We Have The Power to be Energy Leaders

Square One Law Feature in BQ2 Magazine.

With new legislation, an improving economy and emerging opportunities from the North Sea and beyond, 2014 could be a pivotal year for the North East’s offshore and renewables sectors. Andrew Mernin meets James Bryce, partner and head of the Energy team, at Square One Law, to assess the outlook and opportunities for the sector and for the region’s energy-focused businesses.

There isn’t a part of the energy industry that the North East can’t make an important contribution to,” says James Bryce of the prospects for a region with much to gain from power generation and supply chain opportunities. And his firm, Square One Law, is equally upbeat about the North East’s potential in the sector, having created a dedicated energy team and identified the sector as a key area of growth.

Among its larger energy-focused clients is Able UK, the industrial giant with a large footprint on Teesside, which is also currently developing a marine energy park in the Humber. Others include Shepherd Group and Utilitywise, as well as numerous offshore supply chain firms, renewables businesses and energy-related technology developers.

As the head of Square One Law’s Energy team, Bryce, is well placed to assess the challenges and opportunities facing North East firms and the outlook for the sector that could go a long way to influencing the future prosperity of the regional economy.

In terms of renewables, securing long term investment is key, he says, and a recent legislative change should begin to have a positive effect as it is implemented. He cites the latest guise of the Energy Act, which was pushed through by the Liberal Democrat’s energy and climate change secretary, Ed Davey and came into force at the end of last year. It encompasses a package of measures which government says will support the creation of 200,000 jobs in the renewable energy sector, equating to around £40bn of investment in renewable electricity by 2020. It aims to give investors and industry confidence to invest in the sector and puts a legal obligation on British governments to maintain the UK’s energy generating capacity while reducing emissions.

Bryce says: “One of the challenges in recent years in terms of renewables has been a lack of certainty in the regulatory regime. This has meant that funders of the big capital projects were reluctant to commit because they didn’t know what the government was going to do. This was alongside the underlying uncertainty in the finance markets that we have seen since 2008.

“The good news for the industry is that the Energy Act should go some way towards addressing this. This has given a lot more certainty – for offshore wind in particular. Combined with an improving economic outlook, it means that investors are more confident of getting the desired returns on projects. In addition we are seeing smarter and cheaper technology in areas such as solar which is making projects more viable and scalable.”

Aside from funding, another challenge to successful offshore and renewable projects is to ensure we maintain the flow of skilled workers into the sector.

“There is a perception that there is a lack of qualified engineers and people with required skills base coming through. In the oil and gas supply chain in particular, we’re hearing that many firms are concerned by a lack of skilled workers in the region, as demand for production remains strong Employers are having to import skills from other regions and countries.

“I think a lot of the big employers are trying to address that in the private sector. NOF Energy is also focussed on this issue, with initiatives focussed around apprenticeships and re-skilling people from the services. ” For those in the energy supply chain that do have enough talent on board, opportunities are emerging from numerous sources, both in the established power generation industries and in the emerging technologies.

Overspill of work from booming Aberdeen is increasingly flowing down the east coast. At last year’s Pilot Share Fair event – which brings together major offshore purchasers, suppliers and contractors in Aberdeen – around 30 North East of England firms attended and the upcoming ‘subsea expo’ in Aberdeen is expected to attract similar interest from North East based companies.

The North East is an attractive option for offshore firms at full capacity north of the border, says Bryce, but he also believes that more specialist professional services here would enhance its appeal. This is an issue that Square One Law is addressing, through discussions with consultants from Aberdeen with a view to harnessing their expertise and using it in this region.

Of other emerging offshore opportunities, Bryce says: “A lot of the 1970s and 80s oil platforms are approaching decommissioning. Currently a lot of that goes to the Nordic countries or further afield. I think there’s a real opportunity for this region to increase its involvement in that part of the supply chain, and a coordinated approach could bring dividends.

“Decommissioning work is interesting – it involves an extensive supply chain, from the large multinational oil and gas producers right down to the smaller businesses, such as the precision engineers, subsea and topside logistics.”

Meanwhile, in the renewables field, the growing amount of wind power generated in the UK is helping to edge the sector up investor wish lists. New developments like the 9,000 sq km offshore site at Dogger Bank continue to present opportunities.

“Such projects are creating opportunities in the offshore supply chain, from cabling to surface engineers and support services,” Bryce says.  He adds that the North East’s growing cluster of subsea firms is also anticipating new opportunities from large scale wind projects. On a smaller scale, however, wind power continues to be dogged by a challenging planning regime and logistical challenges in grid connection.

“There was a lot of hope that smaller scale wind projects may take off with property owners doing micro-generation but it hasn’t really reached the scale that some hoped, However, it is an area we are watching very closely and we have supported a number of our clients in on-site generation projects. Larger developers are now recognising the need for community buy-in at an early stage and I would expect to see much more strategic community engagement in the early stages of projects, with local residents having the opportunity to participate in the revenues generated by projects.”

While wind power has its vocal opposition few power sources have caused as much controversy as the arrival of onshore gas. If some commentators are to be believed, onshore gas could not only alleviate the UK’s energy security fears, but also generate supply chain work for an army of SMEs in the North East.

“There’s obviously a public debate around safety and rightly so. However there is interesting evidence emerging from the States that alleviates some of these concerns, which may mean the public becomes more comfortable with it. It could be a key part of the energy mix, but it needs to be fully explored and I suspect we’ll see legislation around this area in the near future “The numbers are certainly compelling – the Institute of Directors believes the sector could support 74,000 jobs in the next 10 years. If it was done in a controlled way and the planning regime was in place, there’s no doubt that North East could play a big part. Smaller supply chain firms from the offshore and general engineering sectors have transferable skills.”

It could be some time before onshore gas is feeding wealth into the regional economy, so Square One Law are focused on working with other emerging areas of energy-related technologies. “Building relationships at the growth end of the market is where we really want to be.

“Other renewable technologies that we’re particularly interested in include biomass – where the region’s ports provide a great route for the import of feed-stocks; carbon capture and storage and pyrolysis. We also advise a significant national solar developer, and expect to see solar developments high on the agenda, particularly as house building begins to pick up.” he says.

And finance is of course essential in getting such enterprises to the growth stage. Bryce says: “We’re seeing a lot of activity in fundraising. This has been essential in kick-starting the region’s technology and specialised engineering companies. Another catalyst for success in offshore and renewables, says Bryce, could be a more coherent approach to overcoming the skills shortage, in winning export deals and securing investment.

“If you look at the automotive sector in the region, with Nissan, the automotive skills academy and various other initiatives, you’ve got a joined up approach to training people and attracting inward investment. You’ve also got some interesting public-private partnerships emerging. This has a hugely beneficial trickle down effect through the regional supply chain.

“With opportunities like the Dogger Bank, the world class subsea sector and the decommissioning of oil rigs, we believe that the energy sector has the opportunity to apply a collective approach from the North East – this could bring huge dividends.

“What is not in doubt is that as a region we have some world class companies contributing to the sector and the opportunity to be at the forefront of the rapidly changing energy and power generation industry for the 21st century.”

You can view the full publication, which includes coverage of our clients Able UK and Chirton Engineering here