Offshore wind policy statement

Chapter 4: Economic Opportunities – Supply Chain

90. The Offshore Wind Sector Deal set a target of 60% lifetime UK content in domestic projects (up from the current 50%), and a commitment to increase UK content in the capital expenditure (CapEx) phase.

91. Scottish Ministers are fully committed to ensuring that Scotland's supply chain benefits from this commitment by the sector and have been left frustrated by the procurement outcomes arising from recent projects. We have seen vital fabrication contracts go to overseas yards, as a result of price pressures arising from the CfD process pushing risk and cost reductions down the supply chain.

92. While key electricity market policy levers are reserved to UK Government, Scottish Ministers are determined to use all our devolved policy powers, under the provisions of the 1998 Scotland Act, to support the supply chain. In practice, this means working with the sector, and particularly developers, original equipment manufacturers, tier 1 contractors and industry representatives. We must ensure not only that the Offshore Wind Sector Deal target is delivered, but that the benefits and effects of doing so are demonstrated and felt in areas across Scotland. This must maintain the strong social licence which the sector has enjoyed with the people of Scotland, but which has not been reflected in sufficient economic opportunities, to date.

93. As part of this process, we held an Offshore Wind Supply Chain Summit in 2019 with a follow-up in early 2020 to consider options designed to increase the relatively low levels of Scottish content in projects to date, particularly during the Capital Expenditure phase.

94. During the Summit, Crown Estate Scotland set out its intention to utilise the ScotWind Leasing Round to support the local supply chain and introduce a Supply Chain Development Statement into the Scotwind Leasing process. Prior to lease, a Contracted Position Statement will be required to lay out in more detail how the Supply Chain Development Statement will be fulfilled. If all parties fully engage, this will enable our Enterprise Agencies and economic development partners to work with potential supply chain partners to ensure their competitiveness. This will also provide visibility of the pipeline for supply chain companies and their financial backers. The process will also help ensure earlier visibility of any likely economic impacts throughout the consenting process than is currently the case.

95. If the Contracted Position Statement does not fulfil the Supply Chain Development Statement, then we have been clear there will be contractual consequences. We believe this is a constructive step forward, providing an opportunity for the sector to demonstrate its commitment to ensuring they deliver for the Scottish supply chain, particularly at a time of volatility in markets. Further details of the scheme are available from Crown Estate Scotland.^[27]

96. Following the Summit, it was also agreed that SOWEC would undertake a short, focussed independent review, which is now underway, and will cover the following:

• Summarise the current status of the offshore wind supply chain in Scotland (including the recent studies, assessments and industry developments)
• Map future deployment and consider the current status of the OSW supply chain in Scotland, determine the supply chain and technology barriers and opportunities, both domestically and globally, which provide longevity to the industry in Scotland
• Provide scenarios of potential economic impact associated with varying levels of investment (infrastructure, supply chain, innovation, skills and cross sector transition)
• Recommend immediate action, through investment, including detailing means to support investor confidence and the industry in Scotland and to maximise economic value.

97. The outputs of this assessment will identify areas of the supply chain where the sector should look to direct its attention to over the coming years. We expect areas such as port infrastructure to be a key feature of the Assessment's findings, but remain open to all avenues of possibility to build a Scottish supply chain that is attractive to inward investment.

98. We ask and expect that Scottish supply chain companies must continually reflect on their performance to ensure that they remain competitive both on price and deliverability in a challenging offshore wind sector. We also encourage them to actively engage with our Enterprise Agencies who can provide advice and support to assist in this process.

99. Those competing in this market must ensure that they are able to present innovative and compelling tenders to the Engineering, Procurement, Construction and Installation (EPCI) contractors and look to explore collaborative opportunities to present the strongest bids possible within their respective specialisms. The Scottish Government is keen to welcome new entrants into the market, as well as supporting established players.

100. We share the concerns of supply chain companies, and indeed citizens, across Scotland that revenue support for offshore wind is not contingent on local supply chain use. As stated earlier, this is a matter reserved in its entirety to the UK Government and we will continue to press UK Ministers to restructure the CfD mechanism so that it places a greater emphasis on the quality of bids, rather than exclusively on cost, as it is at present.

101. Collectively we are keen to explore how best to increase Scotland's success in winning orders for projects outside Scotland's waters, to leverage the wider pipeline of projects to deliver economies of scale in the Scottish supply chain.

102. While we accept that there are challenges facing the local supply chain with price competitive yards in Asia and the realities of the UK exit from the EU continuing to unfold we must once again remind the sector of their previous voluntary commitment to achieve 60% UK content in offshore wind projects by 2030. We expect the sector to take ownership of this issue, and collectively agree a way to deliver on their commitments to strengthen and expand the local supply chain. The Scottish Government will continue to actively engage in this area with the sector and will seek out opportunities to drive and change the sectors behaviours on this issue. We will ensure that fair work principles are understood where manufacturing work is carried out in jurisdictions with weaker employee rights, or where ethical issues or issues of high carbon intensity may arise.

103. The uncertainty of the UK exit from the EU, alongside the problems presented to business throughout the Covid-19 pandemic, continue to bring significant challenges to businesses and communities across Scotland. We are considering every possible measure to ensure Scotland is as prepared as it can be for any difficulties ahead and to ensure we increase our resilience and strengthen the foundations of our economy – something, it should not be forgotten, that ultimately benefits the generators of electricity in boosting demand for clean energy.

Floating Wind Opportunity

104. There is huge economic opportunity attached to floating offshore wind – Crown Estate Scotland's Macroeconomic Benefits of Floating Offshore Wind report^[28] suggests that the UK floating offshore wind market has potential to support 17,000 jobs and £33.6 billion of Gross Value Added (GVA), with particular potential for deployment in Scotland's 462,000 km2 of waters, much of which are more than 60m in depth. Globally, the market is set to grow to at least 4 GW of capacity by 2030 and 55 GW by 2050, offering an export opportunity to Scotland 's supply chain which is estimated at around £550 million per annum by 2050.

105. The expertise gained through over 40 years of experience gained from oil and gas sector operations in Scottish waters, means Scotland is well placed to capitalise on this opportunity, and this is expanded upon further in the innovation chapter of this document. We have an abundance of offshore skills and the capabilities necessary to manufacture specialised components such as moorings, chains and anchors.

106. As we transition to a net zero economy, it will be increasingly important that these skills can be seamlessly transferred to our growing renewables sector – retaining, and growing, the economic value of our energy industry. However, taking full advantage of the floating wind opportunity will – as well as a more targeted and effective approach through the CfD – require significant investment in critical infrastructure such as fabrication yards, ports and harbours.

107. The economic benefit of this technology will arise from achieving early mover advantage. This means that the Scottish supply chain must be fully prepared, with the capability and capacity required to deliver floating offshore wind at commercial scale and this also requires action on the part of UK Ministers to provide a commercially attractive environment for the sector to flourish here and to capture the market lead. The delivery of Oil and Gas UK's Roadmap 2035,^[29] which seeks to effectively decarbonise offshore production of oil and gas in the UKCS, presents an exciting opportunity for Scotland to grow floating wind capacity and develop a successful supply chain to build and service it. This is an issue that is being actively examined by Marine Scotland in parallel with the process leading to publication of the Sectoral Marine Plan for offshore wind.

108. We are pleased that the DeepWind Cluster, which specialises in floating offshore wind in deeper waters, is now the largest offshore wind representative body in Scotland, demonstrating the sector's commitment to the expansion of this key technology in Scotland, with potential for global opportunities to be capitalised on.

International Opportunity

109. Scotland's Energy Strategy identifies internationalisation as a key area, recognising the importance of working with international partners and the contribution this can make to sustainable economic growth as we transition to a net zero economy. We will continue to develop and strengthen our international relationships, prioritising activity and collaborations that promote learning and policy exchange, build upon Scotland's reputation and increase our attractiveness to international partners and ensure a flow of new investment.

110. Offshore wind has rapidly become one of the UK's lowest cost renewable sources at scale, and the resulting international market for this technology is growing at an unparalleled pace. Over 6.1 GW of offshore wind capacity was installed globally in 2019, making it a record year for deployment. The Global Wind Energy Council's Market Intelligence forecasts indicate that, through to 2030, more than 205 GW of new offshore wind capacity will be added globally, including at least 6.2 GW of floating offshore wind.

111. This huge increase in offshore wind has the potential to create around 900,000 jobs worldwide in the next decade. It is expected that the technology will be a key driver in a global green recovery, providing an excellent opportunity for Scotland to showcase the skills we have already developed in offshore wind construction and maintenance. This represents one of our strongest opportunities, alongside development of hydrogen, for achieving a just transition for Scotland's oil and gas sector and its supply chain.

112. We are world leaders in offshore wind innovation, and our oil and gas expertise means that we are as well placed as any country to address the engineering and manufacturing challenges presented by offshore wind and to remain at the forefront of floating wind technology

113. Scotland has already established strong collaborative relationships with California and New Jersey in the USA. Both of these states, are seeking to rapidly build out large scale offshore wind projects. However, current gaps in the USA supply chain present a huge opportunity for established Scottish companies to assist with the deployment of offshore wind overseas. We are also engaging with Ireland on research and further development of floating wind technology. Generating export earnings from our expertise in areas such as subsea engineering, environmental planning, consenting and project management can help achieve the ambitions of other countries, while significantly boosting the economy of Scotland.

114. The Scottish Government, along with our Enterprise Agencies, will continue to engage with international partners – strengthening existing relationships and seeking out opportunities for our offshore wind industry to flourish in the global market. This will include maximising opportunities in new innovations and emerging technologies, like the development of a hydrogen economy, and the potential for Scotland to harness its offshore wind capabilities to position itself as a key player in the production and export of green hydrogen.