Implications of Highland Council’s Social Value Charter

Our analysis finds that the Social Value Charter will cost the Highland economy £2 billion as 4 out of 5 viable onshore wind projects will not go ahead

Highland plays a crucial role in Scotland’s energy transition and the area will be critical for Scotland to meet its onshore wind targets by 2030. In June 2024, the Highland Council published the Social Value Charter (SVC). This charter includes a provision of £12,500 per MW in Community Benefit Funding (including £7,500 to a core Strategic Fund facilitated by the Highland Council).

The objective of the SVC is to:

embed an approach to community wealth building into Highland;
maximise economic benefits from our natural environment and resources;
engage and involve relevant stakeholders to understand how we can continually improve our impacts; and
unlock economic opportunities for the area.

This post considers what the potential implications of this policy are on those objectives.

What Are the Economic Impacts of Onshore Wind in Highland?

As part of our recent experience in onshore wind farms in Scotland, we have analysed the expenditure and economic impact of seven onshore wind farms in Highland using actual supply chain data. This included projects in the Great Glen and Sutherland. Over the lifetime of these projects, the majority of the economic Gross Value Added (GVA) benefit comes from the supply chain. This includes companies that work on the development and construction of the projects, and those that work throughout the operational lifetime of the wind farm. The analysis of the projects found that the impact within the supply chain was 6 times greater than the value of the community benefit funding.

Therefore, if a project does not go ahead for whatever reason, the people who stand to lose out the most are those who work for these supply chain companies.

What Does the Social Value Charter Mean for Onshore Wind Projects?

The SVC could reduce the financial viability of onshore wind projects in Highland by increasing operational costs over the lifetime of the asset. This will decrease the profitability of the wind farms because the competitive nature of the Contracts for Difference rounds means that these costs can not be passed on to the consumer. The SVC could increase the effective hurdle rate (or decrease the IRR, depending on the angle you look at it) that onshore wind projects will need to clear before they are built by at least 0.6%.

BiGGAR Economics has reviewed the financial viability of onshore wind projects across Scotland. This has projects being developed by large, medium and small developers. The majority of consented projects are viable and clear their hurdle rates, however not by much. The majority of projects are within 0.6% of the returns they need to raise finance and are therefore unlikely to be able to raise the finance needed to construct if the effective hurdle rate increased by that amount or similar.

There are some outliers, particularly windy or easy-to-access sites, which will go ahead regardless. However, based on our discussions with developers, it is estimated that the SVC could reduce the number of new onshore wind projects developed by 80%.

What Does the Social Value Charter Mean for the Highland Economy?

The Scottish Government has a target of 20GW of onshore wind by 2030, which will require almost 2GW of onshore wind projects constructed each year. Approximately 25% of this pipeline is in Highland, and previous work by BiGGAR Economics for Moray and Highland Council has estimated that around 2.6GW will be constructed in Highland between 2024 and 2030 if Scotland were to achieve its targets.

The Social Value Charter could reduce this significantly. If 80% of this pipeline is no longer financially viable under the Charter, this would mean that only 520MW is constructed in this time frame. Onshore wind projects that are currently entering the planning system in Highland typically have an operational lifespan of between 30 and 35 years. Therefore, if only 520MW is constructed, rather than 2.6GW, the cost to the Highland economy could be £2 billion over the next 30 years.

What Does the Social Value Charter mean for Community Benefit Funding?

The reduction in economic opportunity also includes a lower level of community benefit funding available. While those projects that do proceed would provide more per MW, the value of funding that would be lost as a result of projects not going ahead would be greater. If 80% of projects do not proceed as a result, this would be equivalent to almost £200 million less funding available to communities.

Impact and objectives

The objectives of the Social Value Charter are widely supported and align with the strategic objectives of the Scottish Government and the Onshore Wind Sector Deal. However, our analysis shows that the implications of the Charter could be detrimental to these objectives. Rather than an enabler of economic growth and a source of community wealth, our analysis finds that the Charter will reduce the opportunities for economic development by significantly reducing the amount of new onshore wind projects that are built in Highland.

An Alternative Approach

Last year BiGGAR Economics was commissioned to investigate the benefits which have arisen during the construction and operation of energy developments in Moray and Highland, and to consider how benefits might be maximised in the future.

This work included consultation with industry, public sector and community stakeholders and building from BiGGAR Economics previous experience in economic development. Our report concludes that maximising impact will require:

rapid deployment of the projects needed to deliver Scotland’s target of 20GW installed capacity by 2030;
high local content of the supply chain;
bespoke opportunities for local employment and skills development that reflect the characteristics of the local labour market;
fair contributions to the cost of enabling infrastructure and other interventions necessary to support the sector;
fair community benefit packages that generate tangible benefits for the host community while remaining affordable for the developer; and
continued innovation to support the process of continuous improvement.

This report can be read in full on the link below: