Plain bonkers

In a speech given to a business conference at the Scottish Parliament last week the head of one of the UK’s largest power generators described the SNP’s energy policy, with its reliance on renewables to provide our energy needs over the next 10 years, as both “wishful thinking” and “bonkers”.

What follows relates only to the part of Viking Energy Ltd which is wholly owned by the Shetland Charitable Trust and has a 45 per cent stake in the Viking Energy windfarm.
The financial projections by Viking Energy for the profits from the proposed windfarm also appear to be based on “wishful thinking”.

The only published figures of financial projections for this project appear to be those in a report by Strathclyde University, dated from 2008. It can be found on Viking Energy’s website. They project that Viking Energy Ltd would need a capital borrowing requirement of £209.7 million and assume an interest rate of 4.5 per cent with a payback period of 20 years. After all costs and income have been considered they project a profit per annum to the Shetland Charitable Trust of £15.3 million. Looks good so far, but closer inspection reveals that although they have included interest repayments in the costs they appear to have overlooked repayment of capital.

If we factor this in then the profit to the Charitable Trust is reduced to £7 million per annum. But wait; the latest capital borrowing requirement is now stated as £246 million so if we assume all other figures stay the same and do the maths the profit is now reduced to £3 million. Interest rates which are at a historical low are projected to rise as a result of the appalling financial mismanagement by banks and governments over the past few years. If we are very generous and assume only a 0.5 per cent increase to 5 per cent then what was a profit becomes a loss of just over £1 million. If it goes to 6 per cent then that loss becomes £8.5 million per annum.

But what about income? No luck here I’m afraid. This business (for that is what it is) is a “one trick pony” with no ability to downsize, diversify or adapt to differing financial circumstances. Its only source of income is from the sale of Renewable Obligation Certificates and Climate Change Levy Exemption Certificates. The value of these are at the mercy of whichever government is in power. The Conservative Party published a green paper two months before forming a government which stated that it would commit to reducing energy subsidies. It has already started to do so. Last year the Danish government announced that it would phase out subsidies to onshore windfarms so that it can concentrate on other forms of renewables such as biogas and solar. The tide appears to be turning against onshore windfarms.

Viking Energy on its website states that the windfarm will “generate an estimated £23 million per year for the Shetland Charitable Trust”. Where did this figure come from? Strathclyde University’s detailed but flawed report only projected £15.3 million. Was it from the back of the same cigarette packet that was used for the health impact assessment report and the latest carbon payback claims? We need accurate and up to date information as to how this project can realise a profit for Viking Energy Ltd with full transparency as to how this can be achieved.

Allan Wishart, wearing his hat as the Viking Energy project co-ordinator, stated during the Radio Shetland debate at the Shetland Museum last week that the worst case scenario was a loss to the Charitable Trust (i.e. us) of between £35 to £65 million. Does this seem like a good deal to you? I think not. In fact it is just plain “bonkers”.

Ian Thomson
3 Gladstone Terrace,
Lerwick.