The Queen’s property manager in Scotland has delayed the auction of Scottish seabed plots for windfarms after runaway bids for leases in England and Wales handed the Queen and the Treasury a multibillion-pound windfall.
Crown Estate Scotland paused its auction in order to carry out a review of the process after the “unprecedented” bidding in an auction for England and Wales lease options last week reached record highs.
The Queen and the Treasury could share a windfall of up to £9bn over the next decade from the England and Wales auction after energy companies including BP offered to pay five times more than expected for the option to build new windfarms.
Crown Estate Scotland decided with ministers in the Scottish parliament that it would be “sensible” to undertake a six-week review of the structure for its own auction to ensure it secures “a fair price” for the seabed sites along the Scottish coast.
Many within the renewable energy industry have blamed the structure of the Crown Estate’s auction for allowing aggressive “closed envelope” bids from oil companies to skew the market value of the seabed lease.
BP took its first step into the UK’s offshore wind sector during last week’s auction with bids for two windfarms worth 15 times the rate paid by developers in the past, raising concerns within the industry that the rocketing seabed prices would inflate the cost of reaching the UK’s climate targets.
Energy executives have warned that the costs would ultimately mean higher energy bills, and lower returns for green investors. The UK government hopes to build enough offshore windfarms to power every home in the UK by 2030.
Crown Estate Scotland manages the Queen’s property, but unlike the Crown Estate – which manages property in the rest of the UK – it does not return its profits to the Treasury or the Queen. Instead, the revenues are handed to the Scottish Consolidated Fund, which in turn finances the Scottish government.
The review will conclude on 24 March, but Crown Estate Scotland has not set a new date for the start of the auction, which was due to begin next month.
Amanda Bryan, the chair of Crown Estate Scotland, said the “unprecedented outcome” of the auction for England and Wales “has, overnight, changed the market dynamics around offshore wind leasing, and could have significant implications for offshore wind development in Scotland”.
How important is offshore wind power to the UK energy system?
Offshore windfarms generated 8% of the UK’s electricity in 2018, according to estimates by trade body RenewableUK. The UK has more offshore wind capacity than anywhere in the world, with 37 projects made up of nearly 2,000 turbines. There is nearly 8GW of capacity today, 1.3GW of which was added in 2018. Another 5GW is already committed to. The UK has 44% of all European offshore wind power capacity.
What obstacles has wind power faced?
The first subsidies awarded to offshore windfarms promised developers a guaranteed price of up to £150 per megawatt hour, or roughly three times the wholesale cost of electricity. Such steep subsidies would not be sustainable but cost reductions in the industry have seen that figure drop to as low as £57.50. The offshore wind industry has previously been criticised for not using enough UK contractors and suppliers.
What is the economic benefit to the UK?
The industry employs around 11,000 people. One of the side effects of offshore wind’s growth has been an injection of money and jobs into coastal towns that in some cases have big pockets of economic deprivation. Ports have been upgraded and new maintenance facilities built, such as the one at Newhaven in East Sussex for the first windfarm in the English Channel. The different parts of turbines are made across the UK, from the Isle of Wight to Hull.
What does the future hold for offshore wind power in the UK?
The industry has a target of growing today’s 8GW capacity to 30GW by 2030, which, if achieved, would see offshore wind power supplying more than a third of the UK’s electricity. The government has put a £557m pot of funding aside for subsidies for renewables in the next few years, most of which is expected to be taken up by offshore windfarms. The industry is also hoping for export opportunities for UK firms, as new markets grow in the US and Asia.
The Crown Estate’s auction for seabed plots in England and Wales guaranteed the Treasury and the monarch total payments of £879m a year from windfarm developers, for up to 10 years. This would hand the Queen a share worth close to £220m a year to run the official royal household and pay for repairs to Buckingham Palace.
Roseanna Cunningham, the Scottish government’s cabinet secretary for environment and climate, said: “In light of the significant changes that we are now seeing in the wider UK offshore wind market, ministers have agreed with Crown Estate Scotland that it would be sensible to review our leasing process.”
