2. Route To Market
Onshore wind has a mature sector and is now the lowest cost renewable electricity technology at scale, but new projects now face a highly uncertain route to market. With the right regulatory framework, new onshore wind projects can be economically viable without subsidy. In the draft Energy Strategy, which accompanies this document, the Scottish Government sets a challenge to industry to develop in Scotland the UK's first commercial wind farm without subsidy.
Securing a route to market for onshore wind of all scales is a priority of the Scottish Government; we want to ensure that Scotland continues to offer the right conditions for efficient, well-sited onshore wind developments. In the accompanying draft Energy Strategy, the Scottish Government calls on the UK Government to provide greater long-term certainty over regulated renewable support mechanisms - and for greater clarity on the future of the Levy Control Framework, under which the costs of renewables support is currently managed.
The economic benefits to Scotland from onshore wind are considerable. There is potential for further growth both directly through increased deployment, manufacturing and indirectly in supply chain activities, including consultancy and ongoing maintenance contracts.
We are pleased to see more developers commit to using Scottish manufactured towers and are keen to explore other opportunities for Scottish manufacturing particularly around remanufactured turbines.
Economic benefits at a local level through community payments and community and locally, owned energy, including shared ownership of commercial schemes, are increasing and play a valuable role in the long-term sustainability of many remote rural areas.
Following the decisions by the UK Government to close the Renewables Obligation early and to focus future Contracts for Difference (CfD) on "less established" technologies (a definition which excludes onshore wind), the industry continues to face a period of uncertainty.
The Scottish Government backs industry's call to the UK Government to provide a viable route to market for cost-competitive onshore wind. The CfD mechanism, for example, makes use of an auction and already provides a price-discovery mechanism to lower costs, and a price stabilisation mechanism to reduce the cost of capital for new investment.
The Scottish Government will engage fully with the development of the UK Government's new Industrial Strategy, but urges that it should include firm commitments to support new onshore wind, to allow the technology to reach price parity with other forms of generation.
Scotland has a significant pipeline of consented projects awaiting construction with significant sunk costs (Fig 2). The Scottish Government would like to see these projects developed at the earliest opportunity and at the lowest cost to the consumer. Without some method of stabilising prices developers may not be able to plan and build a viable project.
Fig 2: Onshore wind planning pipeline in Scotland
Source: BEIS Renewable energy planning database 
Small-scale wind has benefited from the Feed-in Tariff ( FITs) which was introduced by the UK Government in April 2010. However reduced FITs and deployment caps, the most recent introduced following the FITs Review in 2015, have curtailed development.
The impact of this decision can be demonstrated in projects supported by the Scottish Government's Community and Renewable Energy Scheme ( CARES), where 25 community wind project proposals are now at a standstill, without a clear route to market, and facing an uncertain future.
These projects which could see substantial community social and economic benefits arise have been developed in good faith. The very nature of community energy projects means they are led by local volunteers and therefore take a longer time to develop than commercial schemes. This has resulted in community energy projects being disproportionally impacted by the recent FITs changes which were precipitate and potentially damaging to their prospect.
Wind projects on Scotland's remote islands would capture some of Scotland's best wind resource. These projects can generate high efficiency low carbon electricity and deliver significant local economic benefit to some of the most economically fragile areas in Scotland.
Island wind projects are defined by a series of unique characteristics that set them apart from onshore projects on the mainland - something that was highlighted in the UK Government's 2013 consultation and which remains valid today. They have significantly higher load factors than average GB mainland projects - on average 27-57% higher - and are cost competitive when compared with offshore wind and several other forms of low carbon generation.
However, like offshore wind, the remote and often challenging environment in which the projects would operate create technical barriers that result in significant and, indeed, occasionally prohibitive costs that are most acute on the Western and Northern Isles:
- as the islands are not connected to the mainland high-voltage transmission system, the cost of connecting the most remote projects are substantially higher than for onshore wind. Individual grid connections for the Western Isles and Shetland could cost between £600-£700 million and entail associated securities and liabilities; and
- island projects would face the highest network charges in GB on account of their remote location. Wind farms on the Western Isles and Shetland could face transmission charges of £114-134/kilowatt/year compared to £18 for the nearest area in mainland Scotland, where charges are already comparatively high, and indeed in contrast to net subsidy for sites close to London where wind resources and speeds are far less attractive.
Island wind represents an exciting opportunity for sustainable economic development that would provide tangible benefits for the communities on the islands. The current pipeline of large island wind projects on the Western Isles and Shetland have pioneering shared ownership arrangements that would allow for significant revenue to flow directly to the communities.
Economic benefits of onshore wind in Scotland
The 400 MW Viking Wind Farm project in Shetland is jointly owned by the Shetland Charitable Trust and SSE plc. The community share represents 200 MW, making it by far the largest community-owned energy project in the UK.
EDF Energy, together with AMEC Foster Wheeler is developing two wind farm projects on Lewis of 180 MW and 162 MW. The Stornoway Wind Farm and the Muaitheabhal wind farm on the Eishken Estate towards the south of the island. Both Wind Farms include the offer of large community ownership stakes and community benefits. They would also bring additional benefits through employment and local procurement. There is also an option offered to Comhairle nan Eilean Siar to take a stake in the Muaitheabhal project, which is a similar opportunity to the 20% offered to the Stornoway Trust on the Stornoway Wind Farm.
The case for treating the most remote island wind as a separate technology and providing support to address the identified barriers to deployment has been developed in conjunction with the UK Government over a number of years. Uncertainty remains as to whether the UK Government will enable the projects to compete in the current Contract for Difference support mechanism.
The Scottish Government is of the firm view that the unique characteristics of island wind, specifically the technical challenges and variation in costs and revenues, sets the technology apart from onshore mainland wind. We remain committed to realising the potential of the island projects and capturing the wider renewable resource potential of all of Scotland's islands. We continue to press UK Ministers to recognise the strong case for a distinct approach to support for island wind projects.
Areas of new Scottish Government support
1) Considering the efficiency of new wind farms in the consenting procedure
The Scottish Government is supportive of the need to design new wind farms, including repowered sites, to maximise efficiency and return and hence to increase viability. Improved efficiency benefits the consumer and provides a better basis on which to base a sustainable future for the industry. Efficiency is achieved through well-sited wind developments, harnessing energy where there is good wind resource - and using the latest technologies, including larger turbines where these are appropriate
To that end, this document calls for evidence on the appropriate approach to the inclusion of wind farm efficiency as a material consideration in the Section 36 consents guidance. (Scottish Ministers consider applications for generating stations in excess of 50 MW, under section 36 of the Electricity Act 1989.) In so doing, Scottish Ministers might expect developers in the future to explain how the design of a development balances environmental impacts against the contribution to the energy targets laid out in the Scottish Energy Strategy.
Approaches could include, for example, a threshold for wind efficiency for new developments, the use of best practice guidelines, or approaches which vary according to the size of the development.
Any new approach would not imply a presumption of approval of applications including larger turbines. All applications will continue to be assessed on their own merit, with contribution to energy targets balanced against environmental impacts and site specific circumstances.
If progressed, the Scottish Government will establish a working group to consider how to design fairly and implement in line with planning and consent policy and avoid any unintended consequences.
2) Facilitating cost reductions
The onshore wind sector has enjoyed valuable revenue support for some time. This has helped to establish a market and bring costs down, but a further reduction in costs is now a precondition of continued growth in the pipeline of development. The Scottish Government welcomes the work that is already taking place across the whole supply chain to reduce costs. The Everoze Report commissioned by Scottish Renewables entitled 'Onshore Wind In Scotland: opportunities for reducing costs and enhancing value'  concluded that:
'Costs can be reduced and investment encouraged significantly via a smarter planning system, a transformed grid and a revolution in revenue model.'
The Report highlights 10 interventions, clustered into three themes as follows:
- Smarter Planning - including use of latest turbines; coherent consenting; and redevelopment;
- Transforming the Grid - including reform of system charging, adopting smart connections, ICP or self-build connections, and lower cost of transmission assets; and
- Revenue Revolution - including extending asset's life, new offtake arrangements, and deployment of storage.
The Report contains a number of specific requests of the Scottish Government. They highlight a desire for planning guidance around accommodating larger turbines and increased tip heights with a view to unlocking cost reduction potential. Other planning asks include a call for consistency of approach across planning authorities and for consenting authorities to develop guidance on extending/amending consent on existing sites.
National Planning Framework ( NPF) 3 is clear that planning must facilitate the transition to a low carbon economy. Our spatial strategy facilitates the development of generation technologies that will help to reduce greenhouse gas emissions from the energy sector. Scottish Planning Policy ( SPP) states that the planning system should support transformational change to a low carbon economy by supporting the target of delivering the equivalent of 100% of electricity demand from renewable sources by 2020.
It is Scottish Ministers' expectation that planning authorities' spatial frameworks should set out in their development plans those areas that are likely to be most appropriate for onshore wind farms. The spatial framework is complemented by a more detailed and exacting development management process where the individual merits of a proposal will be carefully considered against the full range of environmental, community and cumulative impacts.
Following the publication in May 2016 of the Independent Panel Report into the Scottish planning system, we published 'Places, people and planning - a consultation on the future of the Scottish planning system' on 10 January 2017. The consultation proposes 20 improvements to the planning system, covering four key themes: making plans for the future; people make the system work; building more homes and delivering infrastructure; and stronger leadership and smarter resourcing. At the conclusion of this consultation, we will bring forward proposed changes to the planning system, including a Planning Bill. This will be supported by an updated planning policy in due course.
The aim of planning reform is to:
- provide stronger and simpler plans that are respected and understood by communities and trusted by investors;
- time-consuming and complex planning processes that do not add value should be removed;
- co-ordinate and priorities infrastructure planning and delivery;
- actively facilitate development where it is needed;
- work with those who want to invest in Scotland and move their projects forward; and
- uphold the public interest.
The timing of the updated planning policy should not be seen as a barrier to the aspirations of transitioning to a low carbon economy and adapting to technological change.
3) Encouraging innovation
As we transition to a market where technologies compete on cost, the onshore wind sector must innovate with new technologies, new models of deployment and finance.
A number of demonstrator sites are already in development in Scotland, for example battery storage and the use of other technologies in conjunction with wind.
Heat Smart Orkney: Received £1.2 million from the CARES Local Energy Challenge Fund to use energy from a curtailed turbine to provide heat for local residents who are fuel poor.
Innovation also extends to new market opportunities and how finance is secured for projects. For example the sector is looking at the use of longer-term corporate Power Purchase Agreements ( PPAs) to secure investor confidence. Scottish Renewables has established a short-term working group to consider the options around corporate PPAs and we look forward to the findings in due course.
The Scottish Government is now exploring the scope for the Scottish Government to offer increased PPA provision under a 'sleeve arrangement' within the national collaborative contract (which allows public bodies to choose green electricity). The tender for a replacement of the current contract will start in late 2017.
The contract operates through a 'hedging' strategy and is managed on commercial terms. The hedging strategy is governed by a Risk Management Committee made up of representatives from across the Scottish public sector. This strategy has delivered tens of millions of pounds of savings to schools, hospitals and the wider public estate. The contract is not an alternative route to subsidy as it must comply with state aid and procurement rules.
Any PPA provider must win an open tender process (open to any bidder - the competition could not be restricted to any particular sector, such as community projects or even to Scottish-based generators). Any PPA offering must also fit in with the hedging strategy.
If the contract is expanded in this way, we would seek to ensure that community energy or small scale projects (not just onshore wind) are in a position to submit commercially viable bids to sleeve their energy through the main contractor (currently EDF Energy). This might require some aggregation of the proposition and we would want to offer support to help community and small-scale projects develop their tendering abilities. In this way, should the Risk Management Committee decide to pursue PPAs, community projects should be in a position to submit competitive bids.
2.1 What is your view on the appropriate approach for the inclusion of wind farm efficiency as a material consideration in the Section 36 consents guidance?
2.2 In this chapter, the Scottish Government has identified three areas of activity where it can offer support to a route to market for onshore wind - do you agree with the issues identified?
2.3 How can the Scottish Government, with the powers available to it, further facilitate a route to market for onshore wind?
Email: Debbie Kessell