General – Assembly Agreement
The Policy & Resources Committee of Guernsey has recently published a policy letter in which it sets out the case for investing a further £1.3m during the next two years to develop a framework that could facilitate the island receiving substantial financial returns from an offshore windfarm developer – and also sets out the case for the establishment of a delivery entity to take the work forward as an arm’s length body with appropriate political oversight.
It is asking the Assembly to support the further preliminary work, which would deliver a seabed leasing approach for offshore wind.
This follows initial scoping work by the Offshore Wind Subcommittee, which has indicated that, subject to a number of assumptions and the need for further work by the States, the seabed has significant financial value as an asset to be developed for the export of offshore wind to the UK.
The work of the sub-committee suggests:
The most suitable option is based on a single sample site in Guernsey’s territorial sea, which has been the subject of technical research. It is based on a site area of 157km sq, with installed capacity of 1.27GW and with a high but feasible energy density of around 8MW/km sq.
Reasonable base case assumptions suggest a developer would achieve significantly greater returns than required to cover their costs. The Net Present Value (how much an asset is worth throughout its lifetime) of such a windfarm could be on the order of £300m according to initial modelling – which could be shared between a private developer and the States of Guernsey as an upfront payment. The precise mechanism for sharing this would be subject to commercial negotiation. On a deferred basis this could be up to a total of £1,300m over a 35-year contract, with payment shared with the developer taken annually, subject to commercial negotiation.
While this is a reasonable base case, there is a significant potential range for this valuation due to the sensitivity of the assumptions, particularly price and investor expectations. The base case valuation is £300m but could range to high cases of £707m. A more accurate picture can only be gained via more work, which is why the Committee is proposing further exploratory investment.
The Committee believes the case has been made that Guernsey could lease part of the seabed for offshore wind, which would create a potentially valuable commercial opportunity for offshore wind developers and investors.
For clarity, the overall financial benefits to the States of Guernsey could comprise a lease exclusivity payment ahead of delivery of the windfarm, rental income over up to 35 years, and tax revenue.
A developer, not the States, would meet much of the significant future cost of developing an offshore wind farm. The current preferred approach is to undertake a competitive process to identify a partner for the long-term development of an offshore wind farm, with steps put in place to ensure any lease granted is not simply ‘banked’ but is progressed. In return, the States needs to ‘de-risk’ the project – through the establishment of a single entity to lead the work on behalf of the States, establishing a licensing regime, and completing a marine spatial plan.
