Anyone got £71million to lend the Comhairle…?

I went to a play on Friday night. It was about Hebridean women. In particular, those women — our great-grandmothers and grandmothers, mainly — who were out there in the world, making an impact and fighting for women to have the vote. It was a good play (read about it here) so well done to everyone involved in it.

There was one line in, it, though, that I could not get over. It was a quote from an island suffragist. “What a lot of fools they are, all these men in the Town Council,” she said.

I laughed — hard. More than a hundred years later and nothing much has changed.

It won’t surprise regular readers to hear that I was thinking mainly about many local councillors’ attitudes to renewables and the battle between the crofters and multinational EDF for control of the development rights in the Stornoway area in particular.

You might have noticed that Lewis Wind Power opened a new office in the town a few weeks ago. I blogged about it and the opening itself attracted a lot of press coverage, particularly the announcement at the opening from council leader Roddie Mackay that the Comhairle was joining forces with Stornoway Trust to buy shares in LWP.

To be absolutely accurate, he didn’t say “buy”. In fact, there was absolutely no mention of the word “buy” in any of Roddie Mackay’s puff about their plans to get a share in the LWP schemes (owned by EDF Energy and Wood Group) for Stornoway and Uisenis.

He announced they had “agreed to explore the establishment of a joint venture vehicle to bring the two ownership stakes together”.

He ‘revealed’: “In the Stornoway Wind Farm project the Stornoway Trust has negotiated an ownership stake of up to 20 per cent and in the Uisenis project up to 30 per cent ownership has been negotiated by the Comhairle.”

He claimed this was “unprecedented community potential”, adding: “Working with a major developer removes all pre-implementation risk from the community. Given that planning consents and grid connection contracts are already in place it offers the most effective, low-cost, low-risk way for communities to get involved in renewable energy generation.”

DISAGREE

It is quite a claim by Roddie Mackay that trying to buy shares in LWP’s projects, once they have been developed, would be “the most effective, low-cost, low-risk” way for communities to get involved in renewables.

I know hundreds of people who would disagree. All those who have sent objections to the Scottish Land Court over LWP’s plans for Stornoway Wind Farm, for a start. There are a lot of people out there who believe that the best way for communities to get involved in renewables is to actually be in control of the projects themselves.

Crucially, when Roddie Mackay says the Comhairle and the Trust have “negotiated an ownership stake”, he makes it sound like this has been given free of charge. Handed over to the community, as a gesture of goodwill. But nothing could be further from the truth.

There is a whole lot of spin going on here and not very much substance, if any at all. Fact is, these shares would have to be bought and they would cost an absolute fortune. That’s if enough money could even be raised in the first place to buy them.

I have raised this issue of the 20 per cent before, as it is the great carrot being dangled in front of the community by LWP and the civic leaders who back their schemes, in a bid to win over the hearts and minds of the people.

Late last year I wrote a piece about it, based on an interview with a renewables finance expert, Mark Stewart from Johnston Carmichael — Scotland’s largest independent firm of Chartered Accountants and Business Advisers, and specialists in renewables.

NONSENSE

In that piece — read it here — Mark dismissed the proposed 20 per cent stake in the wind farm as “a hollow offer” from LWP. He estimated it would cost around £50million and said it would “probably never happen”.

He explained: “On the face of it this looks appealing but in reality, it is probably an offer that can never be taken up as the Stornoway Trust does not have that sort of cash and no one will lend them money without having any security over the income stream of the project. EDF has all the control.”

So I wondered what he would think about the Comhairle jumping into the mix, with plans to pursue a 30 per cent in LWP’s other Lewis scheme at Uisenis. It’s still a minority stake so they would have similar challenges to overcome. He had one word for it. “Nonsense.”

There was another person whose take I was interested in — Drew Ratter.

Drew was chair of development in Shetland when they established the Viking project, which is jointly owned by the community and SSE. The Viking project, approved in 2012, is for 103 turbines and would generate up to 412MW.

I got to know Drew, who is part of the Shetland Renewable Energy Forum, when he came onto my Facebook page to comment on my last blog post about the office being opened — ‘EDF up the ante with a new wind farm base in Stornoway’.

Drew revealed that he had come to Stornoway in 2004, when he advised the Comhairle about what they were doing in Shetland — and how the Western Isles could do it too.

“I explained that, with access to land, they could do the same,” he said.

“I am afraid nothing ever happened.”

So while the rival Stornoway schemes languish in the law courts, waiting for a decision on who has the right to develop these schemes, the Viking project is ready to bid in the next round of the Contracts for Difference auction in a year’s time.

VALUATION

Once I heard the Comhairle were intending to join Stornoway Trust in buying minority shares in LWP — at an unknown price — I phoned Drew to get his opinion.

His take on it was very clear. He could not “conceive” how it would be possible. Legally, a company cannot let shares go for less than they are worth.

“Get some idea of the valuation of this scheme,” he said.

“Unless there is some mention of the source of that money — and I cannot conceive what it would be — then it doesn’t mean anything. After development, the value will be very high. I just can’t see where they can get the money from.”

He added: “What everybody should be doing is really something completely different.”

Recalling his visit to Lewis in 2004, he was told “we can’t do that” (what Shetland were doing) and told “you can do this kind of stuff because you have oil money” but he replied, “no, no, that’s not right… we didn’t go into the oil funds”.

MONEY

The money Shetland spent on developing their project — which they will half own, remember — was in the order of £5million to £10million over 10 years.

“It hasn’t been a huge amount of money at all,” said Drew. His advice to the Comhairle was to get all the advice they could from accountants, lawyers and business experts and “develop this as far as you can” before seeking a large utility partner.

“That’s what we did,” he said. “We started on our own before SSE was looking.”

He added: “If they started at that point they would be at the same point that we are at now. All I can say is, we went through it.

“I suggested this is what they should do and they didn’t do it. I am quite happy to be quoted on having gone there all these years ago and suggested they should do something — and I’m not clear why they didn’t.”

Drew said the “key question” was where the money was going to come from. “I think there’s a great difficulty there.

“There’s no much point in them going around saying, ‘we’re going to, we’re going to, we’re going to’… unless they have some idea of ‘how’, is there really?

QUESTIONS

“Local authorities have no power to borrow large sums of money. I have no idea how they can borrow the money for it. You should certainly question them on how they’re going to raise the money.”

So I did question them. In fact, I asked six questions. I submitted them by email to Nigel Scott in the Comhairle’s press office. Here are the questions I asked…

1. Does CNES have any idea how much money this will cost them?

2. Does CNES know where it might get this much money from?

3. As it’s a joint venture, will CNES be involved financially in the Stornoway Trust’s purchase of their option? Is this a bailout of some sort for Stornoway Trust? What will the financial crossover be between CNES and the Trust?

4. Obviously, this will be a lot of money. What assurances can CNES give that this will all be done in accordance with the Prudential Code and that it will not breach any guidelines in terms of cost or best practice?

5. How does CNES know this is best value for money, should it actually succeed in raising X amount to buy minority shares? Why not have used that as equity and facilitated the development of community-owned schemes instead?

6. Why has CNES done no due diligence to compare rival schemes where rivalry exists? Obviously, I’m talking mainly about the Stornoway project here. If it has done this kind of due diligence, I will certainly make sure that information is included.

The response I got was very short. “The Comhairle intends to explore ownership issues with Stornoway Trust. In due course we will be communicating and undertaking community engagement around the different ownership options.”

I asked whether this was as much of an answer as I was going to get. I was told it was. “This is our answer,” confirmed Nigel. So no information at all.

Given that four crofting townships — North Street, East Street, Melbost & Branahuie and Aignish — are at legal loggerheads with EDF over this, should the Comhairle not have at least tried to answer the questions?

When I told Willie Macfarlane, the grazings clerk for Melbost & Branahuie, what the Comhairle’s response had been, he said: “You’re joking. And that was it?

“It’s just rubbish. They’re not telling us anything. Asking these kinds of things sounds very reasonable to me.

“I’ve said it at all sorts of meetings, but how can they buy into 30 per cent when the controlling interest of 70 per cent is owned by EDF? They have no guarantee whatsoever of what they would get at the end of the year.

“They haven’t actually looked into this. They certainly have had no professional advice. Who has advised them that this is the proper way to go? Where is the council going to get that 30 per cent?

“You have control with 50/50 ownership, like Shetland have done, but the council here won’t have that – no way — and neither will Stornoway Trust with 20 per cent.”

BCCI

Keen to put some kind of figure on this, I got the calculator out. I have it on good authority from Mark Stewart that 20 per cent of the Stornoway project would cost about £50million. Using a similar ratio of value per MW, I costed 30 per cent of Uisenis at around £71million.

These are arguably conservative figures as they are based on original turbine sizes. Bigger ones are now approved, with greater outputs — and therefore of higher value.

But we are still looking at more than £120million combined for the smaller turbines. That’s around four times the money lost by our local authority when BCCI collapsed.

Remember that? That moment in 1991 when the Bank of Credit and Commerce International went bust — and the then Western Isles Council lost £25million.

We became a national laughing stock and a textbook example of why you should never “put all your eggs in one basket”. Looks like we haven’t learned much of a lesson about eggs and baskets, with the Comhairle and the Trust pressing ahead on the LWP plans.

‘DESPERATE’

Community wind farm developer Calum MacDonald summed it up well recently.

He described the joint venture between the Trust and the Comhairle as “a desperate response to the scathing criticism of the supposed 20 per cent because it has no commercial or detailed legal agreement behind it”.

However, he added. “Bad news is they still don’t know the price, the commercial terms, or how or where they can get a lender to finance a minority stake.

“It is good that the Emperor appears to have woken up to the fact that he is naked and that people are pointing — but he still has not found any useful garments to cover his nakedness.”

Katie

Comments 2

  1. Hi Katie,
    Interesting blog. I think your figures are a bit out although only by the odd 10 million here and there. By my calculations the ST stake should cost approximately 43 million whilst the CNES stake should cost approximately 60 million. Still whopping great lumps of money to be found. One can only assume the plan is to utilise schemes like the Renewable Energy Investment Fund, the Scottish Investment Bank, the Green Investment Bank etc to leverage private funds in order to purchase the stakes.

    Do I think it would have been better for CNES/ST to have negotiated a 50% stake? Absolutely…… but they didn’t and rather than expelling furious amounts of hot air screaming “But we should have…” it might be better to deal with the actual reality we are in rather than the one we would prefer to be in.

    Come to that do I think 100% community owned is a better model, again I totally do. There is however a big caveat to that. For community owned renewable schemes to work the grid infrastructure has to be in place and , due entirely to the cack-handed way that previous governments privatised our energy sector, that means that those developing schemes are generally required to underwrite any grid improvements required to accommodate their schemes. This isn’t generally a big problem for communities on the mainland but up here the grid is currently full, and will stay full until an interconnector is built.

    This interconnector is the reason that we need the LWP schemes to go ahead as they provide the guaranteed capacity that justifies the needs case that SHETL have to give to OFGEM. And, whilst it is definitely true that SHETL don’t care if the guaranteed capacity is provided by private or community schemes the stark fact of the matter is that 342MW of community renewables would take years to get to the stage where SHETL could get approval for an interconnector. If the LWP stuff goes ahead however we will get a 600MW interconnector which would mean approximately 258MW spare capacity for the development of community renewables.

    So if your gallant PST proxies manage to get LWP to walk away then they will have managed to kill the interconnector and the chance for other communities to achieve the same thing they have already.

  2. I think certain people in the Western Isles have been letting themselves off the hook for decades by declaring that the main difference between themselves and the Northern Isles, particularly Shetland, is that they’ve ‘got the oil and we haven’t.’

    If only it were that simple…

    There are other differences; some of them stemming from Shetland’s religious inheritance as much as the oil near its shores. Methodism was strong in the north and evidence of this tradition can still be seen in Shetland’s political and social life. It is a form of faith that encourages debate and innovation. Its legacy can be seen in the strong debating tradition found in Shetland where the Alting has met for decades to discuss the matters of the day. (This is a great school for local politicians who are – at least – encouraged to give reasons and justification for their opinions., and not pander to their own and their supporters’ prejudices.). Shetland also has a locally owned newspaper, the longest running literary magazine in Scotland. All these things encourage local discussions and the right of people to express their view. This both prepared the ground for the coming of the oil industry and consolidation of it when it arrived.

    Unfortunately the Western Isles seems to value no such
    democratic discussion but seems to prefer a more closed habit of mind.

    Ps – I did suggest this idea to An Lanntair’s ‘Between Islands’ project as a possible subject for discussion, but true to the long tradition of silent, sullen ‘Presbyterianism’ I did not even get a response. Dialogue is clearly not a priority.

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