Written evidence submitted by Crown Estate Scotland (NRG0041)

 

Call for Evidence 

GB Energy and the net zero transition                            

Response from: Crown Estate Scotland              Submitted: 15th January 2025

1. What impact will the UK Government’s approach to net zero have on Scotland’s oil and gas industry?

We recognise that recent developments such as GB Energy and the National Wealth Fund create an opportunity to bolster and accelerate investment in the transition to net zero across the UK. We equally recognise that optimising the benefits from these developments requires collaboration between the devolved nations and Westminster as well as political vision, conviction and action across the nations of the UK.

 

To ensure Crown Estate Scotland can support and capitalise on these developments we require parity of funding and parity of investment powers to our counterparts in England, Wales and Northern Ireland and the ability to leverage our unique vires as a public corporation investing to deliver lasting value for Scotland.

 

We have limited comments in relation to the oil and gas industry but we note that the development of the carbon capture and storage (CCS) sector could provide new job opportunities for skilled oil and gas workers as well as a way to repurpose equipment and infrastructure.  The CCS sector could offset some declines in oil and gas activity as well as providing a route to mitigate carbon emissions through long term geological sequestration of emissions.

 

- What state of readiness is the oil and gas sector in for the net zero transition?

Crown Estate Scotland launched the Innovation and Targeted Oil and Gas (INTOG) offshore wind leasing round in August 2022 with the TOG aspect seeking to enable offshore wind to support the decarbonisation of Scotland’s oil and gas sector (reference to the North Sea Transition Deal).  Providing the opportunity to decarbonise production through the electrification of oil and gas platforms is one of the key leasing objectives.  Our engagement with TOG wind farm developers has indicated some reluctance to progress with these TOG solutions for electrification for reasons including fiscal uncertainty beyond 2030 and a resulting lack of investment, cost of electrification and uncertainty regarding the future of the industry in the UK.

There are examples of the supply chain successfully transitioning from O&G to net zero or being able to service both sectors. The challenge is maintaining confidence in the net zero transition to enable continued and accelerated readiness within the supply chain. Clear and consistent policy and supporting incentives out to 2050 and beyond is so important to ensure confidence is maintained.

Again, for this reason it is important that Crown Estate Scotland is adequately funded at this critical time. We play a critical role as an enabler in transitioning the oil and gas sector to net zero in Scotland.

 

2. What UK Government interventions will be necessary to maximise the ability of oil and gas workers to find jobs in clean energy?

We are not able to comment on UK Government interventions, we do however recognise that transitioning the GB energy system as a whole will require a ‘whole system approach’ and we will therefore need to mobilise a collaborative ‘all island’ response. Otherwise, we potentially risk an unjust transition, potentially leaving some nations and communities behind.

 

3. Are Scotland’s energy industry and associated supply chains well-placed to transition to clean energy generation, or is more support needed?

The current energy supply chain in Scotland is well-placed for a successful transition to clean energy generation especially in relation to offshore renewables given decades of experience of world-leading, deep sea energy activity. However, there remains significant need for support especially in relation to growth and innovation to enable the transition which is required over the coming decade.

Supporting the existing indigenous supply chain as well as aligning to the key areas identified for future for inward investment is critical for success. It will be important to do this in a timely manner as we anticipate there will be a point at which the opportunity can no longer be considered viable for Scotland if the supply chain is not in place when developers are preparing to place contracts. Having a clear understanding of deployment scenarios and associated timescales is an area that we believe warrants focused research to ensure support initiatives are grounded in reality and can deliver the desired benefits.

Ensuring investments are de-risked for private and public sector support is fundamental. The Clean Industry Bonus scheme addresses this to an extent however more is needed, and it is required to be evident across energy technologies.

 

4. What actions should the UK and Scottish Governments take to ensure the necessary generation and transmission infrastructure to support the development of Scotland’s renewables sector?

A clear and transparent delivery plan setting out the agreed actions is recommended to enable the private sector to plan and resource as necessary.

Key actions should aim to accelerate the build out of the required grid infrastructure and one area of focus could be eliminating delays in the planning and consenting processes. We welcome the recent consultation on Electricity Infrastructure Consenting in Scotland, progressed jointly by Scottish Government and DESNZ looking at this matter.

Another important area of focus could be ensuring that necessary infrastructure and services are in place to support large-scale transmission upgrades and deployment of renewable technology. Provision of housing and public services is a significant challenge across Scotland and would benefit from a strategic and cohesive approach between UK and Scottish Government and other stakeholders such as local authorities and enterprise agencies. There is some urgency to this as developments are already progressing in isolation and without a strategic plan. We anticipate that new workers will be required and these workers will need housing and services.  New workers will help address challenges around long-term rural depopulation.

We also see merit in ensuring the grid network is designed to enable community generation as efficiently as possible e.g. including additional substations to enable community generation to tie into the grid network with less local CAPEX requirements.

Skills, reskilling and workforce capacity also represent an opportunity.  Coordination on a UK wide basis could avoid unhelpful competition for labour and skills, which could potentially fuel inflation and increase the cost of delivery, creating a risk that some UK nations might be left behind because the economics create preferential submarkets within the UK market.

 

5. How can GB Energy, and other ways of backing industry (including funding), most effectively support employment, economic growth and the development of clean energy supply chains in Scotland?

In our view, one of the most important issues to be resolved is the current position whereby significant investments cannot be made until there is sufficient investor confidence regarding the order pipeline and by the time there is clarity around the order pipeline, then it is too late for the investment because there is a long lead-in time between investment decisions and the relevant manufacturing plant etc becoming operational. Whilst the CFD mechanism continues to drive investment in that way, the lead-in time is too long and developers will place orders where there is an existing supply chain, which for key manufacturing contracts, are primarily outside the UK.

GB Energy could play a hugely influential and valuable role in breaking that cycle in one of five ways:

  1. By investing directly in the sector before orders are confirmed through building capacity in the ports, establishing the already prioritised manufacturing factories and other facilities and then leasing these to the supply chain.
  2. By acting as the investment guarantor based on a bankable pipeline of offshore wind capacity i.e. as an insurance scheme which mitigates the short-term risk while projects move through the development phase, pre consent and CFD.   
  3. By co-investing with other commercial operators, sharing risk, capitalising development and acting with a convenor and aggregator of investment capacity across the sector.
  4. Providing a new and independent voice within the sector, one which combines a practical commercial perspective along with a unique understanding of the public and private sectors.
  5. As a creature of statute, GB Energy is well placed to bridge between the public and private sector across GB Energy and in doing so help close the gap between policy, practice and delivery.

As per the challenges in terms of timing referred to above, we see significant potential value in the provision of a mechanism to derisk investments whilst there is some uncertainty relating to grid and consenting and before deployment is confirmed. We would welcome an entity such as GB Energy looking at how to secure a bankable pipeline for investment. To have most impact, this is required in the coming 12 months to ensure sustainable and transformational investments are not lost from Scotland and the UK. Crucially, the need for guarantees and underwriting investments has been understood for many years and clarity on whether that is an area of interest for GB Energy would be welcomed.

 

Ensuring regular and iterative reviews of opportunities for supply chain is necessary and GB Energy may be well placed to lead on this. The global market is constantly evolving, and the UK needs to continually assess already identified priorities to understand if these remain viable, both in terms of the domestic and export market but also in terms of innovation and industry progress.

 

GB Energy also appears to have great potential in terms of being a facilitator and /or leading investor.  If GB Energy were to take on such a role, this could be very advantageous and could create confidence in the supply chain and wider investor base, ultimately helping to secure investments. Providing a clear and articulate timeframe associated with investment decisions would also build confidence and certainty.

 

GB Energy could also use analysis from the Supply Chain Development Statements (SCDS’s) secured through our ScotWind and INTOG leasing rounds to set out a commitment to delivering on supply chain opportunities and ensuring offshore wind creates a regional legacy.  Full awareness and understanding by GB Energy of the mechanism and outputs of the SCDS’s will be of importance throughout this decade and we are keen to collaborate with GB Energy to share knowledge and make best use of the information provided in the SCDS’s. We note that there are already significant linkages between the SCDS and the Clean Industry Bonus and whilst the two are separate processes, we see them as complementary with the Supply Chain Development Statements likely to provide additional useful insights regarding developer intentions.

 

We would also welcome focus by GB Energy on sectors where Scotland has long term first mover advantage, specifically tidal and wave energy, which already have high local content proportions and offer the significant potential for meaningful endemic economic growth.

 

In the immediate term, the opportunity for smaller place-based investments in energy generation and distribution is well aligned to ensuring a just transition and the IPCC definition that “no people, workers, places, sectors, countries or regions are left behind”. For example in the Highlands, this may take the form of community energy solutions, working with the third sector, private individuals or community groups. We recognise that the Scottish Crown Estate is well placed, because of its scale and distribution, to contribute to such initiatives if GB Energy does intend to operate at both a national and community level.

 

 

6. How should GB Energy work with the Scottish Government and other Scottish bodies to identify appropriate funding and other mechanisms?

Crown Estate Scotland welcomes the establishment of GB Energy and the potential that it offers to deliver socio-economic benefits for communities across Scotland.  We look forward to collaboration and joint working with Scottish Government and other partner organisations such as the Scottish National Investment Bank to realise these benefits.

To maximise benefits, we would like to see alignment between central and devolved administrations on agreed priority investments in Scotland.  Most investments are likely to need support from UK and Scottish governments and a joined-up approach across all stakeholders is essential to ensure opportunities can be realised, building on the collaborative effort secured to date through the Strategic Investment Model (SIM), Industrial Growth Plan and the Clean Industry Bonus scheme.

Clarity on the role of GB Energy in Scotland is important and we consider that this could include the following:

 

We recognise that GB Energy will be a commercial operator (as is Crown Estate Scotland) and that working with GB Energy in practice will require unilateral, bilateral and multilateral arrangements and commercial agreements involving a range of public, private and potentially third sector actors. Ensuring GB Energy is appropriately and adequately resourced will be critical. 

 

7. What does a just transition look like for workers and communities across Scotland’s highland and island communities, and what role might community energy and community benefits play in this?  

A just transition distributes the financial cost of moving to a low carbon economy fairly towards those most able to pay as well as distributing the benefits towards communities which are more likely to be socio-economically impacted by the energy transition.  The Just Transition Commission in Scotland has developed a suite of frameworks for what the transition could look like in practical terms and we recommend that this work is used to inform GB Energy’s approach.  In particular, Investment for a Just Transition – A Starting Point (Investment for a Just Transition: A Starting Point – Just Transition Commission) will be of interest.

 

In our view, GB Energy could play a key role in supporting community energy projects in line with Clean Power 2030 by providing funding and expertise to progress joint ventures between energy developers and community bodies, particularly in the nearshore tidal sector. This is an area with significant potential but we perceive it will take some effort to realise this potential and we would therefore welcome GB Energy’s leadership on this.  Community energy initiatives also have potential to add resilience to the energy network by providing alternatives to diesel generation when electrical supply lines fail.

 

The Just Transition can bring significant benefit to present and future communities, supporting a shift to a society where everyone has access to sustainable housing, affordable energy, employment opportunities and social infrastructure.  In our experience, to achieve such a vision then communities must be at the heart of decision making and empowered to shape decisions that will affect them. 

 

An example of where we have delivered effective partnership working with a local community is at Portgordon in northeast Scotland.  Key to delivery has been a clear objective, commitment to a collaborative approach, definition of the specific tasks required to deliver the project and suffiicient resourcing of the community group. The objective of the partnership is to achieve the transfer of ownership of Portgordon Harbour to support the regeneration and development aspirations of the Portgordon community.  Through an MOU, both parties committed to working together to facilitate communication and greater understanding of their respective interests relating to the management and ownership of Portgordon Harbour.  The community group committed to specific deliverables i.e a feasibility study, business plan and options appraisal, resourced through a development officer part-funded by Crown Estate Scotland.  Milestones have been put in place and both parties are working to achieve the agreed objective in 2027.

 

Scottish Government has recently launched a consultation on Community Benefits from Net Zero Energy Developments (Community Benefits from Net).  We would like to see UK Government working closely with Scottish Government regarding the outcomes of the consultation.  GB Energy may be well placed to provide support for community energy initiatives that are identified through the consultation and again, it is important that there is a joined-up approach between UK Government and Scottish Government activity in this realm.   We see great potential for community benefit to contribute to tackling some of the key issues currently facing communities in Scotland (i.e. housing, fuel poverty, rural depopulation and reduced service provision) and enabling positive, long-term, enduring changes.  However, achieving this will require a strategic approach with clearly stated objectives rather than the more piecemeal approach we have seen with some onshore wind community benefit schemes which have been very local in their focus, leading to an inequitable distribution of funds.

 

8. Can the UK learn lessons from international examples about how to effectively manage Scotland’s energy sector transition?

There are good examples of using capital to invest in communities in a sustainable way which both enhances community benefit as well as aiding in the goals of decarbonisation and the energy transition.

For example, Iceland has previously operated a grant for electric vehicles therefore providing more of an incentive for localised decarbonisation. A similar small-scale approach to infrastructure could be used which could both incentivise decarbonisation and alleviate the transport and infrastructure challenges in rural communities near energy developments.

Similar larger scale funding of subsea tunnel projects in the Faroe Islands provides another example of this approach (CAPEX versus OPEX heavy ferry operation which fails to meet service demand year on year). If this could be used between the islands in conjunction with revenues from community tidal developments a fairer transition could be achieved.

January 2025