Ocean Kinetics - The Engineering Experts

Letters / Indignant or gloating? (Viking Energy)

It’s hard to tell whether Frank Hay, the chairman of ‘Sustainable’ Shetland, is indignant or just gloating about Scottish and Southern Energy taking on the responsibility for funding most of the Viking Energy wind farm project. Perhaps it’s a bit of both but if he and his friends want someone to blame they should look in a mirror.

If they had not taken the Viking planning decision to court in 2012 the windfarm would probably have gone ahead and the 45 per cent Shetland Charitable Trust stake in it would have been very profitable indeed at the subsidy rate and electricity prices then available.

This would have raised many millions for Shetland Charitable Trust to spend on old folks’ care, the arts, leisure and recreation, museums and, of course, historic buildings and the environment.

Instead of spending £7.5m a year (about half what it used to spend) the trust might have more than doubled its budget.

However, during the unnecessary seven-year delay caused by the futile legal action (in which all of ‘Sustainable’ Shetland’s spurious arguments were demolished) things have changed: the price offered per kilowatt-hour under the UK Government’s Contract for Difference subsidy is now only about half what it was.

Charitable trustees would certainly not be able to contemplate further investment at the much lower rate of return on capital and therefore had no choice but to freeze their stake at £10m and let SSE take up the burden of borrowing the remaining half a billion or so to bring the wind farm on line.

The financiers who offered the trust such favourable terms back in 2012 were never going to back it at such a low electricity price. If it were a nuclear plant like Hinckley Point, of course, they would be rushing in, because of a government-guaranteed price way above what’s offered to renewable energy generators.

All is not lost, however, because the trust will likely get a return on its £10m Viking stake at or above what’s available on the stock exchanges.

It looks as if there’s some private understanding between the trust and SSE on this point but, as the trust has now been privatised and is no longer accountable to elected public representatives, it will be very hard to find out what this secret deal contains, if indeed it exists. We’ll need to scrutinise the annual investment returns very carefully to see how it pans out.

Alec Henry asked a very good question in his letter to The Shetland Times last week: if Viking’s going to be so profitable, why does it need a subsidy?

The answer is that the UK Government insists the National Grid charges electricity generators a tax (called the transmission charge) and this tax gets bigger the further away a power station is from the market. By the time you get to Shetland it’s a gigantic extra financial burden.

It’s a bizarre tax, a bit like Soviet intervention in the market, and clearly in breach of European Union competition rules. Only five EU countries impose a transmission charge and they’re only allowed to do so if they have a subsidy scheme (such as the Contract for Difference) to compensate for it. Yes, it is like something out of ‘Alice in Wonderland’ but that’s why Viking needs a subsidy.

Having enjoyed their Pyrrhic victory, I hope ‘Sustainable’ Shetland will now concentrate on protesting about the continuing massive emissions of climate-warming gases from Sullom Voe, the Greenhead incinerator and the Lerwick power station. They’ve been disappointingly quiet about these real issues.

Jonathan Wills