Unlocking Scotland’s offshore wind opportunities through ports and harbours infrastructure investment

Offshore wind undoubtedly presents Scotland with more than a once-in-a-generation opportunity.  The country has a project pipeline which will deliver more than 45 gigawatts, placing Scotland in the top 10 globally in the offshore wind market.  What is clear is that unprecedented investment in Scotland’s network of ports and harbours – comprising 11 major ports and more than 200 smaller ports and harbours – is critical to unlocking that opportunity.  And now the real challenge is upon us – the time for making those investments is now, and it isn’t easy.

The UK Government’s financial contribution via the Floating Offshore Wind Manufacturing Investment Scheme (FLOWMIS) is certainly welcome.  Managed by the Department for Energy Security and Net Zero, this is a grant scheme of up to £160million to fund port infrastructure developments to enable the delivery of floating offshore wind projects.  However, FLOWMIS is only part-funding the development of one Scottish port – the Port of Cromarty Firth (and only two ports in total, the other being Port Talbot in Wales).

Sourcing the match funding required under the FLOWMIS terms is not straightforward, and the reality is greater capacity is going to be required.  For Trusts and other ports not operated by large entities with significant borrowing capacity or “own funds”, and which were not successful in (or missed) applying to FLOWMIS, the funding challenge is no small obstacle.

Harbour infrastructure investment is expensive and works frequently require to be undertaken in a marine environment.  Challenges include arranging investigations with the choice of a limited number of suppliers, and the involvement of specialist equipment.  Surveying activities are highly susceptible to weather, particularly sea conditions, meaning costly ‘standby’ charges for personnel and equipment on days where activities are suspended.  In addition, the consenting process, including marine licenses, is widely acknowledged as time-consuming and intense.  Even beyond the completion of pre-construction services, the construction phase of major port infrastructure works is frequently prolonged, bringing considerable risk that additional costs may be incurred.

The outcome is capital-intensive development projects, necessitating significant fundraising efforts.  Positively, there are good prospects that the Scottish National Investment Bank (SNIB) and/or the National Wealth Fund (NWF) and possibly also GB Energy (subject to timing considerations related to establishment and commencement of investment activities) will support major ports and harbours developments. However, these institutions are run on commercial principles, with any funds they provide requiring to be repaid.  Having regard to those principles, alongside compliance considerations under the subsidy control regime, any party contemplating port or harbour developments should not consider provision of funds by those institutions as offering ‘cheap money’.  Also, it is unlikely that either SNIB, NWF or GBE will be able to provide all funds required to meet development costs.  Those parties are likely to undertake the critical role as cornerstone investor, hopefully generating confidence for private sector parties to co-invest (whether via senior debt and/or sub-debt and/or equity or a combination of these).

This fundability challenge across major ports and harbours projects involves balancing the substantial investment costs against the future income stream which, although likely to be significant, is not guaranteed and does come with some level of uncertainty over timescales for receipt.

Offshore wind developers can, and have been, asked to help with port development costs.  However, they have their own challenges.  There will be a reluctance to make firm commitments ahead of a Contract for Difference award and achieving a successful Independent Environmental Assessment outcome.  For many offshore wind projects, those milestones are several years away, meaning their need for ports and harbours to be used as integration bases/construction sites is not imminent.  Conversely, the need to develop the ports and harbours they will require is now pressing due to the design, consenting and construction periods involved.

Other potential supporters of ports and harbours infrastructure investment projects are port operators and service companies.  They will likely play a significant role in delivering offshore wind developments and are incentivised to ensure availability of suitable bases from which integration/construction activities can be undertaken.  However, operators are commonly highly efficient trading companies facing their own demands for the deployment of capital.  They are typically not investors in port and harbour major infrastructure projects and may not have substantial surplus cash within their balance sheets to support those schemes.

The fundamental challenge for those undertaking ports and harbours infrastructure expansion or upgrading projects is, therefore, to source parties that have sufficient cash available to invest and are willing to assume the risks involved.

For all the reasons outlined, the substantial equity investment made by Quantum Energy Partners (QEP) into the Ardersier Energy Transition Facility in 2023 is to be applauded.  Ardersier is a classic case of ‘build it and they will come’ and it was encouraging to see that initial sponsor equity investment being supported by substantial funds provided by SNIB and NWF.  For those who are still to commence their ports and harbours expansion and upgrading projects, the key question is who else exists ‘out there’ in the investment community that is willing to join the cornerstone investors and do the same?  The immediate answer may be to “go West”, as in another 2023 precedent, Port of Tyne was also supported by an American-based investor (Pricoa Private Capital), alongside NWF and Lloyds Bank in relation to a combined development facility worth £100million.  The hope is that UK-based investors will identify the opportunities presented, allowing a pool of potential private sector supporters to be developed, which is very much needed for all the reasons explained above.

Euan Pirie, partner and head of our Major Projects + Infrastructure practice, is attending the Scottish Renewables Offshore Wind Conference 2025 on 22^nd January, with Omar Ali, partner and head of our Renewable Energy practice, attending on 23^rd January.