Securing the Benefits of Scotland's Next Energy Revolution

Listen

Chapter 3: Who will benefit from Scotland's low carbon energy potential?

The Scottish Government receives no income from offshore energy projects. The Crown Estate Commissioners expect to receive a long-term income stream from the expansion of low carbon energy projects in Scottish waters. That income stream stands to bring little direct benefit to Scotland and to Scottish communities.

Introduction

38. It is important to be clear on who will enjoy the benefits from our low carbon energy potential. We saw in the last chapter that the benefits of the oil and gas revolution have not been felt in Scotland as strongly as they should have been nor as strongly as in Norway or Shetland. If nothing changes and as things stand currently, what will happen this time round with the low carbon energy revolution? Who will receive the lion's share of the benefits? What level of benefits will local communities receive? This chapter also looks at the crucial role played by the Crown Estate Commissioners in the development of offshore renewable energy projects.

Onshore

39. In the onshore renewables sector, there are a number of recipients of benefits. There are hugely positive examples right across the country -- such as Fintry, Drumderg or Shetland -- of communities gaining tangible benefits from the development of the renewables sector in their locality. The types of benefits local communities have been able to enjoy include:

Receiving direct revenue streams from developers. Analysis of benefits payments relating to onshore wind power and hydro-electric projects 9 carried out in the past three years, suggests an average community benefit payment of around £1,700 per MW.

Receiving direct revenue streams from the energy generated by projects through local ownership. Direct revenue streams from both these sources can be put towards a range of projects supporting local priorities such as increasing energy efficiency, regenerating village halls, promoting local post offices and community halls, or alleviating fuel poverty.

Developing locally-produced, sustainable energy sources which enable a community to reduce their dependence on fossil fuels and to reduce the costs associated with that dependency.

Case study - Whitelee Wind Farm

Whitelee wind farm is Europe's largest wind farm and is located on Eaglesham Moor, 20 minutes from central Glasgow. It is owned and operated by Scottish Power Renewables and has 140 turbines which can generate 322 MW of electricity, enough to power 180,000 homes. Different levels of community benefit have been agreed for the various phases, as follows:

Phase 1 - 322 MW

The developer agreed to distribute £1,000 per MW per annum divided between the three local authorities the site covers - East Ayrshire, East Renfrewshire and South Lanarkshire. For example, East Renfrewshire's share is around £130k per annum which is paid into the Whitelee Wind Farm Fund to support worthy projects.

First extension - up to an additional 130 MW

The first extension promises to deliver community benefit at £2,500 per MW per annum to East Ayrshire Council to be directed exclusively at local projects.

Second extension - up to an additional 141 MW

The developer has indicated that £225,000 to £350,000 will be paid annually into a Renewable Energy Fund for the lifespan of the wind farm.

40. However, these benefits are not enjoyed by all schemes and not to the same degree. Communities experience a number of significant barriers to maximising the potential benefits available to them. For example:

The complexity of the range of ownership and financing models available to communities can be confusing and off-putting.

There is a perception of a lack of consistency and equity across the country with respect to the benefits accrued by local communities. Some communities are perceived to have benefited handsomely. Others are perceived to have accrued lower levels of benefit. Yet it is often very difficult for an individual group to gain a clear understanding of what benefits others may have secured.

Where a community body is about to enter into discussions with a renewable energy developer, it may feel it is in a 'David-taking-on-Goliath' situation when faced with negotiating with a large organisation with an extensive experience of dealing with community groups. Even though this is not necessarily through any fault of the developer, community groups can feel disempowered and unable to secure the level of community benefit they believe they deserve.

41. Local authorities too gain benefit from the business rates that are levied on onshore renewables developments, although some developers currently receive some relief from those business rates. Other beneficiaries include the UK Government, who receive corporation tax receipts from many of the companies involved in renewable energy developments.

Offshore

42. Once renewable energy sources start producing energy, corporation tax will be payable to the UK Government. Developers will be also be liable to pay a fee to the Crown Estate Commissioners ( CEC) - the body which administers certain rights, interests and property belonging to the Crown, and which issues leases to developers to permit them to make use of the sea-bed for their projects. The Crown Estate Commissioners will therefore receive an income stream from offshore renewable energy projects. The CEC do provide on a piece-meal basis some spin-off benefits to local communities in relation to their marine estate but without change such benefits will fall far short of community aspirations and expectations.

43. The CEC also have the power to charge for leasing of the seabed for carbon dioxide storage associated with carbon capture and storage. At the moment, charges are based on an administrative fee but in the longer term the CEC could secure higher revenues from charging, if the North Sea reaches its potential to store millions of tonnes of CO2 from across the EU. That would be income that would flow to the CEC and ultimately to the Treasury and not to the people of Scotland.

44. The Scottish Government receives no income from offshore energy projects other than a nominal payment for the issuing of a marine licence for activities within Scottish territorial waters. That payment merely covers the administrative cost of issuing the licence.

45. The benefits which might be enjoyed in the future by local communities from offshore projects are similar to those currently being enjoyed by onshore communities with many benefiting from increased employment opportunities, in particular in the initial construction stages.

46. However, local communities in proximity to an offshore development are likely to encounter the same problems as communities hosting onshore developments when it comes to maximising the levels of community benefit available to them. In addition, they encounter the problem of working out how to define the term "local community" with respect to a project which may be many miles from the coastline. However, it's clear that a significant development off the coast of, for example, Tiree or Islay ought to bring some benefits to those islands. After all, a local community is likely to be more reluctant to be in close proximity to a development if it cannot see tangible benefits coming back in return. This will be all the more the case if it feels that a development will have a negative impact on existing successful industries.

What is the "Crown Estate"?

47. Earlier in this chapter, we saw that the one public body which stands to gain direct financial benefits from Scotland's next energy revolution is the Crown Estate Commissioners. Their role and the nature of the Crown Estate is perhaps not as widely understood as they should be and, as such, deserve some explanation.

48. The property, rights and interests belonging to the Crown and, ultimately, to the people, that are managed by the Crown Estate Commissioners are known as the Crown Estate. In Scotland, the Crown Estate includes rights to the seabed within Scotland's territorial seas out to the 12 nautical mile limit, and rights over the continental shelf (from Scotland's territorial seas to the 200 nautical mile limit). Other Crown property rights are also included, as well as a small number of rural and urban properties such as estates at Glenlivet in Moray and Applegirth in Dumfriesshire, part of Princes Street Gardens in Edinburgh and the King's Park in Stirling. The capital value attributed by the Crown Estate Commissioners to the property interests that currently make up the Crown Estate in Scotland was £183.5 million at 31 March 2010. This was 3% of the £5,989 million value of the UK wide Crown Estate, most of which results from commercial property in London. 10

49. The Crown Estate Commissioners is a statutory corporation constituted and governed by the Crown Estate Act 1961. Their duty is to maintain and enhance the value of, and the return from, the Crown Estate but with due regard to the requirements of good management. Surplus revenues generated by CEC are given to HM Treasury: in 2009/10, for example, £210.7 million was given to the UK Government. The Crown Estate Commissioners no longer publish separate accounts for their operations in Scotland but estimate their Scottish revenue was £13 million in 2009/10. This would mean that the Crown Estate in Scotland provided about 4-5% of the UK wide surplus revenue. Extrapolating the annual Scottish revenue figure, it could be estimated over £100 million has flowed from the Crown Estate in Scotland to Westminster since devolution.

50. The role of the CEC is to maintain and enhance the value and revenues from administering the assets under their management. There has been debate about how far the CEC should take account of wider public policy 11. The CEC manage the Crown Estate on a UK basis and there is no longer a separate operating division in Scotland and no formal accountability to the Scottish Government or the Scottish Parliament. Although both the management and the revenues of the Crown Estate in Scotland are reserved, there is no express reservation of the land and property rights.

What is the relevance of the Crown Estate Commissioners to renewable and other low carbon energy?

51. In the context of offshore low carbon energy developments, the role of the Crown Estate Commissioners is crucial. Although the Crown Estate Commissioners do not "own the sea-bed", as some assume, they exercise substantial rights over the uses to which the sea-bed may be put. For example, they issue and charge for leases and enter into exclusivity agreements with developers to allow them to take forward their projects (for example offshore wind farms, wave and tidal schemes and storage of CO2). The Crown Estate Commissioners charge "rent" on these leases or agreements which brings them a revenue stream. However, transparency levels with regard to prospective levels of rent from off-shore developments are very limited. What is certain, however, is that the Crown Estate Commissioners expect to receive a long-term income stream from the expansion of low carbon energy projects in Scottish waters. That income stream stands to bring little direct benefit to Scotland and to Scottish communities.

52. The Scottish Government works in close partnership with the Crown Estate Commissioners in taking forward the practical, day-to-day work necessary to make sure that the offshore low carbon sector can develop in both renewables and CCS. Indeed, we welcome and value that close working, not least in the context of the Saltire Prize.

Conclusion: are those benefit levels enough?

53. What conclusions can be drawn from this analysis of the likely beneficiaries from Scotland's low carbon energy potential? Firstly, the level of benefits available to local communities is patchy. The lack of transparency surrounding the process when coupled with the sense of disempowerment felt by many can mean that local communities don't manage to secure as many benefits as they would like from the renewable energy potential on their doorstep.

54. Secondly, much of the revenue likely to be generated by Scotland's huge offshore energy potential will go to the Crown Estate Commissioners, a body managing public assets which gives its surplus revenues to the Treasury. These revenues therefore flow out of Scotland and away from the Scottish communities directly impacted by offshore developments. The way in which the Crown Estate in Scotland is administered also seems deeply anomalous in a post-devolution Scotland given that the CEC appears to act with less transparency and accountability than would be expected of any other body and given that they remain unaccountable to the Scottish Parliament and the Scottish people.

55. Thirdly the corporation tax revenues generated by offshore and onshore developments will, much like those from oil and gas exploration, be enjoyed by the UK Government rather than the Scottish Government.

56. Overall, it is clear to the Scottish Government that unless action is taken now the mistakes of the past look like they are about to be repeated. The mistakes made with respect to the oil and gas revolution served Scotland badly and prevented our country from reaching its full long-term economic potential. We must make sure that action is taken to prevent the same scenario being played out with respect to Scotland's low carbon energy revolution.