15 Jul 2011, 16:22
Picture the scene. You secure some land on which to build your dream home, perhaps even an eco-home, and begin drawing up the necessary plans. You then go to the bank to secure a loan to pay for the construction work, and find that everything is in order.
Until, that is, you get to the part of the mortgage form where you have to declare that the property will be built in an area that may or may not be of interest to mining companies. And that local bylaws mean that if said mining magnates take a shine to the land they can revoke your lease and turf you off the land, all without paying a penny in compensation for the time and money you have invested.
Bizarrely, this is pretty much exactly the scenario faced by offshore wind farm developers operating in the North Sea.
A little known but hugely significant clause in the seabed leases the Crown Estate provides to offshore wind farm developers means that currently offshore wind farm projects can be terminated without any compensation if accessible oil and gas reserves are found in the same area.
Understandably, this clause has had a chilling effect on investor confidence. It takes a pretty ballsy green investor to stump up the millions of pounds required for the planning and development phase of an offshore wind farm, when you know that a single hunch from an oil company geologist could make the investment completely worthless.
Moreover, the situation is only likely to get worse as the next wave of offshore wind farm projects moves into the deeper water locations that will force them to rub shoulders ever more closely with North Sea oil and gas rigs.
The very existence of this clause is an appalling example of the way in which successive governments have continued to prioritise North Sea oil and gas exploration over offshore wind farm development, at the same time as preaching about the urgent need to switch to cleaner energy.
Thankfully, however, after seven years of lobbying from trade association RenewableUK and green groups such as WWF, Energy and Climate Change Secretary Chris Huhne earlier this week issued a ministerial statement signalling that the government will act to ensure that no offshore wind farm lease will be terminated or amended without appropriate compensation.
He added that compensation paid to offshore wind developers would be based on loss of future profits as well as capital already invested, and also revealed that the Department of Energy and Climate Change (DECC) will work with the offshore wind and oil and gas industries to set out formal guidance on how to resolve any conflicts that arise over offshore wind leases.
All of which marks a major victory for the offshore wind sector and forms part of an encouraging pattern that also saw the government this week pump fresh funding into offshore wind technology development, increase its already ambitious 2020 target for offshore wind capacity, and most importantly detail how contracts for difference will guarantee prices for offshore wind developers.
This package of measures should have a significant impact on investor confidence and help reduce the cost of capital for those developers currently working on plans for the next wave of giant Round 3 offshore projects.
However, while battles are being won, the war continues.
The renewables industry is understandably keen to paint the deal on compensation agreements as a prime example of mature negotiation and co-operation with the oil and gas industry. It is hugely encouraging that these two strategic industries have rubbed along together pretty smoothly to date, and it is worth noting that the whole debate over offshore wind leases being revoked remains entirely hypothetical with no clashes having occurred as yet.
But the fact remains that the offshore wind industry is still regarded as the junior partner when it comes to North Sea energy, and it must continue to lobby to ensure that this most important of clean tech sectors gains the respect it deserves.
Specifically, developers will await with interest the precise details of the compensation packages they can expect from those oil companies that do take a shine to their bit of seabed.
But more generally the government needs to be made aware that, regardless of the compensation packages on offer, any decision to cancel an offshore wind farm in favour of more oil and gas drilling would represent a truly devastating blow to the renewables industry.
All but the most ardent treehuggers accept that we will continue to require oil and gas for years to come as we shift towards cleaner sources of energy. Just as most experts accept that it makes sense to source as much of that oil and gas as possible from our own waters rather than import it from morally dubious regimes around the world.
But the extraction of this oil and gas should not be given priority over clean energy sources, particularly when the hugely significant Carbon Tracker report this week pointed out that fossil fuel companies can access only 20 per cent of their reserves if we want to meet global emission goals.
It has been a good week for the UK's offshore wind industry, but genuine long-term success will be truly assured only when the government stops regarding offshore wind farms as the little cousin of North Sea oil and gas.
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Previously known as the BusinessGreen Blog, James' Blog features musings, observations and occasional rants from BusinessGreen editor James Murray
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