Economy, Energy and Fair Work Committee

Meeting date: Tuesday, December 8, 2020

Official Report 650KB pdf

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Scottish Offshore Wind Sector Inquiry

We move on to item 5, which is our consideration of Burntisland Fabrications, the offshore wind sector, and the Scottish supply chain.

We are joined by a second panel of witnesses, whom I thank for their patience in waiting for us to come to this item. The previous item ran over slightly, but in this virtual world, we are trying to allow a bit of reality even if half of us are online, which means not just cutting things off exactly to the second, as planned.

Our witnesses are Simon Hodge, who is the chief executive of Crown Estate Scotland; David Pratt, who is the head of planning and strategy at Marine Scotland; and Andrew Hogg, who is deputy director for the energy industries division in the Scottish Government. Welcome to all three of you.

Could each of you explain briefly, in a few succinct points, what your roles and responsibilities are in the development of Scotland’s offshore wind industry? Who would like to go first? You can indicate by typing “R” in the chat box or simply raising your hand, as we develop the discussion with questions from committee members.

We will start with Simon Hodge.

We cannot hear you in the room. When this happens, we normally go to another witness if we cannot get it sorted immediately. We will come back to you. As there is an issue with Mr Hodge’s sound, would one of the other witnesses like to come in, after which we will go back to Simon Hodge?

For the purposes of this morning’s committee meeting, I am a deputy director and head of the energy industries division in the Scottish Government. My teams cover renewable energy policy; we advise Scottish ministers on the devolved aspects of that policy and the implications of reserved policy. In electricity generation, a significant proportion of the policy landscape is reserved to the UK Government. My teams provide general policy advice across the energy policy landscape, but we also advise ministers about BiFab specifically.

Just before you finished, you mentioned the UK Government. Could you and the other witnesses also talk about how closely you work with UK agencies or the Department for Business, Energy and Industrial Strategy? Could you give us a quick comment on that?

Yes. I am happy to go first, again. We speak regularly with colleagues in BEIS. I know that the committee has reached out to UK ministers and officials. I speak to my counterparts relatively regularly. On BiFab, we are working with UK officials across the Cabinet Office, BEIS and the Scotland Office on the joint UK Government and Scottish Government working group.

We will come back to Simon Hodge if his sound is working.

I am afraid that we cannot hear him yet. We will try David Pratt.

Can you hear me?

Yes, we can.

That is good. Thank you for the opportunity to attend today.

With regard to my role, Marine Scotland is the planning and licensing authority for Scotland’s seas, and I head up the planning team, which has the overview of the statutory planning framework, including the national and regional marine plans and a lot of work on sectoral development plans, in particular for offshore wind developments. You will be aware that we published an offshore wind plan in October, which sets out the spatial development framework for the ScotWind leasing process. My team also covers licensing policy issues. We also have an arm that includes Crown Estate strategy and marine research functions.

Do you work with BEIS, or have contact or collaborate with that UK Government department?

Yes—on strategic planning issues. Obviously, BEIS has similar processes for identifying areas for offshore wind developments, but many of our species and many aspects of our environment transit right across UK seas, so we jointly ensure that systems align with each other.

We will try Simon Hodge again.

Can you hear me now?

Yes, we can hear you loud and clear.

That is excellent. I am sorry about that technical problem.

I am the chief executive of Crown Estate Scotland. We manage the rights to the seabed and are currently running the ScotWind leasing round.

Do you have contact or work with BEIS?

We have some contact with BEIS, mainly on a project basis, and particularly in looking at oil and gas transition and other aspects including grid opportunities. We also liaise with the Crown Estate—it is also running a leasing round—to ensure that we are both aware of the various elements and timetables of the two rounds.

We now come to questions from committee members. Graham Simpson is first.

Thanks, convener. On the length of time that it takes to get an offshore wind farm up and running, I am told that, from consent to getting the turbines operating, can take as long as 11 years. I might be wrong, but if I am right, that seems to be a long time. What are we doing to speed up that process?

You are correct that that is a long time. However, such things are significant national infrastructure projects. Similar infrastructure projects—such as motorways or the Queensferry crossing, start at a concept stage, with a number of planning processes being required of Government, including a strategic environmental assessment and a socioeconomic impact assessment, before we can get down to project consenting work.

For many large infrastructure projects, there is also a need for a number of years of pre-application monitoring. That is due to the rigour of environmental legislation, because such large projects require a significant amount of work to ascertain their true impacts.

That said, we are consistently considering ways to make the process faster and smarter, and are improving it where that is at all possible. The projects do take a significant time, but their magnitude dictates that there must be a lot of rigour to ensure that they are developed sustainably.

Does it take as long to develop offshore wind projects in England? I appreciate that the conditions are very different, including the depth of the sea.

The timescales are broadly similar. Some of the projects in Scotland that originated from the UK—BEIS round 2 and Crown Estate round 3 at the time—are coming to the fore now, and they were largely conceptual around 2008 or 2009. The timetables are broadly very similar.

Okay—that is very helpful.

I now have a question for Andrew Hogg. You were lucky enough to take part in the Scottish offshore wind energy council, whose work included a mapping exercise of the Scottish supply chain—or, a commitment was certainly made to doing one. Has that happened? If it has, what have you discovered? How many firms are in the supply chain, where are they, what are their areas of specialism, and so on?

The Scottish offshore wind energy council is convened by the Minister for Energy, Connectivity and the Islands, Mr Wheelhouse, and is co-chaired by Brian McFarlane of SSE. It has put in place a range of work packages and is working with developers, with focuses on barriers to deployment, innovation and skills, and on supply chains and clusters. The enterprise agencies play a significant role, working with the emerging clusters on the DeepWind offshore wind cluster and the development in Fife.

A number of programmes are on-going. Graham Simpson referred to the supply chain and the mapping exercise. That was quite a detailed exercise, so it would probably be better to share its outputs by correspondence. I would be happy to share those with the committee after the meeting.

There are five key on-going workstreams that I can think of. A strategic investment assessment of the offshore wind sector is being carried out, which is chaired by Sir Jim McDonald and will report early next year. We are also considering the impacts of transmission network use of system—TNOUS—charges for transmission charging in Scotland. There is work on habitats regulations assessments, on the transparency and impacts of contracting strategies, and on the opportunities around floating wind, which is where some of the key opportunities in relation to ScotWind will be.

Those are the on-going work packages. All of them are expected to report between now and March.

Is there stuff about the supply chain that you can share with us in writing? I appreciate that there is probably a lot of detail. You have helpfully told us a bit more.

I do not have the information on the mapping exercise to hand, but I can follow up on that to the committee in writing.

Okay. That is very useful.

I now wish to ask about contracts for difference, on which the committee has taken quite a bit of evidence. Can you share your views on how they have helped or hindered the Scottish supply chain? That is my simple question.

I am not so sure about “simple”. The contracts for difference scheme is hugely important, and is probably the main lever. It is important for bringing offshore wind developments on stream.

I know that the committee has had a number of evidence sessions with the developers and the renewables bodies, and that they have given their views. The main thing to say about contracts for difference is that they have been successful in one of their objectives, which is to reduce the cost of renewable generation. The cost of offshore wind generation has come down significantly and is now more competitive and cheaper than equivalent gas generation or any other technologies. In that regard, it has been incredibly successful.

10:45  

However, bringing costs down that fast has meant that the developers and the companies that are involved in developing wind farms have had to make difficult decisions about how to reduce or squeeze out costs in projects. That has led to contracting approaches and procurement strategies that have made it more challenging for a local supply chain to secure work.

The Scottish Government has been engaging with the UK Government and submitting our view on the CFD for some time now. On the structure of the mechanism itself, for example, we have called for the caps on the CFD rounds to be higher, and we have made representations about how we believe the pots that the technologies are assigned to should be set up.

It has been encouraging to see some of those changes being made in the latest UK Government publication in November. For example, onshore wind is being brought back into pot 1, and offshore wind, given its cost, is being moved into pot 3, which will allow that technology, as a mature and competitive technology, to compete against similar projects. That will free up pot 2 to give projects such as remote island wind a chance to be delivered. It also creates a different definition for floating wind, in that it will support projects at 45m water depth. There are some welcome changes in the structure of the contract and the pot structure.

Scottish ministers and the Scottish Government have long argued that CFD does not do enough with the supply chain component. We have, similar to what happened with the ScotWind round, called for CFD to take a much more robust approach to supply chain commitments on local content. There is a live consultation on supply chain plans. It is due to conclude on 18 January and the Scottish Government plans to respond to it.

We will need to move on to our other questions, but Simon Hodge wants to comment on one or two of the points that were raised there. I am happy to give you that opportunity before we move to questions from Colin Beattie.

I really just want to emphasise the point about how long it takes to develop a scheme and, looking forward, how positive it is for Scotland to have developed a sectoral marine plan for offshore wind. You might have seen the map—my colleague can describe it further—but that really is an important innovation that might enable the ScotWind leasing round to proceed faster than would otherwise have been the case, because it gives such a clear indication of where the focus is for development opportunities.

Do any of the witnesses know whether the Scottish Government intends to make a submission to the current UK Government consultation on changes to the supply chain plans and CFD? Does anyone have any knowledge of that?

I confirm that the Scottish Government plans to respond to that consultation. I understand that it closes on 18 January. We responded to the most recent consultation on the contract for difference mechanism and the changes to the pot structure, but we also plan to respond to the consultation on supply chain plans.

Can you give us any hints about the direction of travel in the response?

I think that it will just call for as robust a supply chain plan process as possible. Crown Estate Scotland has taken some encouraging steps in relation to the ScotWind leasing process and the supply chain process that is built into that. I think that we are just going to encourage the UK Government to go as far as it can.

One point to bear in mind is that we have to be cognisant of the fact that, when we are thinking about supply chain or local content, although we should do everything that we can to maximise and encourage the supply chain’s capability to capture that value, we need to do so in a way that does not deter investment. The net zero targets that we have in Scotland, particularly the 2030 targets, are ambitious, and we will need as much capacity as possible in Scottish waters to allow us to get the renewable energy to deliver on those targets. We need to do that in a way that does not deter investment.

I have a very simple question. Why do developers choose to build offshore wind farms off the coast of Scotland, where the sea is generally deeper than it is on the east coast of England, the sea bed is made of rock, weather conditions are tougher—to put it mildly—and transmission charges are higher?

In basic terms, we have one of the best wind resources in the world. We have an exceptionally strong prevailing wind, which is of a consistency that is attractive to prospective developers. They view the initial resource as something that they can work with, and if they can produce the product in terms of the development scheme at as low a cost as possible, they get the opportunity to harness what is an unparalleled resource, given the strength of the wind in most of our waters.

It is all about the strength of the wind.

With regard to the attractiveness of the market, that is a big prize for Scotland, as there is consistency.

We operate in a planning environment in which there is a lot of encouragement, politically, for the development of the sector, which is also attractive to prospective developers. There is a significant resource here, akin to the strong tidal resource of the Pentland Firth, which attracts the potential to develop that form of energy. Wind is a big resource for Scottish waters.

So far, all pipeline developments have been fixed-bottom developments in shallow water, so Scotland has some of that type of resource. In Scotland, the key for the future is the development of floating wind, and we are excited about its potential through ScotWind. If Scotland is able to become a leader in the deployment of floating wind, that will be of great significance globally because, globally, most of the opportunity for offshore wind is in floating wind, rather than in shallow water developments.

Do we have a competitive advantage in floating wind? I am unsure of the technology that is behind the construction of floating wind, but do we have an advantage over the rest of the UK or the rest of Europe in that regard?

So far, we have some deployment on a test basis. In that sense, we are world leaders in the deployment of floating wind, partnering with international energy companies. I think that, through ScotWind and the potential changes to CFD that my colleague Andrew Hogg mentioned, there is the potential to position Scotland as a global leader. However, the next five years will be absolutely critical for that.

Is there a substantial price differential between floating wind and conventional offshore wind farms?

At the moment, there is a significant price differential. That is partly to do with technological innovation, although that is progressing well. It is also partly to do with scaling, which is the next big step in order to achieve the cost reduction that Andrew Hogg mentioned. That is critical to enabling floating wind to be competitive as a source of energy in the future.

With regard to the supply chain development statement requirements in future ScotWind leases, will developers still be awarded a lease even if they do not commit to awarding contracts to the Scottish supply chain?

I will that pick up. The structure of the ScotWind leasing round requires developers to submit a supply chain development statement and to provide the information that we are seeking. As a quick run-through, that information will require a statement of the investments that take place, or are intended to take place, in Scotland, the rest of the UK, the EU and the rest of the world. We will also require that information to be broken down into the various stages of the development process. Those commitments by developers will then be carried through and, ultimately, incorporated into the lease contracts of successful bidders.

For the purposes of this discussion, the key aspect is that we are not requiring any particular response or level of commitment to the different geographical regions as a basis for award of the contract.

Many people are upset with the fact that we were promised thousands of jobs. Companies commit to getting the work done in Scotland and then move to Spain, for example, as I believe one company did. If developers commit to awarding contracts to the Scottish supply chain and subsequently change their minds during the years of development, what penalties can the Crown Estate impose, if any?

If a developer has made a commitment through a supply chain development statement, and that commitment is not taken through to the final lease, we can apply a financial penalty. Ultimately, we can also terminate that option.

Have you ever done that?

No. This leasing round is the first since the devolution of the Scottish Crown estate, and that is an innovation that we will implement during this ScotWind round.

To finish off—sorry to put you in the firing line, Simon—would you take that step if a company went back on its word in the lease? It is a hypothetical question—it is something that would happen in the future—but will you commit today to doing that in order to make it clear to companies that we are not going to tolerate such behaviour any longer?

We have been laying out for the sector a graded scale for matching delivery to the initial commitment. If that falls below a certain threshold, we would terminate. We need to carefully consider doing that, because of course a termination could result in a significant setback in offshore wind development. However, we have considered the termination option very carefully and concluded that we should retain it. The sector is clear that, below certain thresholds, that remedy will be applied.

What is the Scottish Government’s view on that future development?

We view it as a very positive development. This will be the first leasing round for ScotWind, as the power has only recently been devolved to the Scottish Government. It is exciting to see the ambition of the ScotWind launch.

Alongside ScotWind and the sectoral marine plan, we also launched our Scottish offshore wind policy statement, which set the ambition that we expect. It outlined the potential that we see for up to 11GW of offshore wind in Scotland by 2030.

We see it as a hugely positive step, and the points that Simon Hodge outlined are important to consider as it is taken forward. The introduction of supply chain plans was a key priority for Scottish ministers in the development of ScotWind.

11:00  

I want to clarify the point that Mr Lyle asked you about. Another witness told the committee that legislation would be needed. However, from what Simon Hodge and Andrew Hogg have been saying it sounds as though that is not the case and that the new setup will allow for the sort of action that you have indicated. Is my understanding correct?

I can confirm that that is correct. Such action would be on the basis of lease contracts rather than any wider legislative basis.

That is very helpful.

I will follow up on the question that Richard Lyle asked Simon Hodge. How do you plan to monitor the statements, and how confident is Crown Estate Scotland that developers will abide by them? What process is in place to ensure that we get good outcomes and that everybody sticks by the agreements and statements that are in place?

That is a good question and links with the earlier question about the length of time that it takes to develop schemes. We will seek a supply chain development statement very early in the process. We have incorporated into our leasing scheme a periodic review and update to supply chain development statements as schemes develop and the details become clear, and we have a mechanism by which we can either accept or reject an amendment to a supply chain development statement, depending on whether it is justified. As we move from option to step-through to lease, that will be converted into a contractual commitment, at which point it is built into the lease for the construction of the wind farm.

I hate to mention this, but is there a dispute resolution process in case we arrive at that circumstance?

We are working on the details of the way in which the mechanism will work. We have committed to putting out further guidance in mid-January, following on from the publication of the sectoral marine plan for offshore wind. That will include all our arrangements and we will reserve the right, as the manager of the sea bed, to use our judgment in the matter.

There will also be an element of wider dialogue, because we will require developers to publish part of the supply chain development statement. We see that as very important, to allow wider public dialogue and debate. We also want to promote collaboration and co-operation across the sector to maximise supply chain development through the process.

That is good. I have another quick question, which is probably for Andrew Hogg or David Pratt and is on the comments about the contracts for difference scheme. I scribbled down what Andrew Hogg said about it being pretty successful at bringing the costs down, but it is moving at quite a pace, which has made it challenging for our local supply chains to secure work. That has, perhaps, been the biggest issue for us. How do we solve that issue? I understand that we are still in that position. There might be changes to contracts for difference but how will we make sure that our own supply chain can keep up and get a slice of any work or contracts that become available?

There are a couple of points there. In the design of contracts for difference, the change to the port structure will help. For example, floating wind will not have to compete at the same low price as fixed-bottom offshore wind. That will give the floating wind supply chain a chance to compete and to develop as those projects come forward. Strengthening of the supply chain plans that we called for through the current live consultation will be another important step.

Regular implementation of the plans and regular monitoring of their outcomes will be important to ensure that, throughout the lengthy process of the projects that we have just talked through, the commitments made and the plans set out are aligned with what is delivered. The other part of that is ensuring that there is capacity in the supply chain to meet and deliver the contracts. That is where investment is required at key sites across Scotland and where our enterprise agencies can help by working with emerging customers and companies in the domestic supply chain to try to increase that capacity. I understand that the enterprise agencies have written to the committee with evidence on some of the steps that they are taking to initiate those activities.

I echo pretty much everything that Andrew Hogg said. One of the key challenges has been that the pace of reduction has taken a lot of the capital out of the original tariffs. That capital would have enabled the development of supporting infrastructure. As a result, the competitiveness of many Scottish projects competing for contracts is being squeezed in the current market.

Thanks for those comments.

It is excellent news that the ScotWind leasing round will include financial penalties and might even go as far as cancelling contracts. However, we heard from Scottish Renewables that developers could low-bar themselves in relation to commitment to the local supply chain. What weighting will be given to the amount of local content when contracts or leases are awarded? What will the scale of the financial penalties be? We heard recently from Jason Fudge, of DF Barnes, that, in the Canadian provinces, the size of the financial penalties is in line with the cost of producing something locally, making it a disincentive to transfer the work abroad.

The level of commitment that developers make to Scottish content will not be a material consideration in the award of contracts. That would be a breach of state aid rules. However, we believe that there are good reasons why developers will want to demonstrate a high level of commitment to Scottish content, to signal their commitment to developing the Scottish supply chain, to recognise that successful schemes in Scotland require a well-developed supply chain to be credible, and to demonstrate a commitment to the sector deal aspirations that have an ambition for 60 per cent UK content. However, just to be clear, the level of Scottish commitment will not be a determinant of the award of contract because that would be a breach of the state aid regulations.

What would need to change? As far as I am aware, we are leaving the EU at the start of next year. I had a look at the Public Services and Procurement Canada website, which says:

“An award will be made to the qualified bidder whose bid complies with the mandatory terms and is most advantageous to the government considering price and non-price related factors included in the bid document.

If they can do that in Canada, why can it not be done here? Do we need to change Scots law, or is it UK commercial law that needs to change? What has to change?

There are two key aspects here. First, there are the state aid regulations: requiring Scottish content would fail two of the four state aid tests. One test is whether something has the potential to distort competition and the other is whether it is likely to affect intra-European Community trade. There is also an issue in respect of UK competition law. Obviously, Canada has a separate legislature to the UK. Those are the legal contexts in which we currently work.

Are we putting in place a supply chain commitment that we cannot make developers stick to?

Simon Hodge has set out the position and I do not have a huge amount to add. We have looked at what DF Barnes has got in Canada and it is something that we simply cannot replicate here, given the regulations and state aid restrictions that Simon Hodge has alluded to.

Although we cannot be prescriptive about a particular level of local content—we cannot put a percentage or figure on it—that does not mean that we cannot ask developers in their statement to set out their commitments and then monitor and review whether those commitments are met. What Simon Hodge is saying is that we cannot be prescriptive in the sense of setting a level and in awarding a licence on that basis, but that does not mean that the new ScotWind supply chain development statements have no teeth. They offer a significant additional layer of conditionality compared to what we had previously.

You referred to state aid regulations. I presume that you mean EU state aid regulations. Canada trades with the EU. Why would the UK be in a different position?

That goes back to the articles that Simon Hodge mentioned. Those apply not only to the conditionality of ScotWind leases, but to the conditionality of how Scottish ministers can consider support for BiFab. If we were to take any steps that would distort EU market trade, that would be deemed to be state aid.

Andrew Hogg, you commented on holding to commitments and on what those commitments are. Surely the way in which other EU countries—or even Canada—do that is by writing commitments into the contract. It would not necessarily have to say that everything has to be sourced from a particular country. For example, something could be written into the contract about the impact on the environment, which can include shipping materials from other countries or the way that materials are produced in countries that do not conform to the standards in Scotland, or aspects of employment and fair work.

I am talking about writing into the contract the standards that are required to be followed by those companies in order to make what they produce relate to the standards that we would expect in Scotland or the UK. Those sorts of commitments could be written into the contract, so that it is not a question of requiring a national commitment as such but the contract would involve a commitment to specific standards. Is that not relevant, given that that is the way that other countries do it? Perhaps Andrew Hogg and then Simon Hodge could come back on that.

Simon Hodge can probably pick up that question in respect of ScotWind contracts. You referred to commitments being “written into” contracts, convener. It is important to reiterate that the ScotWind process has been devolved to the Scottish ministers, and it is the first time that that has happened.

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Previous projects that we worked on recently, and which the committee explored—Neart na Gaoithe and Seagreen, for example—received consent and were delivered prior to the devolution of those powers. ScotWind will be the first—

Sorry—I beg your pardon, Mr Hogg. I understand your point, but I am asking, as my colleague Gordon MacDonald did, whether, in future, those things can be tied down and made enforceable. As Mr MacDonald pointed out, other countries do that, whether they are in or outwith the European Union.

I am questioning whether and how, with a bit of imagination, we can do that, as other countries do. It is partly about the conditions under which bits and pieces of the devices are manufactured. Perhaps Simon Hodge can comment on that.

As you say, there are opportunities to build into our lease contracts the standards that we adhere to in Scotland and the UK. However, on the specific issue of Scottish content, the advice to us has been clear: we cannot require a certain level of Scottish content.

We also considered closely the issue of carbon footprint, to which I think you were alluding. Although that is in itself a worthwhile aspect to consider, we concluded that the link between it and the issues of Scottish content and Scottish jobs might not be very strong. Indeed, a carbon footprint approach might lead to a different conclusion, particularly when it comes to the long-distance transportation of bulky raw materials such as iron ore.

Gordon MacDonald wants to come in with a brief follow-up, and then I will bring in Graham Simpson.

The UK Government, in its current consultation, has already highlighted that it would like to see a 60 per cent local supply chain for future contracts.

If you are saying that, under state aid rules, Scotland is not in a position to enforce commitments in supply chain plans, does that mean that the UK’s commitment to a 60 per cent local supply chain is also unenforceable?

I will leave that broader point to policy colleagues. A requirement for a certain level of content would not be consistent with state aid rules. Andrew Hogg described earlier the focus of SOWEC, in the offshore sector deal, on how we invest in and develop the supply chain to create the conditions in which Scotland is a positive place to do business and a good place to establish a supply chain. That is key for us in Crown Estate Scotland. I would be happy to describe some of the other things that we are doing to promote that approach.

It might be helpful if you could write to the committee with any further points—I would appreciate that. Graham Simpson has another brief follow-up, and then we will come to questions from Alex Rowley.

Mr Hodge, you keep mentioning state aid. Those are presumably the EU state aid rules. Surely, once the transition period has ended in a few weeks’ time, we will not be subject to those rules, so we can specify the things that you say that we cannot specify.

I am not aware that there is any conclusion on that matter at the moment.

We have been working on the development of ScotWind since 2017—the launch has taken place and the project is currently subject to the rules that applied at the time. I cannot look into a crystal ball to see exactly what the situation will be in the future.

The problem is that you are assuming that we will be subject to state aid rules. To me, that is a wrong assumption; we may not be. Would you accept that?

Absolutely; we wait to see what the EU exit deal will look like. The ScotWind process is well advanced and the leasing round is live. There would be quite a significant potential impact on that if we were to try to recast the process in light of any EU exit settlement. That could have serious implications not only for the viability of schemes going forward in relation to the operation of, for example, the Crown Estate round 4 which is live at the moment, but for Scotland’s net zero ambitions.

I want to clarify that all our analysis and work to date has been done on the EU rules as they are currently structured, because we cannot speculate about what a future scenario may be. It is important for the committee to be aware that a particular challenge for Scottish ministers and the Scottish Government is that section 57(2) of the Scotland Act 1998 binds ministers to make sure that they have no power to act in any way that is incompatible with EU law. We cannot give ministers advice that would suggest that they do something that was based on a future system that we, as yet, cannot define.

To be clear, are you saying that there is no requirement on any bidder that puts in a bid to develop a wind farm on our seabed and make millions, or even billions, of pounds, to say how much work will come to Scotland, or indeed the UK? We hope that they will source work in the UK, but even if they do that, it will have no bearing on, and will not be a legal, material consideration in, who gets the contract. Therefore, the contract is completely toothless.

Even if the bidders come up with something, are we not in effect begging them and saying, “Please give us some of the crumbs from this so that we can get some work into our economy?” Even then, I question whether you would be able to legally enforce that.

Given the completely unacceptable situation that you have just explained, where the contract is not worth the paper that it is written on, and the likelihood of us getting Scottish jobs from any bid is basically in the hands of developers and our ability to beg them for the crumbs, should we not be bringing forward a moratorium on all those developments until we can sort that out? What would be the legal implications of Scottish ministers introducing a moratorium on all those contracts until we can work out a way for Scottish workers to be treated the same as Canadian workers or other workers in countries around the world where it is legally possible for Governments to stipulate how much work has to come to their countries?

As I say, what you have just described is utter peanuts. Put simply, we are in the hands of the developers to give us some of the crumbs. What would be the implications of putting a moratorium in place right now until such time that we are able to sort that out? Have you checked that out legally?

There is a requirement through the ScotWind process for developers to identify where they will make supply chain commitments, and where investment will land. We have defined the geographical regions for that process as Scotland, the rest of the UK, the rest of Europe and the rest of the world. Developers will be required to submit that information to us in a credible way, which will form part of the on-going process of leasing.

What we cannot do for state aid reasons is require developers to make any certain proportion of that commitment for Scotland. To make a commitment to the Scottish supply chain, however, we have worked hard to create a context and an opportunity for developers to demonstrate how they can work in collaboration, including through the Scottish offshore wind energy council, to achieve the ambitions of the offshore wind sector deal and to play their part in helping to develop a successful supply chain in Scotland. That work will be needed if we are going to achieve the incredible ambitions for offshore wind and net zero.

On the point of legal enforcement, the requirement will be a contract that is designed to be legally enforceable either through financial remedy or, ultimately, termination. In relation to a moratorium, the bid process is live at the moment, and developers are actively working up their bids. That process is not yet concluded and could therefore theoretically be halted. There might be legal challenge, the level of which would increase as we move through the stages of the leasing process.

You have stated that whether developers do any work in Scotland cannot be a material consideration when awarding those licences. You are saying that there is nothing that you can do if a company awards the contracts to the middle east, for example—to countries in which labour costs are low and state intervention, subsidies and aid are given. I am basically right to say that we are in the hands of the developers to use their good will to give us some of the crumbs.

It would be—

That is surely what “material consideration” means. You are saying that you cannot take into account whether the supply chain in Scotland will get any advantage from those contracts.

That is correct.

I will finish at that, convener. We need to get legal advice on a moratorium, because we need one on those contracts until such time as we can sort out how Scotland can be the same as Canada and other countries—with the Scottish supply chain in a position to get the jobs and benefits from that process.

I totally agree with Alex Rowley. I have also beaten on about that issue for months. State aid technicalities are letting Scotland down and we are getting ripped off. Most people feel that we have been ripped off for far too long and I agree with Alex Rowley that something has to be done, because we cannot continually say that it is because of state aid or this or that technicality. What are we going to do about that problem? Will we take on board what Mr Rowley has said? I, for one, agree with him. Although I will not bring them into the politics, I would like a comment from the witnesses. What would Mr Hodge like to say?

I will start off and then pass over to Andrew Hogg. I speak from the perspective of being responsible for exercising the first leasing round in Scotland for 10 years. I am pleased with what we have managed to achieve in terms of creating a framework to help promote the development of the supply chain.

11:30  

I am also conscious of needing to create an environment that encourages and secures investment for Scotland. How we can ensure that Scotland is an attractive place to invest and a place where developers feel confident to invest needs to be at the front of our minds. The worst-case scenario would be if the result of our processes was that developers decided to go elsewhere and not invest in Scotland at all.

If they decide to go elsewhere, we decide not to give them the contract, surely.

Absolutely, but there would be no offshore wind development and investment going on in Scotland if that was the case.

I am sorry, convener—I will finish by saying that I am as angry as Alex Rowley. We have been ripped off enough. It is time to stop and to make sure that the Scottish workforce gets not a crumb but a piece of the cake—at least 50 per cent or more of the cake. Other witnesses might have comments on that.

I am not going to put a figure of 50 per cent on it but, before I turn to Andrew Hogg, I will say that I think that a lot of people understand that there needs to be a balance when it comes to Simon Hodge’s point about investment and requirements. What a lot of people do not understand is why, in other countries in the EU or the developed world, companies manage to work within the rules. I do not know whether that is made to happen by showing a bit of imagination or by taking a different approach. That is what I would like to hear—how do other countries do that while subject to the same strictures and we do not manage to do it? Certainly for me and possibly for other committee members, that is the key question.

I will just add to the points that Simon Hodge raised. I recognise the challenges around the lack of local content that committee members have mentioned. The Scottish ministers are frustrated by that as well.

With regard to the calls for a moratorium, it is important to stress that that sort of approach presents significant risks to our climate change targets and the ability of Scotland to capture renewable electricity. We have huge ambitions for our capacity in that area. As we discussed at the start of this meeting, the lengthy time that it takes to go from licensing to consenting and through to development and construction means that any delays to projects would have a significant impact on our ability to meet our electricity or climate change targets.

On the point about whether we need to have a gap and think about how the supply chain catches up and does better, I think that ScotWind offers that to some extent—

No ambition for workers, no ambition for the people of Scotland—seriously. We need people to go back and start putting the case for Scotland. Nonsense—

Mr Rowley, can we allow the witness to answer the question, please?

In relation to that, Mr Rowley, the point that I was going to make is that ScotWind offers that slight break. The contracts that we have been discussing and which the committee has explored have been under the previous regimes. There is a gap between now and construction of the first ScotWind contracts, which will allow our supply chain time to consider where strategic investments can be made. I know that that is one of the ambitions of the joint UK-Scottish working group that was announced at the end of November.

How do we get investment into strategic sites in Scotland to allow them to capture some of the value from the Scotland rounds? There is a gap between the existing contracts from allocation round 3 and the ones that are coming through in ScotWind in AR 4, which will allow us to make those investments and develop the supply chain

Thank you.

Thank you, convener. Does Scotland have adequate port infrastructure to successfully grow the supply chain?

Crown Estate Scotland commissioned a study to look at Scotland’s port infrastructure, particularly in relation to the offshore wind sector, and we have identified that there will be requirements for increased capacity in future. We have divided the consideration into three broad areas. First, on an operation and maintenance basis, we think that the market will sort that out well, and that is already happening right up the east coast of Scotland. At the other end is the manufacturing. We are homing in on the marshalling of ports infrastructure that will be required to develop the ScotWind proposition, and we see significant opportunities for further investment in deepwater quays with laydown facilities to support the huge engineering structures that will need to be assembled and stored quayside. As an organisation, we are also looking at the potential to be a direct investor in such schemes, because we have the ability to sell assets to secure capital and to reinvest, and we see that as an important opportunity to help to develop Scotland’s infrastructure in the future.

I know that you are looking into it, but are there limitations on our port infrastructure that could impinge on the supply chain?

My reading of the situation is that the infrastructure is adequate for current projects. However, with regard to ScotWind and Scotland’s net zero carbon ambitions, we will need to see a significant increase in capacity. The sectoral marine plan, which lays out the potential geography of that expansion gives some good pointers as to where around Scotland further infrastructure investment will be required.

Although identifying the sites and the infrastructure required is an important step, the other part—Jennifer Craw raised this point on investment in your previous evidence session—is that it is not just about infrastructure. We need collaboration and we need the key parties to come together, because supporting infrastructure development is not necessarily a funding issue or a budget issue—there needs to be an investable proposition, which requires private sector investment, alongside Government investment. That is almost as important as identifying the infrastructure that is required.

With regard to the port infrastructure, where are the sites likely to be located? Are there numerous places, or is there only a handful that you can identify as likely areas for development?

The areas for offshore wind development are now publicly available. There are 15 plan options outlined in the sectoral marine plan. There are supporting socioeconomic impact assessments for that process, which look broadly at the facilities available in each region and the potential to use those in relation to the relevant plan option areas. That is all publicly available, and we can send the relevant links to the committee.

That would be helpful.

We can also supply the committee with our energy port study, which sets out the current infrastructure around Scotland and where the study found the biggest potential and need for increased capacity.

That would be very useful.

That brings us to the end of our evidence session, so I thank all our witnesses. We will have a 10-minute break before we move into private session.

11:40  

Meeting continued in private until 12:17.