Shetland Council’s Controversial Deal Sparks Debate Over Energy Development

The recent lease agreement between the Shetland Islands Council (SIC) and energy developer Statkraft for land near the former Scatsta Airport has ignited a contentious debate within the local community. Publicly announced on Wednesday, the deal facilitates a hydrogen production facility that is expected to generate significant financial benefits for the SIC, including an annual rental income of £1.13 million and community benefit payments valued at approximately £2 million annually once operational, anticipated by 2032.

The Norwegian state-owned Statkraft plans to establish an electrolytic hydrogen to green ammonia production facility with a capacity of up to 400 MW. This facility aims to utilize excess renewable energy, particularly from local wind farms, that is currently unable to be harnessed by the grid. While the SIC asserts that the agreement aligns with its principles laid out in the report “A Fair Share for Shetland,” critics, including Green councillor Alex Armitage, have expressed deep dissatisfaction.

Critics argue that the council has compromised its position by accepting what they deem a minimal financial return from a significant corporate entity. Armitage described the deal as a “capitulation to corporate power,” expressing disappointment at what he views as a missed opportunity for the community to secure a fairer share of the revenue. “It has everything – brownfield site status, world-class port facilities, a grid connection, and a location right in the middle of the best renewable energy resource in Europe,” he emphasized.

In contrast, SIC leader Emma Macdonald defended the agreement, stating that it aligns with the SIC’s commitment to ensuring community benefits from renewable energy projects. “There are a number of renewable projects either underway or in planning for Shetland, and it is critically important that we as a council do what we can to ensure the isles see a benefit if the projects proceed,” she said.

Despite the SIC’s assertions, the deal does not adhere fully to the community benefit principles endorsed by the council in February. Those principles suggested that hydrogen developments should contribute 2.5 percent of gross revenue along with a guaranteed minimum payment. In contrast, the Scatsta agreement stipulates a fixed community benefit payment of £5,000 per megawatt of installed capacity, equating to around £2 million annually, akin to the community benefit from SSE’s 443 MW Viking wind farm.

The SIC’s approach has drawn criticism from the Energy Transition Task Force’s report, led by Neil McInroy, which suggested that community benefit payments should be reflective of production levels and value rather than solely installed capacity. The report highlighted that the standard community benefit figure of £5,000 per megawatt, introduced in 2010, should be updated to around £7,300 if inflation is considered.

Macdonald clarified that there is no legal obligation for developers to provide community benefits, and the SIC’s guiding principles for engaging with developers are voluntary arrangements. She stated, “This particular arrangement is different as it is the first time that community benefit is being able to be used strategically by a local authority.” Additionally, she confirmed that the SIC will not receive any community benefit until the plant becomes operational, which is projected for 2032.

Armitage contended that the agreement represents a failure of political leadership. He expressed concerns that the SIC has not learned from past mistakes associated with the Viking wind farm project. “Instead of learning from the mistakes, it seems as though we are repeating them,” he said. He highlighted the report “Fair Share for Shetland” as a vital framework for community ownership of renewable energy and criticized the decision to settle for a significantly reduced community benefit arrangement.

Local councillor Andrew Hall acknowledged the potential positive impact of Statkraft’s Scatsta development on the local economy, yet he noted that there are still many uncertainties surrounding hydrogen production that need to be addressed.

Stuart Marley, Statkraft’s principal hydrogen project manager, described the lease arrangement as a pivotal milestone in advancing green hydrogen and ammonia production in Shetland. “This scheme offers an opportunity to combine Shetland’s renewable resources with innovative technology,” he remarked. He emphasized that the company will collaborate closely with local stakeholders as the project progresses.

Despite Statkraft’s recent announcement to halt the development of new green hydrogen projects, it intends to move forward with more mature projects, including Scatsta, before seeking investors for further development. As the community continues to evaluate the implications of this agreement, the future of Shetland’s energy landscape remains a critical topic of discussion.