Editorial: Atlantis and public subsidy for Pentland Firth tidal energy projects

We published an article very recently on Atlantis Resources Corporation’s approach to Highlands and Islands Enterprise, seeking subsidy for projects on the Caithness coast. These are linked to tidal energy development in the Pentland Firth.

In this article we raised a series of questions and some concerns on the validity of any potential subsidy in the circumstances.

There can be a case for state subsidy of renewable energy schemes where they promote low carbon living and can justify support through the experimental stage until the technology is proven and mature enough to be commercial. But in this case, Atlantis paints itself as already one of the world’s key developers of tidal energy. It already has its Solon turbine well into development and testing. Designed for strong, but remote, deep sea currents the Solon turbine uses a ducted horizontal axis design recently judged by Oxford University researchers as capable of drastically cutting the price of tidal energy.

The company sounds like a useful developer to buy into the scene at the Pentland Firth and, with a big league investment bank, Morgan Stanley, as its major shareholder, it is very well placed to do so.

As we noted, Scotland’s First Minister has described the Pentland Firth as ‘the Saudi Arabia of renewable energy’. Certainly there is nowhere else in the UK with its consistent tidal flow power. Unlike oil and gas reserves, it represents a permanently available resource into the future.

As holder of significant tidal energy resources, Argyll has a strong interest in this issue and will maintain a keen watch on developments.

An episode of the BBC television series Dragons’ Den – which tests and potentially supports worthy emerging entrepreneurs, was quite revealing. The venture capital ‘dragons’ asked one woman contender if she had the resources to invest in her proposed enterprise herself. She said Yes’. They then asked the obvious – ‘So why don’t you?’ Her answer was that she didn’t want to take the risk. The Dragons did not invest.

The point of entrepreneurship is considered and evidenced risk-taking. If the Pentland Firth is a commercially powerful resource, any serious business interest can be expected to bear the development risk itself in the prospect of very significant profits to come – in this case reaching long into the future.

Compare what happens in the oil and gas industry, the nearest equivalent of major raw energy production.

There, the Government (in this case it’s the Crown Estate) offers a licence block at auction – a parcel of land or sea bed for exploration. The successful bidder then drills at their own expense. Bidders are almost always partnerships, spreading the risk.

If they have a find they have to share the proceeds with the government – that’s the deal. If they find nothing, they bear all the losses, not the state. The state generally profits out of licence rounds, regardless of whether there is a find.

The state may also attach other conditions to a licence block sale – such as the requirement to drill within a given period or spend a specified sum on seismic research in the block.

Some blocks may prove productive but, because of their nature or position, require heavy investment by the company to attempt to get the oil or gas out. That is a normal business decision, carrying the risk of failure.

All of this is established commercial practice in the energy industry and there is no valid reason to vary it in the case of Scotland’s tidal energy resources. Quite the opposite. With oil and gas on a known decline in life expectancy and renewable energy sources the new Yukon, Scotland is in the driving seat and needs to exert that authority, not apologise for it.

The focus needs to be on due state profit-taking and scrutinisation of responsible and trustworthy entrants to the industry. The most effective and least bureaucratic scrutiny is the simple criterion of who is prepared to put their money up front. This is very particularly necessary in the case of large established companies claiming already to be world leaders in the field.

Emerging indigenous companies in the field are in a different position. In this case the Government has long term issues of ownership and skills development to consider in relation to possible subsidy.

Scotland claims to have been robbed of its oil revenues last time around. It should be careful now not to throw away our new-found resources of tidal energy all by itself.

Scotland may not be used to holding such valuable cards but it needs to learn fast how to play them.