Sustainable Shetland demands answers about SIC’s £1 million windfarm guarantee

The anti-Viking Energy windfarm group Sustainable Shetland has called on Shetland Islands Council to explain publicly why it still helps bankroll the project four years after selling it off to Shetland Charitable Trust.

It emerged this week in the council’s annual accounts that the local authority would have to pay out half of a £1.9 million fee charged by National Grid should the windfarm not go ahead. The compensation would be for not taking up its reserved connection to the grid via an interconnector cable to the Scottish mainland.

The agreement, known as security cover, was revealed today in The Shetland Times newspaper after being highlighted this week by eagle-eyed councillor Allison Duncan at a meeting of the audit and standards committee.

The accounts state that the council is liable for £1.9 million but in reality it would only have to pay half, according to Viking chairman Bill Manson. The other main partner in the windfarm, Scottish and Southern Energy, also guarantees the same amount. So if the project was abandoned they would split the compensation payment.

Mr Duncan questioned why the local authority should have to shoulder the guarantee for a project that is not its own. It sold its Viking shares to the charitable trust in 2007.

Sustainable Shetland has said it also wants to know why the liability was not transferred. It said for the arrangement to remain hidden for so long raised many questions, including whether all the councillors know about the financial penalty.

According to research by The Shetland Times the advance service agreement with National Grid, which was sealed in the form of an irrevocable letter of credit, was originally sanctioned by the council in October 2004.

When they agreed the transfer to the trust three years later councillors were told that negotiations would take place regarding the offloading of the guarantee as well. But for reasons as yet unexplained it remains with the council to this day.

On Tuesday the council’s interim head of finance Hazel Sutherland told Mr Duncan the charitable trust “could not carry” that liability but there was no further explanation.

Perhaps one possibility might be that the charitable trust, as a charity, was not deemed a suitable organisation by National Grid to have such an agreement with.

According to Ms Sutherland the level of the guarantee is reviewed each year – presumably by National Grid – and reported to councillors each year.

Sustainable Shetland chairman Billy Fox said: “If councillors were aware of this letter of credit then it amplifies their conflict of interest. No councillor-trustee can claim impartiality when discussing Viking Energy when they know there will be a £1.9 million penalty imposed on the SIC should the project and interconnector cable not go ahead!”

He was also uncomfortable with the council’s conflicting roles whereby it provided a financial guarantee for the windfarm to go ahead while also being asked its official views on the project as a statutory consultee in the planning process.

If National Grid starts doing serious preparatory work in expectation of the windfarm the level of the council’s liability will rise considerably, leaving it with a major bill to pay if for whatever reason the windfarm was aborted.

Mr Manson said that with the project essentially on hold he did not think the costs would be racking up. He said: “It’s not unknown for these costs to come down rather than go up because they discover that they have done less than they expected.”

He also pointed out that the grid connection was being sought not just for Viking but for the benefit of all kinds of renewable energy generators in Shetland. “The wish to have an interconnector cable in place is a part of council’s economic development policy for more reasons than Viking. They want it for other folk and other purposes as well.”

Sustainable Shetland called for the documentation to be published. Mr Fox said: “In the interests of transparency, accountability and best value, the document should be made available to the public.

“The discovery of additional liabilities like this and the far-reaching questions it raises about the conduct of both councillors and officials adds to the public perception that Viking Energy is a toxic project.”

At the time the deal was done with National Grid the council had a 90 per cent stake in the Shetland-owned company Viking Energy Limited with four local businessmen from the Burradale windfarm holding the other 10 per cent.

But in 2007 councillors were told it was illegal for local authorities to profit from generating power so its shares were “sold” to the charitable trust. The council was eventually reimbursed by the trust in 2009 for what it had spent, which was £1.74 million.