2.4. Estimating Economic Impact

  1. An offshore wind economic model has been designed by the technical expert to assess the economic impacts associated with offshore wind farms and has been applied to Ossian. The principle of this model has been applied to a number of onshore and offshore wind farm developments and is based on the level of expenditure expected to be associated with construction and with operation and maintenance. An overview of the model is provided in Figure 2.2.
  2. The first step in assessing the economic impact was estimating the total expenditure, which was based on the Applicant’s Supply Chain Development Statement (SCDS) and other information provided by the Applicant. This is discussed in more detail in section 3.
  3. Expenditure was broken down into detailed sub-categories, based on information from the Applicant, sector studies, such as BVG Associates Guide to a Floating Offshore Wind Farm (BVG Associates, 2023), and the technical expert’s modelling.
  4. Using data from the SCDS and technical expert’s own experience of the sector, assumptions were then made about the share of spend associated with each category of expenditure that could be secured in each socio-economic study area, which is also known as leakage (as discussed under paragraph 10).
  5. Each contract was also assigned to one or more relevant sectors of the economy. To estimate the direct GVA and direct employment impact, data was used from the UK Annual Business Statistics (ONS, 2023), which collects data on turnover, employment and GVA by sector. On this basis, it was possible to estimate the expected FTE employment supported by a given level of turnover in a sector (e.g. expenditure divided by the turnover per employee ratio). Similarly, GVA was estimated by dividing turnover by the turnover/GVA ratio.
  6. Indirect (supply chain) and induced (staff spending) impacts were then estimated by applying economic multipliers from the Scottish and UK Input Output Tables (Scottish Government, 2022b; ONS, 2022). This collects data on the linkages between different sectors of the economy which allows the wider effects in the economy to be captured, e.g. the impact of £1 million GVA in the construction sector may support impacts in the architecture and engineering sector. These figures are applied to the direct GVA and employment estimates.
  7. Direct, indirect and induced effects are then summed to estimate the total GVA and employment impacts associated with Ossian. Each sub-category of spend was also assigned to either the Array, or another element of Ossian, allowing for the Array-only economic impact to be estimated.

 

Figure 2.2: Economic Impact Methodology and Data Sources

 

3. Estimated Expenditure

3.1. Approach

  1. In order to estimate the economic impact of Ossian and the Array, it was first necessary to estimate the total expenditure expected to be associated with each, broken down by category of spend. This was primarily based on the Applicant’s SCDS (Ossian Offshore Wind Farm Limited (OWFL), 2023), which sets out the expected spending associated with Ossian, as well as the share of contracts secured in different study areas (including Scotland and the rest of the UK (rUK)).
  2. This was then adjusted to take account of a detailed expenditure breakdown, and also:
  • a generating capacity of up to 3.6 GW (for each of the four options listed in section 1, and as per the parameters of PDE for the Array (see volume 1, chapter 3) rather than 2.6 GW as provided in the SCDS; and
  • the location of the Proposed onshore grid connection, on the Lincolnshire coast.
  1. This approach has been implemented in the following sections. Section 3.2 discusses the original expenditure set out in the Applicant’s SCDS which was used as the starting point for establishing the economic impact associated with Ossian. In section 3.3, the adjustments made to the original expenditure due to changes to Ossian since publication of the SCDS (as detailed in paragraph 20) are discussed. Section 3.4 then presents the expenditure by PDE Option for Ossian and the Array based upon the adjustments made to the original SCDS expenditure.

3.2. SCDS

  1. The starting point for establishing the economic impact was the expenditure that is expected to be associated with Ossian. The Applicant’s SCDS provides current estimates of the share of expenditure in Scotland, rUK, the EU, and elsewhere across two scenarios (commitment and ambition) associated with the following four categories of expenditure:
  • development;
  • manufacturing and fabrication;
  • installation; and
  • operation and maintenance (the first six years).
  1. The SCDS was submitted in July 2021 and updated in April 2023, although the update retained the same level of SCDS commitments and ambitions, based on the initial 2,610 MW installed capacity. It is anticipated that the next update of the SCDS will be published in 2026.
  2. In the commitment scenario presented in the SCDS, it was expected that the total expenditure during the development and construction (including manufacturing and fabrication and installation) phase would be £7.1 billion, including £3.0 billion in Scotland and £0.7 billion in rUK (at time of SCDS publication in 2021; Ossian OWFL, 2021). This includes:
  • £362 million on development, such as studies, surveys, analysis and resources required to obtain planning consent;
  • £5.2 billion on manufacturing and fabrication, including wind turbine engines, blades and towers, floating foundations, mooring and anchoring, inter-array and interconnector cables, onshore and offshore substation fabrication and the operation and maintenance base construction; and
  • £1.5 billion on foundation and mooring installation, onshore wind turbine and foundation assembly works, onshore substation construction and installation and export cable route works.
  1. In addition, there is expected to be operation and maintenance spend of £196 million per year (on average over first six years of operation and maintenance), including £136 million per year in Scotland. This is expected to include operating and maintaining the offshore wind turbines and infrastructure associated with Ossian, inspections, rents and transmission charges. Ossian’s lifetime is expected to be 35 years.

Table 3.1: SCDS Commitment Scenario based on 2,610 MW

 

Scotland

rUK

Total

Development

£257 m

£93 m

£362 m

Manufacturing and fabrication

£1,774 m

£537 m

£5,167 m

Installation

£986 m

£57 m

£1,545 m

Development and construction

£3,017 m

£687 m

£7,074 m

Annual operation and maintenance

£136 m

£32 m

£196 m

 

  1. Each of the categories of spend was then split into sub-categories (see Table 4.1) based on the technical expert’s offshore wind economic model (described in section 2.4), which incorporates a detailed breakdown of cost categories, based on industry data, including BVG Associates Guide to a Floating Offshore Wind Farm (BVG Associates, 2023).