SCOTLAND stands on the cusp of an energy transition that will define our national economy, our society and our impact on the global climate emergency over the course of the next century.

It is vital that we get that transition right, make it a just one and that we do not repeat previous failures that have seen Scotland stripped of its assets, resources and much of its potential while impoverishing people in cold homes they can’t afford to heat.

Scotland lost much from the 20th-century oil boom – particularly as the deliberate political choice was made to give away the assets to private multinational companies and to those nations who more wisely kept their energy companies in public hands.

This error was compounded by the – again, deliberate – choice to tax these companies at a bare minimum and to flood them with tax breaks, subsidies, discounts and to allow all manner of accounting tricks and loopholes to enable the very idea of taxable profits to become almost an optional extra.

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A report by the Green Alliance think tank last year found that the UK earned, on average, around $2 per barrel of oil extracted in 2019 whereas Norway earned closer to $22 for a similar barrel.

That much of this happened in the pre-devolution era and most of what came after remained reserved to Westminster does not absolve the Scottish Government here as we embark on the renewable energy transition heralded by their latest flagship development, ScotWind.

What went wrong with ScotWind?

I’ve written much about the failures in this scheme both in this publication and in my policy papers for Common Weal and readers should seek them out for the full context but here today, I’d like to draw out one particular aspect of the options auction that has started the project.

That the auction was capped with a maximum price ceiling of £100,000 per square kilometre of seabed.

In my paper ScotWind: One Year On (Common Weal, February, 2023) I claimed that had that auction been uncapped and run on a similar basis as auctions in California, New York and in England last year, then instead of the £755 million that ScotWind earned for the Scottish Treasury we could have earned perhaps tens of billions of pounds (the uppermost estimate of the options fees from the English auction, known as Leasing Round 4, would be the equivalent of a ScotWind auction earning £28 billion over the course of a decade. A New York-style auction would have earned Scotland £16.4bn in a single payment).

Incredibly, the ScotWind auction could have gone lower. When it was initially launched, the auction was capped at just £10,000 per square kilometre (and, indeed, one eventual winner managed to sneak in with this lower cap).

The question of why the cap was increased is possibly even more interesting than why it was set up like this in the first place.

The answer comes in the form of the ScotWind Offshore Wind Leasing: Advisory Note written by Strathclyde University in April 2020 and published under FOI in April 2022 and which explored the options available to Crown Estate Scotland including holding an open, uncapped auction or setting a price floor.

At the time, CES had three options set at £2000, £6000 and £10,000 per square kilometre with the logic being that if demand was lower than anticipated, the £2000 bracket would act as a price floor but if demand was high, bids at the upper brackets would win.

Had the 20 ScotWind regions been optioned at the price floor, the Scottish public purse would have received a mere £15m for these options.

The note betrays a severe uncertainty around Scotland’s energy potential, the barriers placed by the UK’s badly outdated energy framework and the geography of Scotland’s wind resources, but the fact that they were still able to sound an alarm that CES may be undervaluing these resources is telling – as is the fact that even at 10 times the initial cap, the auction still hit that red line in a manner that suggests that it was still far too low.

Their main concern boiled down to uncertainty around when the offshore renewable landscape would flip from a “buyer’s market” – where companies would have to be incentivised to invest – to a “seller’s market” where they’d pay a premium for the chance to invest.

An addendum to the Advisory Note was written in March 2021 and also published publicly in April 2022 which raised ahead of time many of the same concerns that I found borne out in hindsight, particularly in comparison to the English Leasing Round 4 auction and stated that this seller’s market had obviously now been achieved and that in fact the £100,000 cap “[did] indeed underestimate the market value of sites in Scotland”.

READ MORE: Richard Murphy: Renewables and a wealthy independent Scotland

Clearly, CES and the Scottish Government must do more to understand the appropriate value of Scotland’s resources.

One topic is raised at the end of the addendum which is worthy of comment, and this is that firms rarely pay these option fees as mere price-of-entry sunk costs. Eventually, wind turbines will be raised and will produce electricity that we, the consumer, will pay for.

While these option fees, even in the highest cases, make up only a small proportion of the overall value of energy expected to be extracted from Scotland over the course of the lifetime of the turbines, the possibility does remain that an auction that raised tens of billions of pounds would merely be passed on to consumers in higher prices.

To that, I would point at the incoming £33bn bill that the Scottish Government estimates will be the cost of retrofitting Scotland’s houses to an adequate efficiency standard. Imagine what could have been done if the lump sum from a successful and adequately priced ScotWind had meant that we could have made a substantial dent in this bill – lifting many thousands of people out of fuel poverty permanently.

The National:

Imagine how much lower your energy bill would have been if, yes, the unit price was a little higher but your need to heat your home at all was lowered by up to 90%.

And imagine we used a portion of that revenue to seed a public owned National Energy Company to take control of our resources to ensure that profits remained in Scotland, not in the public purses of other countries or the private pockets of oil baron shareholders who already benefited from Scotland’s oil.