Oil and gas taxes may hit renewable investment too.
Dwindling confidence in the North Sea oil and gas sector may affect investment in offshore wind too, writes Jon Fitzpatrick, Founder and Managing Director of Gneiss Energy.
 
This article first appeared in The Times Scotland
June 18, 2024
 
We need Scotland’s energy sector to be as predictable and dependable as possible.
 
One of the reasons for the success of North Sea oil and gas was the UK’s reputation for a stable regulatory regime. This brought hundreds of billions of inward investment over many decades along with the corresponding tax dollars, not to mention the thousands of direct and indirect jobs that came with it.
 
That has been blown out of the water with the Tory windfall tax and continued concerns over Labour’s plans, which have now spooked the energy sector.
 
There’s been no new drilling this year, and the share prices of oil explorers has tumbled. Various analyses suggest these plans will be counterproductive and lead to job losses and reduced revenues into the 2030s, with a permanent loss of strategic energy capacity.
 
As David Whitehouse, chief executive of the industry lobby group Offshore Energies UK, says: “Stability and trust are important. We’re seeing a significant reduction in confidence in the sector.”
 
Energy supermajors have all but exited the North Sea basin and my concern is that this dwindling confidence will affect offshore wind investors – many of whom are exactly the same energy majors – too.
 
Labour does appear to have rowed back on its most aggressive proposals and is putting a lot of store in offshore wind to fill the jobs and revenue gap. However, this may not come as hard or as fast as we require – projects need to be permitted and built and the grid infrastructure needs to arrive on time.
 
Scotland doesn’t have a great track record. Witness the ten years it took the vital Beauly Denny transmission line to go through planning and become energised.
 
This can’t happen again.
 
Plus, investors want certainty, or at least confidence in a stable regulatory and fiscal regime. Confidence that their projects will receive a Contract for Difference at a reasonable price (and that allows for home-grown content), certainty that future grid charges will be stable and certainty that offshore wind schemes will not become cash cows in the years ahead.
 
And while headquartering GB Energy in Aberdeen is a welcome idea, its £8.3 billion budget is not game-changing – compare this with SSEN’s predicted £10 billion spend on grid infrastructure and offshore wind capex well north of £2bn a gigawatt.
 
Plus, I’ve lost count of the number of times I’ve heard senior figures in Scotland state that offshore wind will help pay for schools, for roads, for housing etc, whilst Sunak gave us all a scare by proposing new offshore O&G exploration licences underneath offshore wind farms.
 
This needs to stop.
 
Many of the major investors in these offshore wind farms are the very same energy multinationals beating a retreat from the UKCS.
 
They’re already rattled by the shifting sands in UK fiscal terms and their capital is mobile, and international – it will flow towards those energy schemes which can be built in a reasonable, predictable timeframe and can offer a reasonable and predictable return, wherever they are in the world.
 
Don’t get me wrong. Outside of China, the UK is still the world’s leading nation in offshore wind – but other countries are coming along the rails.
 
Governments in Scotland and Westminster need to cherish that lead and make our fiscal and regulatory regimes as predictable, and as dependable, as we can.
 
Continued meddling in energy taxation may generate some revenue for the next few years, but we will all pay the price for many decades to come.
 
All investors, especially big ones, don’t like surprises.