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Viking Energy bond well worth waiting for says Shetland council chief executive

Publication: Shetland News

A view of the Viking wind farm from the Vidlin junction at the weekend. Photo: Shetland News
A view of the Viking wind farm from the Vidlin junction at the weekend. Photo: Shetland News

THE LONG-awaited and overdue financial bond for the Viking Energy wind farm has finally been signed, three and half years after it should have been in place.

The £40 million bond is a safety guarantee for the planning authority that sufficient funds are in place owner SSE Renewables be unable to comply with its legal obligation to decommission and restore the wind farm site in Shetland north mainland.

The lack of a bond has been a bone of contention for a long time as planning conditions stipulate that construction of the £600 million wind farm should not have commenced before a bond was in place.

However, construction of the 103 turbine wind farm started in the summer of 2020 and is now in the final stages of completion. The development is due to become operational later this year.

An ‘irrevocable standby letter of credit’ by Banco Santander in favour of Shetland Islands Council and at the request of Viking Energy Wind Farm LLP for the maximum of £40 million was signed by all parties on Tuesday last week.

This translates to a value of around £90,000 per installed megawatt, which is higher than the typical values of decommissioning bonds for wind farm on the UK mainland.

When entering into negotiations with the council in 2019 SSE Renewables’ initially proposed a bond to the value of £11.2 million.

However, the council didn’t think this was sufficient and commissioned an evaluation to establish was a reasonable level would be.

SIC chief executive Maggie Sandison said she was “very satisfied” that the council had now managed to secure a much better deal in terms of value and type of bond.

She said the principle of putting a bond in place was agreed with the developer at a very early stage, and as such did not undermine the council’s negotiating position as was suggested by opponents of the project.

The chief executive also said that the council had been advised by its solicitors that it couldn’t have stopped construction work because a decommissioning bond is not regarded as “going to heart” of the development and SSE Renewables had also agreed to the principle of a bond. What was at dispute was the size and the type of bond.

“What we actually got is a very secure bond and a much higher level that was originally proposed, so I think the time take to negotiate this was worth doing.

“We have to remember that bond only ever kicks in at the end of life of the Viking wind farm and only if the company don’t decommission which is a legal requirement on them.

“So, this is something that wouldn’t be call upon for 30 years plus, and only as a second position after the developer wasn’t available to do the decommissioning themselves.”

“The position that we secured is good, and better than it would have been had we rushed the condition in 2020, and we get the opportunity to revalue the decommission bond every couple of years.”

However, Frank Hay, the chairman of Sustainable Shetland, the group that has been opposing the wind farm development for the last 15 years, said he was less than impressed by what he had seen.

“It is very unsatisfactory to have a planning condition that was meant to be in place before work commenced only, potentially, being discharged when work is more or less complete,” he said.

“The negotiating position of the SIC must have been much weaker having already permitted work to commence.

“Why has this been stipulated? That could lead to a requirement to renegotiate the bond with a different provider.

“We would hope that the SIC have been provided with a detailed analysis of how the £40 million figure was arrived at. In previous correspondence with Viking/SSE the SIC were insisting on that.”

Councillor Ian Scott, a critic of the wind farm development, said it had been a big surprise when it emerged that a bond had not been put in place prior to construction start.

“How far £40 million pounds will go in 25 years is anybody’s guess, so I presume inflation has been built into the figure,” he said.

A letter confirming that the financial guarantee required under condition five of the original planning consent for the Viking wind farm is now in place, has been added to the council’s planning website here.

Sandison added that similar decommissioning bonds would be negotiated for the three other onshore wind farm projects that are due to be built in Shetland over coming years.