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From Calum Davidson, Director of Energy and Low Carbon, HIE

RIGHT across the energy world 2015 was, by any measure, a pretty tumultuous year.

We saw dramatic changes in renewable subsidies; Brent crude slipping under $40; governments struggling to reach agreement in Paris at the UN climate change COP21 conference; the Cromarty Firth full of cold stacked rigs; the UK’s electricity capacity margin down to 1.2 per cent; exploratory drilling in the North Sea at its lowest for decades; community projects reeling from regulatory changes; the north-east suffering thousands of job losses; major wave companies entering administration… the list could go on and on.

However, as the old joke goes: “But apart from that, Mrs Lincoln, how was the play?”

Drilling under the rhetoric and spin (if you will excuse the pun), 2015 has been a year where for many everything has changed, but for others very little has changed – and for some, change is bringing significant opportunity.

Onshore wind seemed to be the biggest loser, with early closure of the Renewables Obligation Certificate support mechanism and a clear exclusion of onshore wind from future subsidy schemes sending a storm through the sector. However, and despite a real loss of investor confidence and future uncertainty, it seems that there will be a bit of a wind-farm boom over the next couple of years as developers rush to build projects in the face of looming deadlines.

Yet when the rush is over, and the industry contemplates a future without government support, it will be looking to locations with high wind speeds and good grid connections. And that will be the north of Scotland, with the Beauly/Denny upgrade now complete and the Caithness/Moray link under construction.

Paradoxically, these dramatic changes to onshore wind support could be the catalyst for solving the ongoing problem of getting grid to islands. Through strong lobbying from Scotland, onshore wind projects in the Scottish islands will be eligible for future subsidy through the Contracts for Difference (CfD) scheme, where they will be treated the same as offshore wind farms. This means that planned wind farms in Orkney and the Western Isles could finally proceed, triggering the laying of those critical subsea cables.

Offshore wind also had a year of uncertainty, with some Scottish projects under judicial review, and until the Autumn Statement at Westminster no confirmation that there would be a CfD auction in 2016. So assuming that the industry can get its costs down – and insiders seem pretty confident – it looks like there will be a pipeline of projects around the UK up to 2020. Of course, SSE’s Beatrice wind farm already has a contract for support from the UK Government, and planning for its construction is in the final stages. For the Highlands and Islands this is a huge project, starting in 2017, and in value is worth at least two Forth crossings.

The past month also saw the approval of the Hywind floating wind project, the world’s largest yet, and although it is being built in Norway, Scottish companies are winning some important contracts, with the suction anchors being supplied by Global Energy Group at Nigg.

However, there is no getting away from the fact that some sectors have been hard hit, solar PV in particular. In the north it’s community-scale projects that have an uncertain future, with unexpected changes to the Feed-in Tariff, VAT hikes and more expensive project finance.

These problems pale almost into insignificance, though, beside the issues facing the oil and gas sector. A perfect storm of low oil price, ageing offshore assets, high costs and an almost complete cessation of exploration drilling suggests that this downturn is just a little bit different from the cyclical low-oil-price episodes of 10 and 20 years ago.

Yet every cloud has a silver lining, and a relentless focus on cost reduction brings opportunity for smaller players further down the supply chain. Majors are bypassing tier 1 companies and looking to their suppliers for cheaper, more flexible solutions. Highlands and Islands ports nearer the northern and western oilfields are seeing renewed interest in their service base potential, and a lower cost base and smaller margins are now a critical part of any tender.

It was the marine renewables sector that saw the most positive developments in the past 12 months: 2015 was the year that Wave Energy Scotland got going, restarting the Scottish wave sector after the disappointment of the administration of Pelamis and the major downsizing of Aquamarine (which eventually closed in November). Two major calls and a dozen contracts awarded, in the areas of novel wave devices and power take-off systems, saw Scottish companies and universities win a major share of multi-million-pound contracts.

Yet is the far north that saw real projects “getting metal wet”, with Nova Innovation installing its three community-scale tidal turbines in Shetland and MeyGen completing its onshore substation, directional drilling and cable installation in the Inner Sound in Caithness. JGC in Caithness has finished the huge weights that hold the structures to the seabed, ready to be loaded out from Scrabster. Nigg Energy Park in Easter Ross is busy completing the turbine foundations, and the four turbines will be ready for installation in the spring. Indeed the Atlantis turbine is being built at Nigg, using a workforce able to move between oil and gas, nuclear, offshore wind and tidal structures.

With Scotland now producing 50 per cent of energy from renewables, we are well on the way towards the 100 per cent target for 2020. Attention is now turning quite rightly to strategies and policies focused on decarbonising the nation’s domestic and industrial transport and heat markets, and major investments in energy efficiency. This is a significant change for organisations across the Scottish public sector, and poses a quite different challenge for regions such as the Highlands and Islands – rural, off the gas grid, car-dependent and with a housing stock comprising older, stone-built dwellings.

However, under the headlines, things that may seem small and incremental are fundamentally changing how energy – and, in particular, renewable energy – is used across the Highlands and Islands. CalMac’s latest low-emission hybrid ferry was launched last week. Silent electric buses are now a common sight on the streets of Inverness. Roof-mounted PV solar panels are so widespread that nobody gives them a second glance. Orkney has the highest concentration of electric vehicles in the UK apart from London. Small, farm-scale wind turbines are as numerous as silage towers. Wood-pellet boilers and air or ground-source heat pumps are de rigueur on any new or refurbished house. Even my Black Isle coalman now delivers clean packs of wood briquettes alongside the sacks of house coal.

The past 12 months have been a bit of a rollercoaster, but a funfair has highs as well as lows. Onshore wind has a steady pipeline of projects that need built out in the next 48 months, offshore wind will start construction in 2017, tidal projects are in construction, with more down the line.

There will be pain, but firms will adapt and reform, as they have always done. The great strength of the Highlands and Islands is that it’s not just a renewables supply chain, or an oil and gas supply chain, or a nuclear supply chain, but an energy supply chain.

But for me, 2015 was the 50th anniversary of the establishment of the Highlands and Islands Development Board, and I had enormous fun in researching and writing about the story of energy in the north of Scotland over the past half century. This culminated in HIE winning the prestigious Judges’ Prize at the Scottish Renewables Green Energy Awards, in recognition of our contribution to the energy sector over decades.

In lots of ways, 2015 was a good year. Now, let’s make 2016 even better.

In the fourth and last of his series of articles marking the 50th anniversary of the Highlands and Islands Development Board (now Highlands and Islands Enterprise), Calum Davidson, director of energy and low carbon at HIE, looks at how energy has been a major factor in turning the Highlands and Islands from a peripheral, underdeveloped corner of Europe into a modern, progressive region

“The best way to predict the future is to invent it.”

WHEREVER you turn in the long corridors of the Massachusetts Institute of Technology (MIT) buildings in Boston, you will see glimpses of the future. HIE has worked with this world-leading technology institution since 2004, and this time last year I took a group of Highlands and Islands marine renewables businesses, engineers and scientists on a scouting trip. What we saw was quite remarkable.

Rugby-ball-sized autonomous underwater robots designed to inspect the insides of nuclear reactors… weird new ship hull and propeller shapes that dramatically reduce drag, increasing speed and fuel efficiency… clever new underwater sensing technologies inspired by the navigation methods of blind Mexican cavefish and harbour seals’ whiskers… a remotely operated vehicle that can be built for £100 by a group of bright 10-year-olds… suitcase-sized robots with sophisticated sonar that crawl around ships’ hulls… crazy new battery designs using chemicals that you may find under a domestic sink, powered by seawater… robots being trained to understand human emotions and body language… and a museum that mixes art, technology and innovation in a way that makes everyone pause and say “wow”.

But what I found just as remarkable was that the folk I’d brought from Shetland, Orkney, Caithness, Ross-shire, Argyll, Inverness and the Western Isles were as engaged, knowledgeable and questioning as the bright young MIT researchers: “Why would anyone want to design a ship that travels at over 100mph?”, “Oh, so they are the people who invented that ROV back in the ’80s. I still use one”, “Mmm – we have a problem measuring strain on turbine blades, that’s an interesting approach”, “Very sensible not rushing into prototyping yet, needs more research into alternative designs. Wish we had done that.”

What we had here was a group of Highlands and Islands businesses that were inventing their own future, a future where Scotland is the centre of a new global industry built around marine renewables, generating clean, carbon-free electricity from the oceans.

However, developing a whole new industry from scratch is not straightforward, and the past 12 months have seen the industry facing a range of technical, policy, business and financial issues. Firstly, there is now clear divergence between wave and tidal technologies, with tidal having benefited from 30 years of onshore wind generation experience. Wave, on the other hand, faces major technology challenges, chiefly the twin problems of having to invent entirely new ways of creating electricity from the movement of water, and to engineer devices to survive regular extreme weather events.

However, the market for wave power is a truly global one, so in 2015 the Scottish Government asked HIE to establish Wave Energy Scotland (WES) which has been tasked with bringing together the best engineering and academic minds to collaborate on innovative projects that will accelerate the development of wave technologies. A key objective is to ensure the intellectual property and know-how from device development in Scotland is retained for future benefit, and enable technologies to reach commercial readiness in the most efficient and effective manner.

But, challenging as issues facing the wave and tidal sectors undoubtedly are, these are nothing to what the early planners of the HIDB had to face back in 1965. A ports and harbours infrastructure that had hardly changed since World War One, a road network that was often still single-track, a rail network that had just escaped the Beeching cuts and still used the occasional steam train, a rural largely unskilled workforce, and with high unemployment. All in all, an area blighted with chronic outmigration, with the young and educated leaving in droves.

The HIDB worked hard in developing tourism, fishing and farming. Aquaculture was invented with the strong support of the board and had a significant impact, but it was the development of large-scale energy industries that turned the economy around.

First Dounreay, then Corpach and the Invergordon smelter, followed by the North Sea oil bonanza, all providing new skilled jobs, training and the encouragement of women into the workforce.

It drove investment in new infrastructure, but crucially created a whole new supply chain. Blacksmiths became fabricators, electricians learnt how to rewire oil rigs, fishermen became tugboat and supply ships operators, and it was this cohort of locally based businesses that grew and developed new markets when the energy industry went through its periodic cyclical downturns.

As a result, the 21st-century Highlands and Islands has major oil terminals, strategic energy fabrication facilities, modern ports and harbours and significant hydro and onshore wind industries, while the waters around the region are home to Scotland’s embryonic but world-leading wave and tidal industry and will host a significant proportion of Scotland’s offshore wind industry as it is deployed during the rest of this decade.

At the same time the oil provinces of the northern North Sea and west of Shetland will continue to drive significant oil and gas investment for the next 50 years, both for new developments and long-term decommissioning, even though the current low oil price is causing the sector real difficulty.

The Highlands and Islands is one of the most energy resource-rich parts of Europe. Our islands are hot-spots of wave, wind and tidal power with 25 per cent of Europe’s offshore wind, 25 per cent of European tidal resource and 10 per cent of European wave power. The Beatrice offshore wind project in the Moray Firth, scheduled to start construction in 2017, could trigger an investment of over £3bn – that’s two Forth bridges. MeyGen, Europe’s largest tidal-stream project, will also lead to hundreds of millions of pounds’ worth of investment in the Highlands and Islands economy as it is built out over the next 10 years in the Inner Sound of the Pentland Firth, with other projects either under development or planned in Shetland, Orkney and Argyll.

As I’ve been stressing, an extensive supply chain has developed in the Highlands and Islands, with a cluster of local and global companies, with varied strengths in environmental services, engineering, fabrication, marine services, project management, subsea activities and training services. HIE actively account-manages 150 energy businesses, and we estimate that the energy industry employs over 15,000 people in the region across renewables, oil and gas and electricity generation and transmission.

Looking back over 50 years does allow the benefit of perspective, and the ability to put recent issues in a more historic context. With the current low oil price the third major industry bump since 1965, it’s important to note that despite low oil prices in the ’80s and ’90s the Scottish supply chain grew through innovation and international sales. And it’s worth reminding ourselves that the Danes, faced with the difficult early days of wind power in the 1980s, kept their nerve – and created a multi-billion-pound global business.

The growth and decline of major industries in Caithness, Lochaber and Easter Ross left an active supply chain and a skilled and ambitious workforce able to move between, nuclear, oil and gas and renewables as opportunities present themselves.

Yet it’s the growing population of the Highlands and Islands, the dramatically changed attitudes of the region’s young people, and the success of the University of the Highlands and Islands that perhaps would surprise and please the early pioneers of the Highlands and Islands Development Board most. Over the past 50 years, the energy industry has been a major factor in turning the Highlands and Islands from a remote, peripheral, disconnected and underdeveloped region to a modern first-world European region, with a successful and growing economy.

The next 50 years of the region’s energy story is yet to be invented, but the seeds are already there in the UHI research centres in Thurso, Oban, Stornoway and Inverness, in Heriot-Watt’s Stromness campus, in college engineering and training facilities from Shetland to Argyll.

It will be driven by the growing and increasingly innovative local supply chain, harnessing the power of the region’s water, winds, waves, tides and mineral riches, creating wealth, jobs and low-carbon power, and then exporting that expertise right across the globe.