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The Employment Potential of Scotland's Hydro Resource

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2 Methodology

2.1 Overview

In order to fully assess the employment potential of the hydro sector in Scotland it is first necessary to revise the estimate of the number and scale of potential installations. This is achieved by re-running the Hydrobot ® model with updated assumptions.

The analysis then examines the lifecycle of hydro schemes at a range of sizes to determine the full-time equivalent jobs needed to develop and maintain them. These figures are combined with the re-run of the Hydrobot ® model to estimate the overall jobs potential of the hydro industry in Scotland. The results are then married with a prediction of the hydro industry's growth over time to derive an estimate of the job growth within the sector.

2.2 Hydrobot ® model and parameters

In analysing a river basin, Hydrobot ® operates as follows:

1. River courses and the flow duration curve at each point on every watercourse are modelled across Scotland.
2. Watercourses affected by existing hydro schemes or other licensed abstractions are removed from subsequent calculations.
3. Likely sites for high-head turbines are selected, and nearest grid-connections are located at three voltage levels.
4. A range of penstock lengths from 20m to 1500m are simulated. For each length, turbine and other elements are sized appropriately using industry standards.
5. Each configuration is evaluated using cost formulae for each element, and the lifetime energy is calculated based on the flow duration curve. This leads to selection of the "best" solution.
6. The process is repeated with the turbine 20m upstream, until no better solution is found for that site.
7. Each financially viable scheme is tested to see whether it might be better as a storage scheme rather than run-of-river.
8. Nearby schemes are tested to see whether they would be better joined into one large scheme or kept as separate ones.
9. Weirs registered under the Controlled Activities Regulations are tested for low-head hydro potential, similar to high-head but without the penstock.

Input parameters can be varied to suit current economic conditions and policy changes. Such parameters were not the main focus of this study (as they were in the FREDS study last year), so were maintained at the following levels:

  • Recovery period: schemes were deemed viable if they broke even within 20 years, including interest, taxes, etc. A typical hydro scheme should keep generating for well over 30 years, with a turbine overhaul at some stage after 20 years.
  • Business rates: £9/kW per year
  • Railway crossing ransom charge: 33% of NPV payable to rail company for penstocks crossing under a railway
  • SEPA license and subsistence charge thresholds in accordance with current charging levels
  • Environmental constraints: assuming industry best practise continues to be favourable to SNH and SEPA, schemes in environmentally sensitive areas were not penalised. In practise such schemes will be less desirable but not out of the question.
  • Grid constraints: as this report is taking the long-term view of hydro growth, it may be assumed that planned upgrades to the transmission and distribution grid will relieve the principal current bottlenecks in grid connection approvals. Therefore the only grid constraints taken into account are the ratings of the lines and existing transformers to which schemes are connecting.

Finally the threshold for financial viability was set as positive Net Present Value after 20 years, discounting cashflows at 8% per annum. This is equivalent to an 8% Internal Rate of Return over 20 years. This discount rate would previously have been too high for many domestic-scale schemes, but with the proposed Feed-In Tariffs, good domestic schemes will still be financially viable. Because the discount rate was shown in last year's FREDS hydro study to have the greatest effect on Scotland's financially viable hydro resource, a sensitivity analysis was carried out by rerunning the model at 10% and 12% discount rate.

2.3 Scottish Hydro-power Resource Revision

In outline the process consists of:

  • Implementation of the proposed Feed-in Tariff in the Hydrobot ® model
  • Calibration of Hydrobot ® to accurately model micro-hydro alongside small and medium hydro
  • Running the model for Scotland

Table 2 below outlines the Feed-in Tariff levels implemented in the Hydrobot ® model. These have been transcribed directly from the UK government consultation. The hydro-power industry believes that the cost assumptions that these tariffs are based on are too low and have provided evidence to the UK government to support this argument. As a result the tariff level announced in 2010 could differ from the values below. An increase in tariff level would mean that the results of this study are likely to be an underestimation of Scotland's hydro potential.

Table 2: Feed-in Tariff Levels

Installed Capacity

Feed-in Tariff (p/kWh)

Export Revenue (p/kWh)

Total Revenue assuming 100% export (p/kWh)

<10 kW

17.0

5.0

22

10 - 100 kW

12.0

5.0

17

100 - 1000 kW

8.5

5.0

13.5

1000 - 5000 kW

4.5

5.0

9.5

To calibrate the Hydrobot ® model for the smaller scale installations the cost model was revised with particular attention being paid to grid connection costs, civil works and development costs.

2.4 Full-time Equivalent Employment Estimating

In outline the process consists of:

  • Consultation with industry players, the public sector and statutory consultees to establish actual man-hours required for different elements and scales of hydro projects
  • Derivation of a model of the full-time equivalent jobs associated with different elements and scales of hydro projects
  • Break-down of potential employment by scheme capacity, employment sector and skill levels required.

Table 3 outlines the phases, employment sectors, geographical employment base and skill levels associated with a typical hydro-power development. The values in brackets indicate an alternative employment base for capacities lower than 100 kW, this is because small UK turbines and controllers are becoming available for this scale and these are often installed by the consultant that designed the system. Above 100 kW turbines are more likely to be sourced from abroad although there are a few manufacturers in the UK.

Table 3: Hydro-power Skills Distribution

Project Phase

Employment Sector

Employment Base

Skill level

Feasibility/Design

Hydro-power specialists

Scotland

Hydro engineer/project manager

Hydro-power specialists

Scotland

Mech engineer

Hydro-power specialists

Scotland

Civil engineer

Ecology

Local

Ecologist

Consents

Public bodies

Local

Local Authority Planner

Public bodies

Local

SEPA Area Officer

Public bodies

Local

SNH Area Officer

Pipe manufacture

Manufacturing

UK

Manufacturing/Fabrication

Civil works

General construction

Local

Construction team

Turbine, generator and controller manufacture

Hydro-power specialists

Global (Scotland)

Design engineer

Hydro-specific manufacturing

Global ( UK)

Mech engineer

Hydro-specific manufacturing

Global ( UK)

Manufacturing/Fabrication

Installation/Commissioning

Hydro-power specialists

Global (Scotland)

Mech engineer

Distribution & grid connection

Electricity network

Local

Construction team

Electricity network

Scotland

Electrical engineer

The number of man-hours associated with each of the above sub-divisions was calculated for every site identified by Hydrobot ®. The man-hours models were based upon consultation with the key industries and the approach adopted varied according to different criteria. For example the man-hours associated with pipe manufacture are defined by the diameter and length of the pipeline while the man-hours associated with SEPA consent determination is based upon the kW capacity of the system.

It is also important to account for the locality of the jobs being created as many of these jobs will not be in Scotland.

For this study we have assumed that specialist professions (Hydro-power specialists and Electricity Networks specialists) will generally be based in Scotland or have an office in Scotland and so 100% of the employment associated with their activities will be in Scotland.

It is inherently difficult to predict what proportion of material components and supplies will be sourced locally, nationally or internationally due to the influence of free-market economies and other factors. The following sections outline the approach used to quantify the regional benefit of Scotland's hydro resource.

2.4.1 Turbine, Generator and Controller Assumptions

Turbines, generators and controllers are typically sourced from Europe and beyond, although there are a few manufacturers within the UK. There are also a number of UK manufacturers developing equipment for the micro-hydro market. To account for the spread of turbine manufacturers we have assumed the following proportions for turbine, generator and controller design and fabrication work:

  • 50% UK and 25% Scotland on schemes up to 100 kW
  • 10% UK and 0% Scotland schemes between 100 and 500 kW

The sub 100 kW market is in its infancy and so the figures used here highlight an opportunity to develop a UK/Scotland manufacturing base. At the larger scales the existing manufacturers have a secure market share.

Larger turbines are also usually installed by the manufacturer, sometimes using local agents, while smaller turbines are often installed by the firm that designed and project managed the scheme. To reflect this we have assumed the following proportions for installation/commissioning work:

  • 75% UK and 50% Scotland on schemes up to 100 kW
  • 50% UK and 10% Scotland on schemes between 100 and 500 kW
  • 10% UK and 10% Scotland on schemes greater than 500 kW

Turbine equipment overhauls may be required approximately every 20 years. Since this is a specialist operation we have assumed that it would entail a similar work-load and employment distribution to the fabrication, installation and commissioning of the original turbine but with the removal and re-install completed by UK firms. As a result we have assumed the following proportions for overhaul work:

  • 50% UK and 25% Scotland on schemes up to 500 kW
  • 25% UK and 10% Scotland on schemes greater than 500 kW

2.4.2 Pipeline Assumptions

Plastic pipe can generally easily be sourced from the UK, while steel pipe may be sourced from further afield depending on market conditions. There are a few pipe manufacturers in Scotland but competition throughout the UK must be considered when assessing the benefit to Scottish jobs. We have assumed that with larger pipe there will be a stronger economic incentive to look further afield for a better deal. To account for this we have used the following proportions for pipe manufacturing work:

  • 100% UK and 10% Scotland on schemes up to 1,000 kW
  • 50% UK and 10% Scotland on schemes greater than 1,000 kW

2.4.3 Local Employment Assumptions

We have assumed that specialist professions will not necessarily be based in the local area and so only work attributed to public bodies/statutory consultees, ecology and general construction (including electricity line erection) can be assumed to be sourced from the local area.

2.5 Industry Growth Modelling

In outline the process consists of:

  • Back-calculating the existing full time equivalent jobs attributable to the hydro industry
  • Consultation with industry players to estimate the rate of growth of the industry given existing policies and constraints
  • Modelling job growth over time

The current full-time equivalent jobs have been estimated by applying the methodologies developed in Section 2.3 to the 45 schemes that have been consented since April 2006. It is estimated that there are currently 116 full time equivalent jobs worldwide that can be directly attributed to the Scottish hydro sector. Approximately 82 of these are in Scotland.

It should be noted that Glen Doe has been excluded from this analysis as it alone accounted for more than 50% of the employment attributable to the hydro sector in this timeframe. Glen Doe was a very large civil-engineering operation involving technologies such as tunnel boring machines and a reservoir. This level of civil engineering will not be common on the majority of schemes identified by this study.

Forecasting the industry growth rate has proven to be extremely difficult and few of the larger developers were willing to share their opinions on this aspect. The growth of the industry is a very complex interaction between energy prices, material costs, renewable tariff support, electricity network constraints, environmental regulation and planning issues. As a result it is only possible to model broad goals within the scope of this report.

Exponential growth in an industry where there is a clearly limited resource (sites available for development) will only result in boom and bust economics. A bell-curve model (or normal distribution) will better account for the transient nature of the employment associated with constructing schemes. This also allows the impact of a controlled expansion and contraction of the industry to be balanced against the need to exploit all renewable energy resource as quickly as possible to achieve the Government's climate change and energy security objectives.

It can be assumed that the easiest and most profitable schemes will be developed first with the difficulty and complexity of regulation increasing over time. This will mean that a Weibul or Lognormal distribution could provide a better model of the stabilisation and tail-off in construction-based employment. Since the peak in development is unlikely to occur early in the timeframe considered the use of a normal distribution is acceptable.

Due to the uncertainty associated with the constraints on the industry the timescale of this report has been limited to 2020. This ties in with the Scottish Government's Renewable Energy Action Plan.

Because of the annual maintenance requirements and periodic overhaul requirements of hydro systems there will be a number of permanent jobs associated directly with hydro-power schemes post-construction. These jobs have been included in the growth projection figures but are excluded from the sectoral analysis of the overall resource as their relative contribution depends on the timescale of development.