If the Shetland community does not proceed with the Viking windfarm its partner in the £800 million joint venture, Scottish and Southern Energy (SSE), may go it alone.
The early warning that there could be no stopping the giant windfarm if it wins planning consent has come from the energy company’s chief executive Ian Marchant on a trip to the islands.
He was keen to reiterate Scottish and Southern’s commitment to its “preferred option” of the joint venture, but admitted if the community ultimately decides not to commit to the 150-turbine windfarm the project would not be allowed to die.
Questioned specifically on the issue by The Shetland Times, Mr Marchant said: “We absolutely want to do this as a 50/50 project – that was the original vision five years ago and that is still the preferred option but because of the wind speed and the wind regime here we would not see a good project not go ahead.
“So, if the community decided it did not want to do that – it wanted to exit once the consent was there – we would absolutely have the discussion. But I don’t want that to happen.”
Pressed further, he insisted no alternative scenario existed at this stage.
“My plan A is to do it with the community. There is no Plan B. All I’m saying is we would work on a Plan B. But I don’t want to deflect the team’s attention on something that I don’t think will happen.”
Mr Marchant, who has been the chief at SSE for seven years, was speaking on Wednesday at the turbines of the privately-owned Burradale windfarm above Dale golf course. An influential figure in British business, he gets paid well over £1 million a year for running one of the richest and most successful companies in the land.
He is supremely confident the windfarm will go ahead despite strong opposition to so many large turbines, believing it would be “a crime” not to proceed with “one of the best wind projects in the world”. A major drive is to get under way shortly to try to persuade the Shetland public that the venture on offer from SSE and its partners, Shetland Charitable Trust and four local businessmen, will be a financial winner.
There has been speculation that other energy giants, such as SSE’s Spanish-owned arch-rival Scottish Power or hungry Swedish newcomers Vattenfall, might be waiting on the sidelines to exploit the wind in Shetland should the Viking Energy venture falter.
Mr Marchant acknowledged the two companies were “keen on wind assets” and gave an insight into how these big energy players vie with each other for advantage in the rush to exploit renewable energy.
“If one of their projects were to fall I would be interested in it so I would expect them to potentially be there. But they haven’t got 60 years of history on this island like we have; they haven’t got 50 people working on this island, like we have. So I think we have something unique to bring that they don’t have.”
He added later: “This is one of our flagship projects. It will be a major part of our investment programme in the 2012-2015 period. It is in all of our publicity when we talk about renewables. It is an essential part of our programme.”
While SSE is still publicly committed, the Shetland councillors and trustees who ultimately will have to sanction the investment of community funds are under a different set of pressures and, when it comes to decision day, may baulk at their biggest-ever gamble and throw in their chips.
That the project might feasibly be taken over entirely by big business outsiders who make off with almost all the profits may present a dilemma for windfarm opponents as to whether a windfarm half-owned by the community is the lesser of two evils. Alternatively, it may instil in them renewed determination to stop the turbines happening now at all costs.
The colossal investment required to fund the windfarm is one of the most likely reasons why the “community” stake might be abandoned when the big moment arrives and that problem has obviously been exercising minds at Scottish and Southern and in the charitable trust.
During his visit Mr Marchant met the Viking Energy board as well as councillors and trustees, who own 45 per cent of the Viking Energy Partnership joint venture with SSE.
In an apparent bid to smooth the trust’s path, SSE has floated a new plan to halve the direct risk to the trust, requiring it and the four owners of Shetland Aerogenerators to raise £200m between them rather than £400m. Mr Marchant said the joint venture vehicle, Viking Energy Partnership, would undertake to secure £400m in loans itself from the EU’s bank, the European Investment Bank (EIB), leaving the remaining £200m to be found by SSE.
The fresh approach to raising the capital could ease the fears of many who believe the sums mentioned during the ongoing public debate make the project too risky for Shetland. Originally the partners were to raise half the £800m each but since then the financial world has been through the wringer.
“We recognise the community would struggle to raise that sum of money – actually so would we now,” Mr Marchant said. “So we want to raise the money within the vehicle itself.”
The proposal was agreed by the Viking board on Tuesday, Mr Marchant said. The source the partnership will tap into is project finance and SSE has accessed it for other windfarms.
The EIB has existed for 50 years and lends capital long-term to projects which further the EU’s aims. Mr Marchant said its money was “the cheapest that we could borrow at” compared with other commercial sources and he is confident the Viking windfarm concept will be readily approved by the bank. “It’s absolutely in their sweet spot. It is infrastructure. It’s clean. It’s community. It ticks all their boxes and they will fall over themselves to invest.”
He even hopes to be able to lower the requirement on the trust and the four local businessmen (who hold a five per cent share in the overall venture) to below £200m once more accurate costs are known and more discussions have taken place with various potential funders. An updated figure could be known within six to nine months.
The prospect of the trust having to put up £180m or less from its funds and borrowings in return for potentially £23m a year being returned to it, as Viking Energy has forecast, could make the windfarm a more palatable gamble. Mr Marchant said Scottish and Southern now intends helping the charitable trust convince the community that “it is the right thing for them to do”.
He said: “The wind regime here is so good the returns are more than enough to support the cost of the connection. That is the economic debate that we have to win. What I think we have misjudged is that we thought we had to win the planning and environmental debate first then once we had the consent, win the economic debate. Actually the reality is we need to start the economic debate earlier because people are interested and want to understand.”
Mr Marchant called on Viking Energy to put more effort into highlighting the £37m annual total income Shetland could rake in from hosting and investing in the 540 Megawatt power generator. From his consultations with people the previous day he said they were confused about how the community would benefit, with some believing it would only yield the basic disturbance allowances which communities living near other windfarms elsewhere receive.
“The fact is if this goes ahead it will be the biggest economic boost to the islands since Sullom Voe,” he said. “That noise isn’t getting heard and I think the board need to do more on that.”
Although “disappointed” by the level of opposition to the windfarm, Mr Marchant said it was actually “no different” to what the company had seen to windfarms elsewhere and the issues were familiar ones. In terms of views submitted to the government’s energy consents unit, he preferred to accentuate the positive, saying there had been more letters of support about Viking Energy than SSE has had for any other single project. He claimed 400 people had written in favour whereas typically on a planning matter only opponents write.
“We are not worried or alarmed because this is fairly classic. We find that communities who have windfarms now developed – like our Hadyard Hill windfarm in Ayrshire – actually say ‘We wonder what the fuss was all about’’ because actually living with windfarms is easy. You forget they are there.”
Mr Marchant said opponents were not raising any new issues on environmental grounds. “Everybody thinks they will be able to see more wind turbines further away than they can. We’re used to that. Access and construction activity is an issue on every windfarm. Actually here they are a lot less because you have got good roads.”
The chief executive was starting out on a tour of SSE sites in the UK, from Shetland to Exeter. He had talks over a bacon roll with 40 of the company’s 50 employees in the islands, discussing a range of issues over an hour and a half, including proposals for replacing the old and inefficient Lerwick Power Station. One option revealed previously is to move to a new site on the road out to Dales Voe in return for landowners Lerwick Port Authority gaining and redeveloping the harbour-side site the power station occupies. Mr Marchant said the company was still in discussions with the electricity regulator Ofgem regarding the power company’s proposals for the UK over the next five years.
He said formal consultations with the community regarding the next 20-30 years might begin next year. No decisions have been made about location or what fuel would fire the generators. “My best guess is 2012 or 2013 will be the time when decisions would have to be made.”