Is the future of wind power on the up? 

As others battened down the hatches against 70mph gales last week, the Scottish wind farm sector stood poised with glass in hand. Tantalisingly close to generating one gigawatt (GW)of electricity from onshore wind,the industry now delivers just under 10% of the country’s electricity needs.

“We’re waiting to hear if we’ve broken through yet,”says Jason Ormiston, acting chief executive of the industry’s trade body, Scottish Renewables.

Ormiston’s focus is on the Braes of Doune in Stirlingshire where a team from wind farm operator Aitricity is working on a £75 million, 36-turbine development. There are already 29 turbines up on the site, delivering an estimated 48MW of electricity to the national grid. This takes the total generated from onshore wind in Scotland to 987.22MW.
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“We’ve got another three towers up and waiting for blades to be fitted,” says Brian McFarlane, project manager for Airtricity. These are due to be complete tomorrow, weather permitting, and when they are powered up, Scotland will indeed have a 1GW onshore wind sector.

“We have been delayed,” admits McFarlane. “This is mainly down to weather. It’s had a huge impact. The wind and rain has an impact on turbine erection. If the wind goes above 20mph we have to stop.”

With another 388 turbines set to be erected across Scotland in 2007, 1.2GW of electricity should be generated by onshore wind farms by the end of the year. The 1GW milestone means the energy sector will avoid emitting 700,000 tonnes of carbon into the atmosphere, around 25% of the Scottish Executive’s Climate Change Programme carbon reduction target.

In the past 12 months, generating capacity has increased by 67% and on this progress the Scottish Executive’s goal of delivering 18% of Scotland’s electricity needs by 2010 looks as if it will be met three years early. Its 2020 target of 40% looks like being hit five years ahead of schedule.

So far so good, but will further progress be so smooth? The sector faces a number of significant challenges going forward. There are persistent issues over the country’s planning procedures,the efficiency of the system developers use to connect to grid infrastructure and fears that changes to the government’s renewable obligation certificates will discourage investment.

The Braes of Doune site is an upland moor area with a special area of conservation (SAC) nearby. Such sites attract a lot of resistance from special interest groups such as the RSPB and SNH. But there are signs that developers are learning how to work with these groups.

Airtricity employed a specialist from environmental consultants Natural Research to monitor a local population of red kites.

McFarlane says: “We’ve spent a lot of money and resources on the environment. We’ve employed an ornithologist, for example, to observe how the red kites in the area react to the turbines. They’re fantastic birds to watch and they don’t seem bothered by the turbines at all.”

However, planning delays persist and many in the industry believe these obstacles will grow if the Scottish Executive’s new planning guidance (SPP6) comes into operation in its current draft form. The changes propose that local authorities take on responsibility for designating areas, within their boundaries, which are suitable for wind farm applications. It also wants the effect of wind farms on tourism and scenery to be taken into account.

Scottish and Southern Energy (SSE) is one of the largest wind farm developers in the country with £125m invested in onshore wind farms already and a further £400m of investment in the pipeline. The company believes the proposals are a real threat to the sector’s future growth.

SSE’s director of communications, Alan Young, says: “There is a risk that SPP6 doesn’t represent an advance on what’s in place at present. The availability of the wind resource has to be the priority. There’s an excessive use of the precautionary principle. We don’t say that because we want to run roughshod over the environment. We have dropped proposals for wind developments because of the impact they would have had on the environment. Our plans for Broubster in Caithness and Glen Tarken near Comrie were shelved when we saw there would be an adverse impact on the local bird populations.”

He adds: “The planning guidance needs to adequately reflect the immediate threat posed to the iconic Scottish landscape, its species, habitats and snowcapped mountains. We need also to address the issues of security of supply and fossil fuel depletion.Perfectly reasonable developments are not getting consents.”

Indeed, there is a broad consensus within the sector that the issue of climate change seems to have been lost as the arguments over where to locate turbines rage.

Ormiston explains: “With SPP6,the industry believes that the planning regime is about to get more difficult and we are concerned this would undermine the Scottish Executive’s strategic objective to tackle climate change and maximise the economic potential of renewable energy in Scotland.”

Negotiating the costly process of connecting to the national grid, however, seems set to improve. This system has come under fire because it requires developers to put substantial sums of money upfront to cover the cost of design and construction work on grid extensions. Normally, a developer would apply to the grid for a connection before planning permission has been given, so the developer faces a substantial loss if the project is cancelled.

Alan Baker, Airtricity Scotland CEO, says: “We have one project in southern Scotland which has a grid connection cost of £2.5m. That’s fine, but liabilities for the work have to be covered by us also – for the Southern Scotland project that’s around £30m. That’s not too bad; we’ll put a credit note in to cover it. However, we’ve another project in Invercassley in Sutherland where our liability is £300m. We’re working with a number of different companies on that project; the total liability is around £700m.”

The government has recognised the system is onerous and has called on the industry to come up with improvements.

Baker says: “I’m more optimistic that the grid problems we’ve been dealing with will improve. We’ve been talking to Ofgem about the issues and they are looking at ways to relax the regime.”

A larger issue has been the Beauly-Dennyupgrade. This is a £300m modernisation of Scotland’s grid infrastructure which is due to go to public inquiry in February. If it fails to gain approval, an estimated 1GW of onshore wind developments will be at risk.

SSE is investing £250m in the upgrade, which is being opposed mainly by local authorities.

Young says: “Having reached the 1GW mark with onshore wind, another 1GW is dependent on the Beauly-Denny upgrade. The plan is to decrease the number of pylons by about a quarter but the height of some of the pylons would increase by between 25% and 50%. The inquiry will take most of the year to complete. It then goes to ministers to make a decision.”

Perhaps most nervousness surrounds proposed changes to the government’s renewable obligations system. Under this scheme, introduced in April 2002, utility companies are required to show evidence that they have sourced a specified proportion of their electricity from renewable sources. Evidence is provided through Renewable Obligation Certificates (ROCs).

Each supplier has an obligation to ensure a certain percentage of the electricity it sells comes from accredited sources – increasing from 3% in 2002 to 10.4% in 2010. Currently, there is an obligation to produce around 5.5% of electricity from renewable sources. Utilities which fail to meet their targets have to buy out their obligation by paying Ofgem,the scheme’s administrator, a fee. Utilities can also buy ROCs from alternative energy suppliers to meet their obligations. The DTI now wants to amend the system to encourage the use of other forms of renewable energy.

Young says: “Changes are being canvassed to a mechanism that was thought to be stable and long-term. It was a technology neutral system. The simple aim was to maximise energy from renewable sources. In fairness to the government, it is consulting on any change, but investors will be asking whether other changes will now come.”

Private equity house HgCapital announced last week that it had raised a £222m fund to invest in renewables in Europe. The fund manager is strongly opposed to making any changes, though it welcomes the government’s desire to support other forms of green energy.

Tom Murley, director of HgCapital and head of its renewables team, says: “We very much respect the government’s efforts to broaden renewable base. It is a step in the right direction. However, we are very strongly opposed to any reduction in support for onshore wind. We are facing rising costs of grid connection and grid usage costs. We are also facing increases in turbine costs.”

Wind turbine prices, depending on manufacturer and model, have increased by around 10% to 25% in the past two years mainly due to increases in the cost of steel, which is used in the bearings and blades. Oil and electricity prices have also increased.

The blades used in the UK market are also in high demand world-wide. This means that whereas it used to take seven to eight months to take delivery of a new blade, it now takes 12 to 18 months. Manufacturers are also asking for down-payments on orders.

With this backdrop the fund manager would much rather the government left things as they are so that potential investors can make informed decisions.

“We would caution the government on making too many changes,” Murley says. “The renewable obligations system first appeared in 2002. In 2004/2005 some technical modifications were made. In 2005 there was also a major review of the RO and here we are again with possible changes as a result of the government’s energy review of last year. Further out, there will soon be another general election. The LibDems and the Tories may call for further changes. Consistency is needed for investor confidence.”

Indeed, with elections due in Scotland in May there are fears that the renewables sector will become a bargaining chip between differing constituencies.The SNP has already flagged offshore wind as the great hope of the Scottish economy. Yet the onshore industry fears that offshore will become seen as an aesthetically preferable alternative to onshore wind farms.

Baker says: “The investment community is OK so far. However, if we jump too quickly to offshore, investors will move away. The capital costs in deep water are just too high at the moment. There’s a risk people will see it as solution to onshore wind, but it’s a good 10 years away.”

Even Scottish and Southern Energy, the developer of Scotland’s first offshore project in the North Sea’s Beatrice field, is nervous about building up expectations.

Young says: “There is certainly a place for offshore, but onshore is a proven technology. It is here and now, ready to be deployed. Offshore wind is still in development. If the use of fossil fuels and nuclear concern you, it makes sense to maximise the use of onshore wind. It would be unfortunate if we took our eye off the ball with regard to maximising onshore wind.”

Ormiston adds: “It would be undesirable to reject onshore wind in favour of offshore. We wholeheartedly support the development of offshore. Security of supply issues demand that we develop a diverse portfolio of renewable sources. It is not an either or situation.”

By Antony Akilade

sundayherald.com