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    Scotland shows England how to run a wind power auction

    January 18, 2022 - CE Noticias Financieras


      Scotland has given its southern neighbor a lesson in how to run a decent wind auction. Last year's sale of English seabed leases, the precursor to offshore wind turbine construction, came to a brutally competitive end that raised fears that participants had overpaid. The Scottish equivalent, announced Monday, makes more long-term sense.

      In the short term, Scottish voters may think the £700 million (E800 million) raised from the sale leaves First Minister and independence leader Nicola Sturgeon on the wrong side of a shaky deal. The 17 offshore blocks, which received 74 bids from the likes of Iberdrola, Royal Dutch Shell and BP, fetched the maximum of £100,000 per square kilometer. Admittedly, that cap had been inflated from an initial bid of £10,000, but it still suggests the ceiling could have been higher.

      At an average of £28,000 (E34,000) per megawatt, the Scottish sale is also cheap in terms of the 25 gigawatts (GW) of planned installed capacity. In an English auction a year ago, BP paid more than five times that for a plot in the Irish Sea. Even if Sturgeon had stuck to the original 10 GW of capacity, it would have been much cheaper.

      In the long run, however, the Scots' generosity may make sense. Ensuring that bids have roughly the same principal value gives more scope to pick winners based on their capacity and willingness to invest in infrastructure and jobs in Scotland, a crucial consideration given the impending decline of North Sea oil and gas. With lower upfront costs, developers will also find it easier to meet profitability targets and projects will be less likely to be delayed by selling to other players.

      This increased confidence, as well as technological improvements and the need to reduce carbon dioxide emissions to zero by 2050, is why operators can think about more capacity. That much wind power in turn translates into political power. Once completed, Scotland's generating capacity-nearly all of it renewable-will rise from 9 GW to 34 GW, almost half of the UK's current installed base.

      With only 8% of the UK's population, Scotland, as a key driver of Britain's climate ambitions, will have greater bargaining power in any secessionist pulse.

      The authors are Reuters Breakingviews columnists. The opinions are their own. The translation, by Carlos Gómez Abajo, is the responsibility of CincoDías.


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