The winter sun is streaming through everyone’s windows on a Teams call with Maggie McGinlay and Neal Handforth.
The January brightness fits their upbeat mood after the outcome of the first Scottish offshore wind leasing round in more than a decade.
McGinlay and Handforth are chief executive and development and infrastructure director, respectively, at Aberdeen-based Energy Transition Zone, which launched in 2020.
This is a non-profit company very much born out of the private sector as the brainchild of Sir Ian Wood, the billionaire former chairman of oil services provider Wood Group.
Wood is chairman of ETZ, which was seeded with £5.7m from Opportunity North East, the private sector-led and funded development agency he founded in 2015. ETZ has quickly won the confidence and support of the UK and Scottish governments to the tune of more than £50m of funding awarded last year and now employs a team of around 20.
Its objective is to reposition the region’s economy by reducing its longstanding reliance on oil and gas and establishing it as a globally recognised energy cluster focused on the delivery of net zero. This ambition is underpinned by a major property goal: to deliver a 100-acre energy transition zone in Aberdeen, a city that is in short supply of high-quality new and refurbished industrial space with solid green credentials.
Moving towards net zero
All of this has just been given a major boost because 12 of the 17 successful offshore wind projects announced by Crown Estate Scotland in January are located within 100 nautical miles of Aberdeen.
The 17 successful projects could generate almost 25GW of electricity – more than double the anticipated 11GW – and will provide power for the expanding electrification of the Scottish economy as it moves to net zero. A multi-billion-pound supply chain investment will be needed to support these projects and close to £700m will be paid by the successful applicants in option fees and passed to the Scottish government for public spending.
The 12 projects around Aberdeen account for almost 18GW and underline the commitment of indigenous oil and gas giants to reposition themselves as green energy providers: successful bidders include BP and Shell, as well as renewable energy specialists such as EDPR, the world’s third-largest wind energy producer.
“This is huge and really exciting,” says McGinlay. She sees it as “a step change”, which really builds on the investment into offshore wind, hydrogen and carbon capture in the region in recent years.
ETZ’s aim is to deliver the sustainable industry base to support the high-value manufacturing, operations and maintenance and innovation that will be required to turn these new projects into reality. It hopes this will create 2,500 direct jobs and a further 10,000 energy transition-related jobs across the region.
McGinlay, a member of the Scottish government’s advisory council for economic transformation and former deputy chief executive at Opportunity North East, describes it very much as an opportunity to replicate the region’s 50-year success in exporting its strengths in oil and gas around the world – only this time based around clean energy.
“It’s about having the same ambition here for energy transition activities,” she says. “Given our locality, given the strength of our supply chain, the company base we have here, the talent of the workforce, the financial capital. All of those things mean that we are really well positioned to go after opportunities: continue with oil and gas, but go after opportunities in offshore wind, green and blue hydrogen and carbon capture and storage,” McGinlay explains.
Technical synergies
Key to this ambition is the new £350m Aberdeen South Harbour, one of the largest marine projects in the UK, which begins a phased opening this year. “That’s a game-changer because it’s non-tidal, it will operate 24/7, it has extensive quayside and lay down spaces, deeper water,” she says.
McGinlay also stresses the technical synergies between floating offshore wind and the region’s long-established subsea oil and gas industry – 75% of the world’s subsea engineering capability is based in the north-east of Scotland. In the ScotWind leasing round, 10 of the 17 selected projects are floating as opposed to fixed-bottom developments. Nine of those are among the group closest to Aberdeen.
Floating offshore wind is still considered a nascent technology. But according to Aberdeen-headquartered energy consultancy Westwood Global Energy Group, it is “widely acclaimed as the future” because it opens the potential to harness higher wind potential in larger and deeper offshore areas. Expansion of this technology, where wind turbines are attached to floating structures anchored to the seabed using flexible anchors, chains or steel cables, is tipped as a key trend in new and emerging offshore wind jurisdictions for 2022.
Accelerating production
Aberdeenshire is already home to the world’s first floating wind farm, Hywind Scotland, which started to deliver electricity in 2017, and the 48MW Kincardine phase 2, which was completed last summer.
“Floating wind is really interesting for the north-east of Scotland. It’s still pre-commercial, so there is still a lot to be done to get the cost down, but the type of knowledge, expertise and capability needed has such a strong fit with oil and gas subsea capability,” McGinlay says.
“There is a lot of really good technology development being done already. It’s about getting all that talent and brainpower to focus on how we really accelerate floating offshore wind. How do we get the costs down quickly?”
The growth in offshore wind plays into the green hydrogen industry. “The production of green hydrogen powered by offshore wind could significantly increase the commercial value proposition of projects,” says Westwood, with projects to watch including Vattenfall’s Hydrogen Turbine 1 off east Scotland, which will be installed at the operational Aberdeen Bay wind farm.
ETZ’s first strategic investments aim to address some of these opportunities and challenges.
It is investing in the development of a green hydrogen testing and demonstration facility; a floating offshore wind technology centre to work with industry on technical development and, crucially, on bringing costs down; and a business incubation and scale-up facility. The latter will support start-ups and early stage companies and provide them with the facilities they need, such as workshop space and small manufacturing space.
“These are very deliberate innovation and technology investments that we are making now, and which will be a really important part of that overall cluster that we are looking at,” McGinlay says.
These three “sentinels” will be located within the ETZs earmarked in Aberdeen’s proposed local plan and McGinlay and Handforth hope other related occupiers will cluster around them.
“That’s my elevator pitch when I am talking to property people,” says Handforth, who is attending this year’s MIPIM.
ETZ is also investing in the new National Energy Skills Accelerator, a collaborative initiative set up with partners including University of Aberdeen and Robert Gordon University, to prepare the workforce for the energy transition and to provide access to new skills and capabilities required for delivering the net zero agenda.
Aiding the supply chain
There is much more going on behind the scenes too.
In the run-up to the recent leasing round, ETZ played an instrumental role by offering its support to prospective bidders. Those conversations can now progress.
“If they need new investment in high-value manufacturing, for example, we can provide the land and infrastructure to support that,” McGinlay explains.
Supporting the onshore supply chain needs to realise these offshore developments is seen as critical to their success. That encompasses a range of services – including surveying the seabed and the supply of costly “balance of plant”, which consists of offshore foundations, cabling and transformer platforms.
This is also an opportunity to help the existing supply chain to transition from working in an oil and gas environment to working in a renewable energy environment.
“If the supply chain companies need new manufacturing facilities or new premises, then we can provide that through the energy transition zone,” McGinlay says.
“If we get an inquiry, we can move on that now,” Handforth adds.
“There are buildings within the zone that are for sale at the moment and there are buildings where occupiers want to move out. We are looking at every angle on this strategy for the property piece,” he says. The assumption in the market is that this will include ETZ purchasing land and buildings that fit the bill.
Circular economy
ETZ is keen to repurpose and reuse. The hope is to create a circular economy around surplus stock. The days of simply knocking down and starting again have gone and ETZ is working with Aberdeen University, Robert Gordon University and Scottish Enterprise as part of a drive to do things differently. Everything is on the table, from portable offices within a building, which can be moved based on demand, to simply reusing materials.
“Shell HQ is going to be moving. So why couldn’t we take some of the components, as an example?” he says.
On top of these initiatives is the masterplan work now under way for the ETZ, covering up to around 100 acres. The project is supported in Aberdeen City Council’s proposed Local Development Plan 2022, which is awaiting sign-off by the Scottish government.
Around 65%-70% of the proposed land areas are made up of existing brownfield sites in East Tullos and Altens – outdated 1970s industrial estates built to support the oil and gas industry and facing rising vacancy rates. The rest is made up of undeveloped council-owned sites adjacent to Aberdeen South Harbour, which have been allocated for the ETZ in the proposed local plan. One of these is proving particularly contentious with the local community.
Campaigners for St Fittick’s Park, directly across from the entrance to the new harbour, argue that the last piece of green space in a heavily industrial area is vital to the wellbeing of residents of the adjacent New Torry neighbourhood. Shortly before Christmas, a group of 22 medical professionals from around the area put their support behind the campaign to save the park from development on health grounds, according to a report in the Press & Journal.
The plan to use the park does seem at odds with ETZ’s stated ambitions for an exemplar net zero development. But McGinlay was reported in the same newspaper as saying that space right next to the new harbour would be “crucial” to investors and occupiers who want to use the harbour to support their new ScotWind projects. She also said that less than a third of the park would be required for the ETZ. It is a battle which looks unresolved at this point.
Environmental consultant Ironside Farrar was appointed last year to carry out the masterplanning work and has so far focused on data collection across the sites and initial work with stakeholders and the local community. Handforth says the proposed area is held in a diverse range of ownerships, made up of more than 40 landlords, including major pension funds and developers.
The aim is to submit a planning application to the council in the summer, with the hope that the masterplan would be in place in 2023. This is expected to lead on to multiple investment opportunities. “That will be the time to really encourage that investment. But what we should encourage now is discussion,” Handforth says.
ETZ is targeting £64m of private sector funding over the next five years – with indigenous oil and gas companies being among the obvious targets as they look to transition to green energy.
“What’s interesting is that if you look at the big investors we have had in the region for many years – BP Shell, Total, for example – they are now moving from oil and gas into energy. And as part of that, BP has already said that Aberdeen will be its centre of excellence for offshore wind, as has Total. So they are retaining their investment,” McGinlay says. “And as they are transitioning and looking at these new opportunities, they will continue their investment here. So how do we cluster new investment and new activity around that? That is what we are seeking to do.”
It is also about creating the most attractive offer for investors to come in and be part of ETZ’s cluster of activity.
“We are working with the council to make sure we have the right road infrastructure, the right coastal walks, the right environment for biodiversity for people who work there,” says McGinlay.
Meanwhile, ETZ has also enlisted the help of energy consultant Buro Happold to develop a strategy for powering the zone’s many energy-intensive industrial uses with green energy. He and McGinlay are very clear that the entire development must be “net zero exemplar”.
Handforth says: “Buro Happold is looking at examples around the world – in Japan and Canada, for example, where the hydrogen sector is more advanced. There are a lot of lessons for us to learn and take from. This is a unique project in terms of the landscape across the UK.”
For occupiers, he wants the ETZ to be able to offer a green energy plug-and-play system, which would incorporate future technology as well. “We know that occupiers and investors want exemplar net zero buildings to invest in,” he says.
With so many concurrent strands of activity, there is a real sense that ETZ the company and ETZ the zone are beginning to make progress.
McGinlay recalls a favourite phrase of Wood’s: “Deliver with pace.” Now they must live up to it – and bring the sector with them.
Aberdeen’s shortage of new property stock
In a sign that it means business, ETZ secured its own office space in November 2021, taking the entire 4,445 sq ft second floor at the newly refurbished Blenheim Gate in Aberdeen on a five-year lease.
Aberdeen-based property developer and investor Esson Properties carried out the refurbishment to meet demand in the city for more energy efficient space. All mechanical and electrical services were updated and bicycle racks and electric vehicle charging points installed.
Derren McRae, head of CBRE’s Aberdeen office, which advised ETZ, said high-quality refurbishments were key to meeting demand in the city. There is currently around 260,000 sq ft of active office requirements, down from 360,000 sq ft prior to Shell committing to the Silver Fin Building. However, there is only 60,000 sq ft of grade-A space available in the city centre that has never been occupied before. Out of town there is around 160,000 sq ft of space that has never been occupied, McRae said.
The story is very different when it comes to secondhand stock: there is around 2.6m sq ft of secondhand stock on the market, a hangover from projects dreamt up before the rapid decline in the oil price in 2014.
In the industrial sector, McRae said there is currently around 400,000 sq ft of requirements, but only 35,000 sq ft of new-build never-occupied industrial stock on the market. There is around 3m sq ft of secondhand space on the market, but much of does not meet today’s ESG requirements.
How will the ETZ impact the city?
Put simply, the ETZ has the potential to be completely transformational, writes Claire Herriot, associate director of business space at Savills Aberdeen.
The primary goal is to attract more renewable businesses to Aberdeen through the delivery of best-in-class, energy-efficient buildings and infrastructure. With demand for this type of product increasing, there is a real opportunity for existing landlords in the city to follow suit and improve the energy efficiency of their properties.
There are also plans to repurpose the brownfield sites of East Tullos and Altens, close to “the zone”. This could result in a knock-on effect in the wider Aberdeen area, improving energy efficiency and sustainability beyond the city centre.
The renewable occupiers that the city hopes to attract will undoubtedly have stringent criteria in terms of the energy efficiency of their facilities and it is therefore vital that the buildings within the ETZ, and Aberdeen as a whole, meet this need across both offices and industrial.
Aberdeen already has some of the infrastructure and skills in place to advance into the renewables sector and we have seen examples of occupiers recognising this. Last year, ERM – the largest global pure-play sustainability consultancy – chose Aberdeen as the location for the world’s first offshore green hydrogen floating facility as a result of the city’s ongoing investment in hydrogen production and the facilities being created at the new harbour.
We have also seen Aberdeen City Council select BP as the preferred bidder to help build a green hydrogen production hub, with the intention of establishing Aberdeen as a world-class base for hydrogen. And TotalEnergies opened its UK Offshore Wind Hub in Aberdeen in October 2021, which will form part of the company’s existing offshore operations centre in the city. These are hugely significant commitments that will hopefully pave the way for other occupiers of this nature to create a base and invest in Aberdeen. They are also supported by the fact that the majority of the new ScotWind licences are situated within 100 miles of Aberdeen.
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