Right across the energy world 2015 was, by any account, a pretty tumultuous year.
We saw dramatic changes in renewable subsidies; Brent crude slipping under $40; governments struggling to reach agreement in Paris at the UN Climate Change COP21 conference; the Cromarty Firth full of cold stacked rigs; the UK’s electricity capacity margin down to 1.2%; exploratory drilling in the North Sea at its lowest for decades; community projects reeling from regulatory changes; the north east suffering thousands of job losses; major wave companies entering administration — the list could go on and on.
However, as the old joke goes, “but apart from that Mrs Lincoln, how was the play?”
Drilling under the rhetoric and spin (if you will excuse the pun), 2015 has been a year where for many everything has changed, but for others very little has changed — and for some change is bringing significant opportunity.
Onshore wind seemed to be the biggest loser, with early closure of the ROC support mechanism and a clear exclusion of onshore wind from future subsidy schemes sending a storm through the sector. However, and despite a real loss of investor confidence and future uncertainty, it seems that there will be a bit of a wind farm boom over the next couple of years, as developers rush to build projects in the face of looming deadlines.
Yet when the rush is over, and the industry contemplates a future without government support, they will be looking to locations with high wind speeds and good grid connections. And that will be the north of Scotland, with the Beauly-Denny upgrade now complete and the Caithness-Moray link under construction.
Paradoxically, these dramatic changes to onshore wind support could be the catalyst for solving the ongoing problem of getting grid to Islands. Through strong lobbying from Scotland, onshore wind projects in the Scottish Islands will be eligible for future subsidy through the Contract for Difference (CfD) scheme, wherethey will be treated the same as offshore wind farms. This means that planned wind farms in Orkney and the Western Isles could finally proceed, triggering the laying of those critical subsea cables.
Offshore wind also had a year of uncertainty, with some Scottish projects under judicial review, and until the Westminster autumn statement no confirmation that there would be a CfD auction in 2016. So assuming that the industry can get its costs down, and insiders seem pretty confident, it looks like there will be pipeline of projects around the UK up to 2020. Of course, SSE’s Beatrice wind farm already has a contract for support from the UK Government, and planning for its construction is in the final stages. For the Highlands and Islands this is a huge project, starting in 2017, and in value is worth at least two Forth crossings.
The past month also saw the approval of the Hywind Floating wind project, the world’s largest yet, and although it is being built in Norway, Scottish companies are winning some important contracts, with the suction anchors being supplied by GEG at Nigg.
However there is no getting away from the fact that some sectors have been hard hit, solar PV in particular. In the north, it’s been Community scale projects that have an uncertain future, with unexpected changes to the feed in tariff, VAT hikes, and more expensive project finance.
These problems pale almost into insignificance though beside the issues facing the oil and gas sector. A perfect storm of low oil price, aging offshore assets, high costs and an almost complete cessation of exploration drilling, suggests that this downturn is just a little bit different from the cyclical low oil prices episodes of 10 and 20 years ago. Yet every cloud has a silver lining, and a relentless focus on cost reduction brings opportunity for smaller players further down the supply chain. Majors are bypassing Tier 1 companies and looking to their suppliers for cheaper, more flexible solutions. Highlands and Islands ports nearer the northern and western oil fields are seeing renewed interest in their service base potential, and a lower cost base and smaller margins are now a critical part of any tender.
It was the marine renewables sector that saw the most positive developments in the past 12 months. 2015 was the year that Wave Energy Scotland got going, restarting the Scottish wave sector after the disappointment of the administration of Pelamis and the major downsizing of Aquamarine (which eventually closed last month). Two major calls and a dozen contracts awarded, in the areas of novel wave devices and power take off systems, saw Scottish companies and universities win a major share of multi-million pound contracts.
Yet is the far north that saw real projects “getting metal wet”, with Nova Innovation installing its three community scale tidal turbines in Shetland, and Meygen completing its onshore substation, directional drilling and cable installation in the inner sound in Caithness. JGC in Caithness has finished the huge weights that hold the structures to the seabed, ready to be loaded out from Scrabster. The Nigg Energy Park in Easter Ross is busy completing the turbine foundations, and the four turbines will be ready for installation in the spring. Indeed the Atlantis turbine is being built at Nigg, using a workforce able to move between oil and gas, nuclear, offshore wind and tidal structures.
With Scotland now producing 50% of energy from renewables, we are well on the way towards the 100% target for 2020. Attention is now turning quite rightly to strategies and policies focused on decarbonising the nation’s domestic and industrial transport and heat markets, , and major investments in energy efficiency. This is a significant change for organisations across the Scottish public sector, and poses a quite different challenge for regions like the Highlands and Islands, rural, off the gas grid, car dependent and with a housing stock comprising older, stone-built dwellings.
However under the headlines, things that may seem small and incremental are fundamentally changing how energy, and in particular renewables, are used across the Highlands and Islands. Calmac’s latest low emission hybrid ferry was launched last week. Silent electric buses are now a common sight on the streets of Inverness.; Roof-mounted PV solar panels are so widespread that nobody gives them a second glance. Orkney has the highest concentration of electric vehicles in the UK apart from London. Small farm scale wind turbines are as numerous as silage towers. Wood pellet boilers and air or ground source heat pumps are ’de rigueur’ on any new or refurbished house. Even my Black Isle coalman now delivers clean packs of wood briquettes alongside the sacks of house coal.
The past 12 months have been a bit of a rollercoaster, but a funfair has highs as well as lows. Onshore wind has a steady pipeline of projects that need built out in the next 48 months, offshore wind will start construction in 2017, tidal projects are in construction, with more down the line.
There will be pain, but firms will adapt and reform, as they have always done. The great strength of the Highlands and Islands is that it’s not just a renewables supply chain, or an oil and gas supply, or a nuclear supply chain, but an energy supply chain.
But for me, 2015 was the 50th Anniversary of the establishment of the Highlands and Islands Development Board, and I had enormous fun in researching and writing about the story of energy in the north of Scotland over the past half century, and seeing it published in Energy North. This culminated in HIE winning the prestigious Judges prize at the Scottish Renewables Green Energy Awards, in recognition of our contribution to the energy sector over decades.
In lots of ways, 2015 was a good year. Now, let’s make 2016 even better.
This was published in the December 2015 edition of the North of Scotland Newspaper’s Energy North Supplement.