UK Details on OW Compensation for Oil and Gas Discovery

The UK Energy Minister Michael Fallon and the Scottish Energy Minister Fergus Ewing have given strong backing to the UK’s fast growing offshore wind industry at a major conference, with announcements designed to encourage the UK supply chain in offshore wind and remove important areas of uncertainty for developers taking forward offshore wind farms.

UK Details on OW Compensation for Oil and Gas Discovery

During the keynote speeches today at the opening of RenewableUK’s Global Offshore Wind conference in Glasgow, Mr Fallon said: “Offshore wind isn’t just an energy sector, it’s a growth sector – and it’s vital that as the offshore wind sector grows, it strengthens its contribution to economic growth and creating jobs in the UK – more than 6,000 people are directly employed in the industry, with a similar number of indirect jobs in the supply chain.” 

After the announcement of a review of the UK’s offshore wind supply chain, Mr Fallon also announced the publication of a detailed agreement on how to provide compensation to wind farm developers, if oil or gas reserves are discovered in the area of seabed where their project was due to be built.

Leases (or agreements to lease) can be withdrawn by The Crown Estate under what’s known as the Oil and Gas Clause. Originally no compensation was payable to offshore wind farm developers, but 3 years ago the Government said a comprehensive system would be devised to ensure developers weren’t left out of pocket.

A detailed framework guaranteeing full compensation has now been issued by the Department of Energy and Climate Change, following talks between the Government, The Crown Estate, Oil and Gas UK and RenewableUK. Amongst its clauses, the document includes an independent arbitration process safeguarding a fair outcome.

RenewableUK’s Chief Executive, Maria McCaffery, said: “The Minister’s announcement of the details of this vital safeguard will reassure offshore wind developers that they are no longer being asked to take an unreasonable financial risk.

“The Oil and Gas Clause was a major barrier to obtaining finance in our sector. Now, after working on the issue for nearly 10 years, RenewableUK is pleased to see comprehensive guidance in place which will guarantee full compensation if the need to terminate a lease should arise.

“This will increase the certainty that offshore wind investors need to deliver the industry’s healthy pipeline of projects for the decades ahead. That means the cost of offshore wind can fall even faster, so that it provides even better value for money”.

In his keynote speech, the Scottish Energy Minister Fergus Ewing called for a clearer post-2020 trajectory to be set for the renewable energy sector, stating: “Industry has made it clear that longer term targets and commitments are fundamental to continued investment and a level of certainty is required to support supply chain investment – a necessary condition for competition, innovation and cost reduction. 

“But mixed messages from the UK Government over its energy policy including the recent carbon tax freeze, Conservative Party plans to scrap onshore wind subsidies post 2015 and the lack of a decarbonisation target until at least 2016 leave a high degree of uncertainty for investors.”

RenewableUK continues to call for the UK Government to set a 2030 decarbonisation target as a matter of urgency to stimulate long-term investment.

At the opening of the conference, RenewableUK published a new document, Offshore Wind Project Timelines 2014, which shows that by 2020, between 13 and 14GW of offshore wind capacity will be installed in UK waters – a more than threefold increase on our current capacity of 3.65GW offshore, maintaining the UK’s global lead in the sector.

More than 3,000 delegates are attending the conference, and over 200 companies are exhibiting.

Press release, June 11, 2014; Image: Karoon Gas Australia