Offshore wind - strategic compensation policy: consultation

1. Introduction

1.1 Background

Delivering Scotland’s offshore wind ambitions is critical to addressing the climate and nature crises, and to realising the significant economic opportunities of Scotland’s path to net zero. To achieve those ambitions, a reformed approach to the regulatory system for offshore wind is required.

In Scotland, as in the rest of the UK, we require various environmental assessments to be carried out in relation to offshore wind plans and projects. This includes Habitats Regulations Appraisals (HRA) required under the Habitats Regulations for projects and plans that are likely to have an adverse effect on the site integrity (AEOSI) of a protected site(s) in the UK National Site Network (referred to as the protected site network). Where a plan or project is not directly connected with or necessary for the management of the protected site(s), and where the possibility of a ‘Likely Significant Effect’ (LSE) on these sites cannot be excluded, either alone or in-combination with other plans or projects, an Appropriate Assessment (AA) should be undertaken.

If it is concluded that the plan or project will have an AEOSI on a protected site (either alone or in-combination with other plans or projects), the derogations process will be triggered. The plan or project can only be authorised where the derogation provisions are satisfied.

For offshore wind development in Scotland, the derogations process is anticipated to be triggered at the plan and project level largely due to the impacts of offshore wind development on protected seabird species.

Under the current regime, compensatory measures must be secured to ensure that the overall coherence of the protected site network is protected. This has been interpreted to mean ‘like-for-like’ compensatory measures must be secured i.e., the measure should be targeted to the impacted habitat or species (impacted feature).

However, there is a limited amount of ‘like-for-like’ compensatory measures available across the UK. This creates challenges for delivering Scotland’s and the UK’s offshore wind ambitions, as there have been difficulties identifying suitable compensatory measures that are targeted at the impacted feature by an offshore wind project. To meet the pipeline of upcoming developments, greater flexibility in our approach to environmental compensation (referred to as compensation) under the Habitats Regulations is required.

For these reasons, the Scottish Government has been working collaboratively with the UK Government on the development of cross-UK regulatory reform for offshore wind, using the powers set out in Part 13 Chapter 1 of the UK Energy Act 2023 which provides for reform to the Habitats Regulations as they apply to offshore wind. These provisions allow:

• regulations to be made relating to the assessment of the environmental effects of relevant offshore wind activities in relation to protected sites and about compensatory measures for adverse environmental effects on those sites;
• strategic compensatory measures to be taken or secured; and
• regulations to be made to establish one or more Marine Recovery Funds.

The Energy Act 2023 reforms are an important part of the UK Government’s Offshore Wind Environmental Improvement Package (OWEIP) and in Scotland the Acceleration and Regulatory Reform of Offshore Wind (ARROW) programme, which support the growth of offshore wind by helping to de-risk and accelerate planning decisions while supporting positive investment to protect the marine environment.

These reforms will be delivered in Scotland through an Environmental Assessment Reform Scottish Statutory Instrument (EAR SSI) and associated guidance. The proposed policy that will inform the EAR SSI and associated guidance are presented within this policy consultation.

The UK Government is also consulting on reforms to environmental compensation for offshore wind. UK Government reforms will be delivered through the SI and associated guidance.

1.2 Policy Purpose and Aims

The purpose of the policy is to create a more flexible and pragmatic approach to compensation requirements under the Habitats Regulations for offshore wind, unlocking barriers to offshore wind and its associated benefits and providing new opportunities for positive investment in Scotland’s marine environment. The policy aims to provide clarity on compensation requirements under the Habitats Regulations when an AEOSI of a protected site(s) from an offshore wind plan or project is deemed unavoidable.

Due to the scale and potential cumulative impact of existing, proposed and planned offshore wind development in Scotland, it is likely that Scottish offshore wind plans and projects will be required to undergo the derogations process under the Habitats Regulations and secure suitable compensatory measures.

A key focus of the policy is therefore to enable the delivery of strategic compensation and a wider range of compensatory measures than is currently permitted.

1.3 What is Strategic Compensation

Strategic compensation refers to a coordinated approach to the delivery of environmental compensation of adverse effects from offshore wind on protected habitats and species, in order to achieve economies of scale and provide opportunities for positive investment in the marine environment.

Strategic compensatory measures can be delivered:

• at scale
• over extended timeframes, for example there may be instances where compensation may not become fully functional until after the impact of the plan or project occurs (see section 4.4 on Timing of Compensation)
• at the plan level by Government or project level by offshore wind developers
• across multiple offshore wind projects
• by a single project with multiple adverse effects
• through the delivery of wider measures (see section 3 on Wider Measures)

The delivery of strategic compensation has the potential to support efficient and streamlined planning and consenting of offshore wind, collaboration across the public and private sectors and innovative large scale benefits to the environment.

Wider measures can be a form of strategic compensation.

1.4 Geographic Scope of Policy

The spatial extent of the Strategic Compensation Policy is the Scottish inshore region (0-12nm) and the Scottish offshore region (beyond 12nm).

While Scottish Ministers have devolved legislative and executive competence for application of the Habitats Regulations in the Scottish inshore region, they only have devolved executive competence in the Scottish offshore region. The UK Government therefore retains powers to make legislation in the Scottish offshore region.

Any amendments made to the Habitats Regulations by the UK Government through the UK SI will therefore apply to the Scottish offshore region, whilst the Scottish Government is responsible for legislation which would apply to the Scottish inshore region.

The Scottish Government is however responsible for developing guidance on how these policies and reforms would apply across Scottish waters. Scottish guidance will cover the Scottish inshore region in relation to the EAR SSI and offshore region in relation to the UK SI.

The policy intention is that the SI and EAR SSI will mirror each other as far as possible and as is practicable, so that the regime which applies to offshore wind energy remains consistent across the inshore and offshore marine environment. We consider it important to achieve coherence for projects which have components in both inshore and offshore regions and for those managing the protected site network.

1.5 Delivering Scottish and UK Offshore Wind Ambitions

This policy has a critical role to play in enabling offshore wind investment and delivering both Scottish and UK offshore wind ambitions.

Scotland’s Offshore Wind Policy Statement, published in 2020, set an ambition of 8-11GW (gigawatts) of offshore wind development by 2030. In recognition of the significant project pipeline, and to underline Scottish Government’s firm commitment to the offshore wind sector, a consultation is underway until 13 August on proposals which would see Scotland’s offshore wind ambition increased to up to 40GW by 2035-2040, in addition to our existing operational capacity.

The UK Government’s Clean Power Action Plan (CP2030) has set an ambition to decarbonise Great Britain’s electricity system by 2030 and sets out GB-wide capacity ranges of 43-50GW of offshore wind in 2030, and 72-89GW in 2035. Delivery of CP2030 is dependent on projects in Scotland's pipeline and we are committed to working with the UK Government to deliver CP2030 ambitions and grow both the Scottish and UK economies through clean, secure energy and infrastructure.

ScotWind has already delivered over £750m in revenues^[3] to the public purse and the expansion of offshore wind energy is creating substantial opportunities for economic growth all around Scotland, including in coastal and island communities through port infrastructure and new manufacturing facilities like the Sumitomo subsea cable facility in the Highlands. There are also commitments from ScotWind developers to invest an average projection of £1.5 billion per project in Scotland.^[4]

The ScotWind and Innovation and Targeted Oil and Gas (INTOG) leasing rounds promise to be transformational in delivering wider economic supply chain benefits to Scottish businesses and communities for decades to come, while providing a significant boost to Scottish and UK-wide green energy production. ScotWind and INTOG put Scotland at the forefront of offshore wind development globally, with a current reported potential pipeline of over 40GW of offshore wind projects on top of our existing operational capacity. The draft updated Sectoral Marine Plan for Offshore Wind Energy (SMP-OWE) which sets the strategic planning framework for the projects from the ScotWind and INTOG leasing rounds and an additional 1GW capacity for potential future Test and Demonstration projects is currently out for consultation until 22 August 2025.

Through our ambitions and the potential pipeline that has already developed, Scotland is well positioned to be a world leader in offshore wind energy. Our offshore wind resource has huge potential to make a significant contribution to both Scotland and the UK’s net zero transition. This policy will support the realisation of that potential.

1.6 Tackling the Climate and Nature Crises

The development of offshore wind is also critical to addressing the global climate emergency and the nature emergency. Climate change is a key driver of biodiversity loss, so it is essential that the twin crises are tackled together. There is now an indisputable body of evidence that we urgently need to decarbonise our energy systems, move to net zero and scale up our efforts to drive nature recovery.

Our current Climate Change Plan sets out policies and proposals for the period up to 2032 and contributes to our vision to end Scotland’s contribution to climate change by 2045. The next plan will cover the period 2026 to 2040 and is due for consultation later in 2025. In accordance with the Climate Change (Emissions Reduction Targets) (Scotland) Act 2024, we will be taking a carbon budget-based approach for setting emissions reduction targets. The Scottish Biodiversity Framework defines our plan for Scotland to halt biodiversity loss by 2030, and to restore biodiversity by 2045.

This policy will support the delivery of our efforts to address the global climate emergency and the nature emergency by supporting the role of offshore wind in decarbonising our energy system and transitioning Scotland to net zero.

1.7 Alignment with EU law

The Habitats Regulations are transposed in Scotland from the European Union Council Habitats and Birds Directives. While implementing this policy will result in a different approach to the Habitats Regulations applying in Scottish and UK waters when compared to the current approach taken within the EU, we remain committed to maintaining and advancing the high standards that Scotland shares with the EU.