottish government’s Economy, Energy and Fair Work Committee; an informative but very sad read. There are lessons and our ScotWind process has the opportunity to address them.

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Image: the BiFab yard at Methil (BiFab)

Dick in his article used an example of tower manufacturing, comparing a tower manufacturing facility with an annual turnover of £20m with Vestas’ €12.5b. Rightly as a champion of industry and innovation, he wants Scotland to build a domestic supply chain industry that can export, develop and grow; this at the tier 1 level of the wind turbine or even the substructure is unlikely in 2021.

However, we obviously want to attract this activity nonetheless for ScotWind and future ScotWind’s, including the announced INTOG round. It just means that the plants providing this major economic activity, and so large elements of local content in the CAPEX phase, will be inward investment by the Vestas’, GE’s and Siemens’ of the world, or international major tier 2 suppliers in partnership with Scottish and UK owners of port infrastructure. And in terms of local content, this counts, as it means real jobs, from semi-skilled to skilled and so it’s absolutely right that it is part of the objective.

Large jacket sized hole

But an important aspect to this ScotWind supply chain development opportunity must be to enable the development of technology and service supply chain companies, our local SME ecosystem. These are the domestic companies that will be able to take their technology, products and services to other global markets and grow and become the global leaders in their segments and niches. And of course, leveraging the floating segment of ScotWind could allow such Scottish companies the opportunity to create an early lead.  

This is also a risk mitigation as large tier 1 and 2 manufacturing opportunities are binary in nature, they either arrive with a large chunk of local content in the bag or you have a large jacket sized hole! So ensuring that all the focus is not just on floater, jacket or turbine blade will help ensure we can develop a sustainable supply chain around the whole wind farm development, construction and operation phase, one able to both contribute to achieving the ambitious targets in the SCDS’s and in creating one that can take their business to other global markets.

But people…

To deliver any of this we need a quality and trained workforce; it may be when we think of the turbine technician offshore in 2030 being part of a team commissioning a turbine, right now she may be at high school. All surveys and study’s report that training and development is an urgent need, even if the capital investment and infrastructure is in place, we need a workforce. Therefore, these bids come with skills and training as an inherent part of their supply chain development plans.

Much has been made of the opportunity for Scotland to re-align and deploy people employed in oil and gas. That has to be part of the plan, many may see a long-term future in renewables, and this is a trend that started a while ago, I work alongside many renewable energy colleagues who started in oil and gas. But we will still face competition for these souls from the O&G sector as it is likely to be operating in the North Sea into the next decade at least.

We also cannot wait until contracts are awarded, the supply chain will need confidence and support to develop the necessary workforce upfront.

Apart from a straight necessity, this is also where a ‘just transition’ comes into play. Job or career transition must be part of what we are achieving here, so developers and other ScotWind and Scottish economy stakeholders will need to collaborate to create the programmes and the investments needed to create the required workforce.  

The opportunity is now

Regardless of previous industrial policy failures, I believe ScotWind has a real possibility to deliver on the impressive local content ambitions and help develop a sustainable SME oriented supply chain, that can take their business into global markets and make Scotland an exemplar of a just transition.

But from January the 18th, while the losers are licking their wounds and looking at future ScotWind rounds and other markets, all of us in the industry need to roll our sleeves up. For those of us involved, this is a once in a lifetime opportunity to contribute to a renaissance of Scottish engineering and industry.  

The opportunity will be now, but now we need to deliver.

John MacAskill | Group Marketing Director ABL Group