Scenario mapping for offshore renewable energy development economic benefits: case studies
Report to identify, measure and value the delivered and potential economic impact for Scotland from offshore wind and tidal energy projects.
This study was structured around four offshore renewable energy projects in Scotland:
- Beatrice Offshore Wind farm (588MW)
- Neart na Gaoithe (NnG) Offshore Wind farm (448MW)
- Hywind Scotland (30MW), and
- MeyGen Phase 1A (6MW).
The four projects were chosen as the highest profile and furthest developed projects so far undertaken in Scotland for each technology and location at the time.
Beatrice is the largest offshore project in operation in Scotland in 2020. Offshore construction began in April 2017, and the wind farm was fully commissioned in 2019.
NnG is the furthest developed offshore wind farm in the Firth of Forth and is scheduled to start operation in 2022. The Firth of Forth has significant potential capacity of projects, notably the Seagreen projects, the first of which was successful in CfD Allocation Round 3. This analysis looked to see what differences, if any, there are between this project and a fixed offshore wind project in the Moray Firth.
Hywind Scotland was chosen because it is the furthest developed floating wind project in Scotland, and indeed globally. Hywind Scotland was commissioned in 2017.
MeyGen is the furthest developed Scottish tidal project. The Phase 1A development was completed in April 2018 and Phase 1B (4MW), also known as Project Stroma, is currently under construction. Further phases are planned.
For each project we developed a case study. Each case study modelled the ‘as-is’ economic impacts from the projects and the supply chain used, and a ‘what-if’ assessment, which identifies the economic impacts of a similar project using the maximum realistic Scottish content from the existing supply chain.
These case studies were used to inform recommended actions the Scottish Government could take to increase the economic impacts in Scotland from existing and planned developments.
For the purposes of this study, we defined a Scottish company as one in which the activity relevant to the development project was based in Scotland.
We defined 'local' as the local authority area in which the installation base, operations and maintenance base, and export cable landfall are located.
We defined ‘national’ as referring to Scotland.
The Scottish content includes local content, and therefore should not be interpreted as ‘rest of Scotland’.
The work was undertaken in the following stages:
- Develop supply chain taxonomy
- Undertake an as-is economic impact analysis for the selected projects
- Identify current and future potential Scottish supply chain activity
- Undertake a what-if economic impact analysis for the selected projects, and
- Identify potential opportunities for and barriers to increasing the economic impact in Scotland from existing and planned projects.
Develop supply chain taxonomy
The supply chain was broken down into a hierarchical structure with six level 1 categories, 27 level 2 categories and around 130 level 3 categories. The level 1 and level 2 categories were suitable for all the case studies, however there were variations in the level 3 categories depending on the technology. This level of detail was important because many of the business opportunities and jobs in Scotland are at the lower tiers of the supply chain. A higher-level analysis would focus attention on major components such as turbines and foundations, potentially missing the contribution of Scottish small and medium enterprises (SMEs).
The six level 1 categories cover all phases of a project’s life and are:
- Development and project management
- Turbine (generating device) supply
- Balance of plant (including transmission)
- Installation and commissioning
- Operations, maintenance and service (OMS), and
The level 2 and level 3 categories are listed in Appendix B.
Measure economic impacts for selected projects
We modelled the economic impacts of the case study projects using a methodology (see Appendix B) based on a detailed understanding of renewable energy generation and transmission industry supply chains and qualitative information from developers. Developers were given the opportunity to review the data modelled for their projects. We used a structured ‘content’ analysis based on a methodology developed by BVGA for the Offshore Wind Programme Board.
We analysed the following:
- Direct, indirect and induced gross value added (GVA)
- Direct, indirect and induced earnings, and
- Direct, indirect and induced full-time equivalent (FTE) job years.
Direct impacts arise from the work undertaken by the developer and their Tier 1 suppliers.
Indirect impacts relate to employment generated by the purchase of supplies and services by the companies that create the direct impacts.
Induced impacts relate to the employment created through the personal expenditure of the direct and indirect workforce.
For each Level 3 category and offshore renewable energy technology, we tried to identify the Scottish companies (including Scottish subsidiaries of non-Scottish headquartered companies) that were successful suppliers, along with their locations. We included specialist renewable energy companies only (not, for example, caterers and transport companies).
By aggregating data, we produced a Scottish content figure for each project and level 1 category.
For each case study we attempted to get as much observed data from the developers as possible, including information on their supply chains.
We discovered that the developers encountered challenges in giving us all the data required. Some cited GDPR restrictions on facilitating conversations with their suppliers or providing contact details. Others reported that for commercial confidentiality reasons they could not give us values of contracts, salaries or location of jobs. For this reason, the analysis relied more on modelled data than was originally planned. For the three offshore wind projects the costs were estimated using BVGA’s internal cost model, based on costs from similar projects. The economic impact numbers are very sensitive to spend, and there is a potential margin of error. Modelled data was sent to developers to validate, and one of the developers was able to respond to this request. We also compared results with similar studies. To avoid developer bias, we used our internal knowledge of the Scottish supply chain to sense-check the input.
The analysis only considered the impacts from building, operating and decommissioning the case study projects and from the owners’ contributions to the maintenance of the transmission grid. It did not consider the impacts of profits made by project owners.
OPEX was assumed to be spread evenly over the operating life of the wind farm.
The impacts were offset from the date of turbine commissioning.
Our modelling used data from our own research on workers’ salaries and profit margins to establish employment figures
Gross value added are in 2019 prices.
Identify current and future potential Scottish supply chain activity
The companies involved in each case study project were identified through input from project developers or from research of publicly available information.
Using the breakdown of level 2 categories from the supply chain taxonomy we assessed the Scottish renewable energy supply chain using our supply chain assessment tool, which considers the criteria below.
Scottish supply track record
The extent to which Scottish-based companies have supplied the offshore renewable energy industry either in the UK or abroad and the extent to which the capability exists to supply any scale of project with contracts being signed within the next year.
Market readiness of suppliers for commercial scale projects
The extent to which Scottish-based companies have existing capability or plans in place to invest that would enable them to supply commercial scale projects, either in the UK or abroad, with contracts being signed within the next year.
Availability of Scottish expertise in parallel sectors
How strong Scottish-based companies' expertise is in parallel sectors in Scotland, such as marine and subsea engineering, and oil and gas.
Logic of Scottish supply
To what extent there is a logistics benefit from supply from Scottish coastal locations close to the areas of renewable energy developments and from a close proximity to customers. This also considers the logic of Scottish suppliers supporting projects in the rest of the UK and overseas.
Scottish investment risk
The confidence level in the size and sustainability of the market required for investment in Scotland. A high score indicates the investment risk is small and therefore more attractive to Scottish suppliers.
Size of the opportunity
The likely fraction of total expenditure that is in Scotland for Scottish projects. The size of opportunity does not reflect competition.
The size of the opportunity was calculated by the product of:
- The potential Scottish content in which Scottish suppliers could provide goods or services, and
- The likely market share of Scottish companies for Scottish projects.
For each of these criteria, we developed a scoring system to provide clarity and consistency (see Appendix A).
For each case study project and supply chain level 3 category, we identified Scottish capability. We then estimated potential Scottish content if the available Scottish supply chain was used.
The analysis of the current and future potential Scottish supply chain activity does not seek to discuss the gap between supply and demand.
What if analysis
Using the model and methodology from the ‘as-is’ economic impact analysis, we undertook a retrospective economic impact analysis of the projects in the case studies. We used the supply chain assessment to model the ‘what-if’ impacts, which were the maximum realistic impacts that could be achieved by similar projects at the same timescale as the case study projects, using the current Scottish supply chain.
Developers choose a supplier based on:
- The technical capability of the supplier
- The price of a bid
- The capacity of the supplier to deliver to the project schedule
- The ability of the supplier to meet quality thresholds, and
- The risk to the project.
This study concluded that a developer could use a supplier that met the first of these criteria but did not consider the other criteria.
Identify potential opportunities for and barriers to increasing the economic impacts in Scotland from existing and planned projects
The outputs from the supply chain assessment and the ‘what-if’ analysis showed where the opportunity is the greatest and where the progress has been slow. We engaged with the developers to discuss where they see the greatest barriers to increasing the economic impacts in Scotland, and two of the developers were able to provide input.
For each case study project, we then identified the main opportunities and made recommendations for the actions to realise those opportunities. These recommendations considered:
- Market. Is the opportunity sensitive to Scotland’s home market?
- Competitiveness. What can be done to strengthen Scottish companies’ market position?
- Inward investment. Is the opportunity dependent or linked to a major investment in Scotland?
- Technology. Is the opportunity linked to innovation in the Scottish supply chain?
- Parallel sectors. Is the opportunity linked to Scottish companies making the transition from sectors where Scotland has strengths?
The opportunities and recommendations were identified through internal discussion in the project team and through engagement with the developers of the case study projects.
Social impacts from offshore renewables developments complement the economic impacts that are assessed and quantified in this report – in Scotland as a whole, but particularly in local areas where economic impacts generate social impacts or where social impacts are directly generated through expenditures related to offshore renewables. Social impacts take time to emerge and for the projects considered it is too early to speculate on future impacts.
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