Economic Opportunities for Wales from Onshore Wind

Economic Opportunities for Wales from Future Onshore

Wind Development

A Final Report by Regeneris Consulting and the Welsh Economy Research Unit, Cardiff Business School

RenewableUK Cymru

Economic Opportunities for Wales from Future Onshore Wind Development

January 2013 Regeneris Consulting Ltd

Faulkner House Faulkner Street Manchester M1 4DY 0161 234 9910 www.regeneris.co.uk

● Economic Opportunities for Wales from Future Onshore Wind Development ●

Contents

Executive Summary 1

1. Introduction 10

2. Overview of Assessment Approach 12

3. The Onshore Wind Sector in Wales 20

4. Economic Opportunities for Wales 35

5. Local Economic Benefits 50

6. Conclusions and Recommendations 66

Appendix A Economic Impact Methodology 1

Appendix B Survey Questionnaire 1

Appendix C Consultees 1

Appendix D Case Studies 1

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About the Authors Regeneris Consulting is an independent economic consulting firm specialising in economic development. We are a leading firm in socio-economic impact assessment, having undertaken many studies across a range of sectors, including energy, housing, broadband, tourism and leisure, land and property, pharmaceuticals, automotive, aerospace, and others. We specialise in using robust analytical techniques to draw out the range of socio-economic impacts of sectors, companies, investment projects and economic shocks.

The Welsh Economy Research Unit (WERU) is based within Cardiff Business School at Cardiff University and has a long record of providing research and consultancy services for organisations in both public and private sectors. An important theme of recent WERU research has been economic assessments and reports on industry sectors (media, heritage and culture, tourism, steel and coal, other energy). WERU has developed Input-Output tables for Wales. These tables set out the most comprehensive and robust picture available of the Welsh economy, plotting the flow of goods and services between industries, consumers and government, highlighting the intricate inter-relationships between industries in the contemporary Welsh economy.

About the Report This report is funded with contributions from: Amegni Pennant Walters RenewableUK Cymru RES RWE npower renewables ScottishPower Renewables SSE Renewables Tegni Cymru Cyf Vattenfall Welsh Government West Coast Energy

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Executive Summary

Purpose and Scope of the Report i. Regeneris Consulting was appointed by Renewable UK Cymru, the Welsh Government and a group of wind farm developers to undertake an assessment of the economic opportunities from onshore wind development for Wales. The study has been carried out in collaboration with the Welsh Economy Research Unit at Cardiff Business School, with advice from PMSS Ltd., a renewables advisory firm. ii. The assessment covers total levels of investment by Welsh and other companies from the following sources:

 Direct expenditure in Wales through manufacture of wind turbine components; planning and development work; construction of site and wind farm; operations and maintenance; and decommissioning/repowering

 Indirect expenditure via supply chain components sourced within Wales and investment in grid infrastructure

 Induced expenditure by employees supported through direct and indirect effects

 Community benefit payments. iii. The spatial focus is on Wales as a whole, with an indication of the potential geographical location of impacts at each stage in the wind farm lifecycle. iv. The focus of the study is on the core economic opportunities that would be created by the future development of the sector. It does not provide an assessment of the wider environmental or social impacts. v. The study has been carried out using:

 A review of the literature

 Analysis of the RenewableUK wind farm Database

 A survey of developers and operators of wind farms in Wales

 Consultations with the industry, Welsh Government, local authorities and other stakeholders

 Input-Output modelling

 Case studies.

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Overview of the Onshore Wind Sector in Wales

Policy Context vi. Welsh policy towards the onshore wind sector has evolved in recent years. TAN 8 planning guidance, published in 2005, sets out guidance on the location of wind farms in Strategic Search Areas (SSAs). These locations are expected to host the majority of wind farm capacity in coming years. vii. The latest planning guidance sets out an aspiration to deliver a total of 2,000 MW of installed onshore wind capacity by 2025, with much of this expected to be delivered up to 2020. It should be noted that projects with a capacity greater than 50 MW are determined by the UK Planning Inspectorate. viii. The Welsh Government recognises the potential socio-economic benefits from developing the sector, and its headline aims are to maximise these long term economic benefits and to ensure that local communities benefit from energy infrastructure developments.

Development of the Sector: Experience to Date and Prospects ix. The publication of TAN 8 was seen as providing an impetus to the development of the sector, although this proved to be short lived. Only around a quarter of the TAN 8 target for 2010 has been met. x. According to the RenewableUK database of wind farms, there is enough capacity in the pipeline to meet the 2,000 MW aspiration by 2025: in addition to the 420 MW in operation there is approximately 1,800 MW consented or in the planning system. However, clearly not all of these projects will be approved and some are, indeed, mutually exclusive. xi. We have looked at three development scenarios for the future (see Appendix A for more detail)  2,000 MW: meeting this aspiration by 2025 would require around 120 MW of additional capacity to come forward each year up to then.  Historic Trends: a continuation of trends in the period 2001-11, implying 27 MW of additional capacity per annum, and 800 MW total capacity by 2025  Recent Trends: a continuation of more recent consenting trends, implying 86 MW per annum of additional capacity, and 1,560 MW in total by 2025. xii. We model the economic impact of these scenarios in Section 4.

Industry Views xiii. Developers are generally positive about presence of Welsh based suppliers in the areas of civil engineering, environmental services and consultancy, and most are aware of the presence of towers manufacturing in Wales (i.e. Mabey Bridge). xiv. The vast majority of respondents saw at least some potential to increase their use of firms in the development and construction phase over the next three years, with a third reporting a lot of potential. A smaller proportion – but nonetheless, a significant majority - believed 2

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there to be scope to increase the use of firms in operations and maintenance. Almost half saw a lot of potential. xv. Developers cited a range of policy and economic barriers to growing the Welsh supply chain, including significant risks and uncertainty over securing planning consent and a perception of a lack of buy in locally to national aspirations. Infrastructure constraints (road and grid related) were also commonly cited barriers. xvi. Overall, 40% of developers surveyed feel that Wales is either a reasonably or very favourable place in which to invest. Only a small minority of respondents view Wales as very favourable (7%). Around a third of developers stated that Wales was either fairly or very unfavourable. xvii. Looking beneath these statements, the majority of respondents did not see the skills base as a constraint and most were positive or neutral on planning policy at the Wales level (i.e. TAN 8). There was clear agreement that local planning policies and practice and grid and road infrastructure were negative factors in the consideration of Wales as an investment location for onshore wind projects.

Economic Impacts for Wales

Development and Construction xviii. We estimate that total average construction costs per MW of installed capacity are £1.13m, and total development costs are £0.12m, in 2012 prices. xix. Our estimates suggest that 35% of all expenditure in the construction phase is on average expected to be retained within Wales, along with 71% of planning and development spend. On average, developers expect to source around three quarters of the requirement for turbine towers from Wales, with Mabey Bridge and potentially other suppliers with the capability to supply steel towers. Whilst Mabey Bridge has capacity to supply this requirement, for prudence and to reflect downside risks on this expectation, we have reduced this sourcing assumption to 50% for modelling purposes. Civil engineering also has a strong presence of potential Welsh suppliers, along with forestry and environment services. xx. Given the lack of a turbine manufacturer in Wales, all expenditure on wind turbines leaks fully out of Wales. We do not expect it to be possible to attract a turbine manufacturer to Wales, given existing capacity in Europe and the economies of scale that would be needed to drive such an investment. xxi. We estimate that in 2005-11 the planning and construction of onshore wind projects in Wales contributed an annual average of £7.8m in GVA and 335 FTE jobs. The economic impacts under our future scenarios are as follows:

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Economic Impacts for Wales of Planning, Development and Construction Phase (average per annum) 2,000 MW Scenario Historic Trends Scenario Recent Trends Scenario 2012-24 2025-50 2012-24 2025-50 2012-24 2025-50 GVA (£m) 38 20 12 6 23 11 Employment (FTEs) 1,610 820 500 240 810 410 Source: WERU calculations, informed by developer survey and RenewableUK Database of wind farms. Note: All GVA figures expressed in 2012 prices. Estimates include impacts from decommissioning/ repowering.

Operations and maintenance (O&M) xxii. 76% of all first round expenditure is expected to be retained in Wales, with this expenditure amounting to £38,600 per MW per annum. xxiii. The largest items of expenditure include land rentals and access payments, which are paid to the Forestry Commission/ Welsh Government and local land owners. Direct employment costs borne by developers total £9,800 per installed MW, and much of this is retained in the Welsh economy. Community Benefit payments are an important element of operational expenditure for local communities around wind farms and the spending is largely local. xxiv. We estimate that between 2005 and 2011 O&M activity supported an annual average of £6m of GVA and 210 FTE jobs per annum. The economic impacts under our future scenarios are as follows:

Economic Impacts for Wales of Operations and Maintenance Phase (average per annum) Scenario 2,000 MW Historic Trends Scenario Recent Trends Scenario

2012-2024 2025-2050 2012-2024 2025-2050 2012-2024 2025-2050 GVA (£m) 22 37 11 15 14 23 Employment (FTEs) 720 1,260 370 500 470 770 Source: WERU calculations, informed by developer survey and RenewableUK Database of wind farms. Note: All GVA figures expressed in 2012 prices.

Forecast Economic Impacts xxv. Over the full assessment period 2012-2050, Wales could secure a total of £2.3bn in GVA, should installed capacity increase to 2,000 MW by 2025. This would amount to:

 £1.4bn more in GVA than if historic trends continued

 £0.9bn more in GVA than if more recent consenting rates continued.

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Economic Impacts For Wales of Development, Construction and Operations and Maintenance (average per annum) Scenario 2,000 MW Historic Trends Scenario Recent Trends Scenario 2012-2024 2025-2050 2012-2024 2025-2050 2012-2024 2025-2050 GVA (£m) 60 57 23 21 36 34 Employment (FTEs) 2,330 2,080 870 740 1,280 1,180 Source: WERU calculations, informed by developer survey and RenewableUK Database of wind farms. Note: All GVA figures expressed in 2012 prices. Estimates include impacts from decommissioning/ repowering. xxvi. Most of this impact in the 2,000 MW scenario would be felt in construction activities, with manufacturing (particularly steel) also benefitting. Employment in private services is estimated to increase by almost 300 FTE jobs annually to 2025 and almost 400 thereafter, whereas professional and financial services (focussed here on planning and engineering activities) accrue around 300 jobs annually to 2050. xxvii. Grid Infrastructure investment required to support the placement of wind turbines in Mid Wales would also bring economic benefits. Depending on the eventual solution (overhead vs. underground), we estimate that this investment would support between £11m and £57m in GVA and 360-1,950 person years of employment in Wales.

Scope to Maximise Benefits for Wales xxviii. Based on an assessment of current capacity in the supply side and the marginal economic benefits of changes in sourcing, increasing expenditure retention in Wales for a range of sectors could lead to an additional £7.3m of GVA and 250 FTE jobs per annum in the 2,000 MW scenario between 2012 and 2024 – see the table below. Conversely, the table also shows the impact that would result should rates of Welsh sourcing be below expectations. xxix. The largest ‘wins’ would potentially be gained from increasing sourcing from Wales of construction management, civils, electricals and grid connections. A 10 percentage point increase in purchasing in Wales in this aggregated sector would lever an estimated £3.7m of additional GVA and 140 FTE jobs per annum in the period 2012-24 in the 2,000 MW scenario. xxx. A similar increase in Welsh purchasing in planning, professional services and project management would yield £1.6m in GVA and 50 FTEs per annum.

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Economic Impacts from Increased Sourcing in Wales % currently 10 percentage points Increase in Local sourced from Sourcing Wales Per MW Additional Annual Impact in 2,000 MW Scenario; 2012-24 GVA FTEs GVA FTEs Planning, Professional Services & Project 71% £10,100 0.3 1.6 50 Management Construction, Groundworks and Electrical 61% £23,300 0.9 3.7 140 Engineering Manufacturing 50% £7,000 0.2 1.1 30 Transport, forestry & Other 67% £5,700 0.2 0.9 30 10% point increase in local sourcing across £46,100 1.5 7.3 250 all inputs Source: WERU Analysis

Local Economic Benefits xxxi. The economic opportunities outlined in Section 4 would not be spread evenly throughout Wales and some of the benefits would take place outside the immediate proximity of wind farm developments. Nonetheless, there are opportunities for local areas hosting wind farms to benefit from the developments, including:  contracts won by local firms during planning, development, construction and operations  employment of local residents supported in these phases, either directly or through supply chains  local expenditure in the retail and hospitality sectors as workers involved in these phases spend their income in the local economy  the wider economic benefits for local communities, including investment in local physical, economic and community infrastructure and financial benefit for particular groups such as land owners. xxxii. Using case studies this section looks at these benefits and what drives them.

Development and Construction xxxiii. Local economies with a strong presence of construction and manufacturing firms have a greater chance of being able to participate in the supply chain and retain personal expenditure of non-home based construction workers. Wind farms in close proximity to urban centres are likely to capture more of the direct and supply chain benefit. For example:  At Cefn Croes, local sourcing of inputs was limited due to its rural location and lack of suitable contractors for the types of construction inputs required.  By contrast, an estimated 13% of the overall construction value for the Ffynnon Oer wind farm, located in NPT, was sourced from within a 30 mile radius, including aggregates and related civils.

● Economic Opportunities for Wales from Future Onshore Wind Development ● xxxiv. However, rural areas will often be very well placed to supply some types of goods and services, due to a combination of the economies associated with sourcing these inputs benefiting local suppliers and the presence of a good supply base locally. Examples include aggregates, non-specialist civils, forestry and landscaping. xxxv. Larger construction contracts and more specialist activities often require tenderers to meet certain quality standards, favouring larger firms that have the necessary experience, management, and economies of scale. Many of the main contracts and large first tier sub- contracts therefore are let to companies outside of Wales. The majority of value secured by Welsh firms tends to be in lower tiers of the supply chain (second tier and below). xxxvi. Service based rural local economies do benefit in the construction phase by providing services to the contractors that are temporarily located there, such as hospitality and retail. For example, at Cefn Croes, many construction workers including Jones Brothers were located on site for the best part of a year. xxxvii. The ability of local economies to benefit from this induced personal expenditure depends on the remoteness of the construction site, the availability of accommodation and related hospitality and retail, the duration of the construction period and the country of origin of the main component suppliers. xxxviii. Developers state that many of the skills required in the construction of wind farms (site investigators, civil engineers, plant operators, manufacturers of metal fittings and fixings) are available in locations in Wales. Nonetheless the availability of these skills and the labour market varies from location to location within Wales. xxxix. Where skills are currently in short supply, this can be countered through appropriate efforts to upskill workers, given sufficient time to plan. For example, Vattenfall, has partnered with a local engineering business (ISO Feb Ltd) to deliver a three year apprenticeship scheme to train wind turbine technicians for Pen y Cymoedd. xl. Given the current economic climate there is generally a lot more spare capacity within the labour market than in more buoyant times to absorb any increases in demand, meaning that displacement will typically be very low. xli. The developer can influence the main contractor to maximise use of local suppliers in their supply chain. For example, Meet the Buyer events for Pen y Cymoedd contracts have been held with potential main contractors and potential local sub-contractors both in attendance, meaning that they are able to have a dialogue to understand each other’s’ requirements. Vattenfall also made use of local suppliers as a criterion within the procurement of main contractors, along with monthly monitoring of the use of local firms by these contractors. xlii. Neath Port Talbot County Borough Council subsequently developed a supply chain support package, funded by themselves and by Welsh Government. The funding was used to support local businesses to further develop the skills and capacity needed to work in the renewables sector, from training and workshops to direct one-to-one support that will enable local businesses to prepare for the project. xliii. In recent years such approaches are likely to have become increasingly common practice.

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Operations and maintenance xliv. Rural areas have more scope to benefit from opportunities in the O&M phase. Larger schemes tend to require more workers to be permanently located on the ground. For example, Wern Ddu, a 9.2 MW wind farm, only requires 2-3 weeks of maintenance per year. By contrast, Cefn Croes requires 4 operations and maintenance FTEs and Pen y Cymoedd is expected to require 12 FTEs, with 90% of these being based locally. xlv. The maintenance of wind farms is often built into the turbine manufacturing contract for a specified warranty period. Since the turbine contracts typically go to overseas firms, maintenance is often undertaken by non-UK based firms. The extent to which local firms and employees are able to benefit from this work depends on the balance between the manufacturers’ use of local teams and their use of their own workers. xlvi. Where activities are contracted out following expiry of the warranty, this is sometimes done through a single contract covering all O&M activities, which brings potential for local companies to benefit through the use of a framework agreement of local contractors which the main O&M contractor can draw on where required. This has been achieved around various wind farm sites in Wales by holding open days for local firms to highlight the potential supply chain opportunities and supporting local suppliers to become approved suppliers for the wind farm. xlvii. Where developers choose to deliver the maintenance in-house, local opportunity partly depends on the developer’s approach to managing their portfolio of wind farm schemes across Wales. Larger developers may have a portfolio of wind farms in Wales, and choose to centralise their approach to operations and maintenance of these wind farms, sharing responsibility across existing staff, especially for smaller schemes. xlviii. A relatively small proportion of equipment and spares tend to be sourced from Wales, since this generally links to where turbines and components are actually manufactured. However, there is much more scope for forestry and environment services to be sourced from local areas given the presence of these skills, especially in rural areas. There is also scope for induced benefits to be secured locally within the hospitality sector where maintenance staff need to stay locally.

Wider Benefits xlix. Community Benefit Funds offer significant potential to secure positive impacts for local communities. Indeed, CBFs are the main source of longer term local benefit for communities from the presence of the wind farms. l. The size of payments is closely linked to the scale of the wind farm. For larger schemes this gives potential for significant on-going benefits. Of the case studies, the annual level of community benefit payment varied from £10,000 for Wern Ddu (a 9.2 MW scheme) to an anticipated £1.8 million for Pen y Cymoedd (a 256 MW scheme). li. Developers typically are very keen to ensure that local communities are fully engaged in the process of designing, delivering and managing the Funds as it is important that they take ownership of the Funds. Developers generally devolve responsibility for the CBFs, although

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they may offer advice on administrative issues. lii. In the case of Pen y Cymoedd, for example, the proposed CBF of £1.8m per annum is clearly very large and has potential to deliver significant socio-economic benefits locally. liii. Some larger developments also include a dedicated economic development fund alongside the CBF. For example, RWE npower renewables is proposing to do this for its proposed wind farms at Brechfa and Clocaenog. For Clocaenog, a £3,000 per MW Economic Development fund is being proposed alongside the £5,000 per MW CBF (both are index linked). liv. Wind farm developments often include investments in environmental improvements as part of the package of infrastructure works. For example, at Ffynnon Oer the developer has sponsored improvements to the Afan Mountain Bike Trails, which are an important tourism asset in the Afan Valley. lv. An important benefit for local rural economies hosting wind farms is the payments made to local landowners on which the wind farms are situated. Wind farms in Wales are either located on Forestry Commission Wales land, privately owned farmland or occasionally common land. Developers typically negotiate an annual rental payment in return for access to the land. The level of payment negotiated varies of course with the amount of land used and the value that is negotiated. Our survey suggests an average of £12,000 per MW per annum across all respondents.

Conclusions lvi. Our analysis has highlighted that there is potential for a significant and steady stream of economic benefits for Wales from onshore wind development and operation. Should 2,000 MW be developed by 2025 and should Wales be able and prepared to capture its expected share of investment, there is the opportunity to secure £2.3 billion of GVA between 2012 and 2050, with over 2,000 FTE jobs per annum on average in this period. Whilst construction and manufacturing could stand to see a particular benefit from this activity, the benefits could be spread across a range of sectors, as a result of supply chain effects and the consumer expenditure of employees whose jobs are supported by the sector. lvii. There are downside risks to the achievement of these benefits.

 Should development proceed at a slower rate, there would be less investment in Wales and consequently fewer jobs and less GVA created. A continuation of historic trends would see GVA of around £1.4 billion less than if 2,000 MW is developed, and only around a third of the jobs supported. A continuation of more recent trends could mean £0.9 billion less in GVA and around 1,000 fewer jobs per annum. Our research has highlighted a number of barriers to achieving development, including local planning issues and grid and road infrastructure constraints.

 Moreover, should 2,000 MW of capacity be achieved, a proactive approach is nonetheless required to ensure that the potential benefits outlined above are secured. The analysis in section 4 has illustrated the consequences of investment in Wales being below expectations. lviii. Our recommendations in Section 6 explore some of the options available for maximising the benefits, focussing on the planning system, enabling infrastructure, supply chain and sector development, community benefit payments and local benefits. 9

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1. Introduction

1.1 Regeneris Consulting was appointed by Renewable UK Cymru, the Welsh Government and a group of wind farm developers to undertake an assessment of the economic opportunities from future onshore wind development for Wales. The study has been carried out in collaboration with the Welsh Economy Research Unit at Cardiff Business School, with advice from PMSS Ltd, a renewables advisory firm.

1.2 The overall purpose of the report is to quantify the economic impact on the economy in Wales arising from investment in onshore wind, based on current and potential future levels of economic activity for the different stages of a wind project lifecycle.

1.3 Within this overall aim, the scope of the analysis is as follows:

 The analysis covers the timeframe 2005-2050, using baseline figures as supplied by industry, and scenarios for installed capacity in Wales which were agreed by industry and Welsh Government. The 2050 end point has been selected as it covers the expected operational lifetime of turbines and wind farms currently installed or in planning.

 The assessment covers total levels of investment by Welsh and other companies from the following sources:

 Direct expenditure in Wales through manufacture of wind turbine components; planning and development work; construction of site and wind farm; operations and maintenance; and decommissioning/repowering

 Indirect expenditure via supply chain components sourced within Wales and investment in grid infrastructure

 Induced expenditure by employees supported through direct and indirect effects

 Community Benefit payments.

 The spatial focus of the assessment is on Wales as a whole, with an indication of the potential geographical location of impacts at each stage in the wind farm lifecycle.

 The key indicators of impact used are Gross Valued Added and Full Time Equivalent (FTE) Jobs.

1.4 The focus of the study is on the core economic opportunities that would be created by the future development of the sector. It does not provide an assessment of the wider environmental or social impacts.

1.5 The remainder of the report is structured as follows:

 Section 2: sets out in detail the assessment approach, including the economic impact framework and the research methods used

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 Section 3: provides an overview of the onshore wind sector in Wales, including the policy context, the development of the sector to date, and industry perceptions of Wales as a location for onshore wind development

 Section 4: presents the results of the economic impact modelling

 Section 5: provides a discussion of the potential local economic impacts of onshore wind farms in Wales

 Section 6: sets out our conclusions and recommendations.

 Appendix A provides details of the methodology used

 Appendix B contains the survey questionnaire that was sent to developers and operators of onshore wind farms in Wales

 Appendix C summarises the organisations that were consulted as part of the study.

 Appendix D contains four case study wind farms in Wales.

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2. Overview of Assessment Approach

2.1 In this section we set out in detail the approach that has been followed in quantifying the economic opportunities from onshore wind development. We cover the economic impact framework and the research strands used.

Economic Impact Framework

2.2 At the heart of the assessment is an economic model that serves to capture the likely economic impacts of onshore wind development for Wales, informed by scenarios for rates of development and the retention of the associated expenditure in Wales.

Sources of Impact

2.3 The development and operation of an onshore wind farm is a complex and often lengthy process that involves several distinct phases. Each of these phases generates economic activity through capital investment and operational expenditure:

1) The construction and assembly of the wind farm and related supply chain activity. The investment made in planning and development, site preparation, manufacture and assembly, and commissioning of the wind turbines delivers benefits directly to the businesses delivering this activity and also to their suppliers as the additional economic activity feeds through the supply chain. The assessment considers the potential scale of benefits during the construction phase in light of the expected size and geographic location of the development’s supply chain, the potential for local companies (or companies with local operations) to win the main contracts or to enter the supply chain of those that do.

2) The ongoing maintenance and operations. Staff required for the operation and maintenance of the wind farm (including those in administrative and support functions) and the expenditure required to cover other overheads (e.g. the cost of spare components, grid connection and other support services and commitments) provides an additional, and longer term, source of economic impact. Again, the potential benefit is linked to the scale of investment, geographic sourcing of goods and services, the location of any new jobs which are created and the scope to recruit local staff. The assessment of the impact of operations and maintenance does not include the economic impact associated with the onward transmission and sale of the electricity generated by the scheme.

3) The impact of community benefit payments. Developers can opt to make voluntary annual contributions to local communities over the course of the operational life of a wind farm. These funds can be used in a range of ways by local communities so the type and scale of benefits generated can differ substantially. The assessment considers the potential impacts of these payments.

4) The impact of decommissioning or repowering. The cost of either decommissioning or replacing components to repower the wind farm at the end of its operational period generates further economic impacts in similar ways to the initial construction

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investment, by providing revenue to supply chain companies and supporting employment.

2.4 Every onshore wind farm that is developed in Wales brings with it these sources of economic impact and thus an injection of economic activity into the Welsh economy. Moreover, in order to bring forward the scale of onshore wind development and other renewable energy infrastructure that is envisaged for Wales, significant investment will be required in grid infrastructure in Mid Wales. This infrastructure development would bring with it a range of economic impacts for Wales as a result of the planning, development, construction and maintenance required to make it happen. This is treated as a separate source of economic impact, cutting across all scenarios.

2.5 It is worth noting that Welsh industry also has the potential to win business in wider onshore wind markets stemming from the development of the industry in the rest of the UK and indeed overseas. These potential effects are outside the scope of this study. This is primarily due to the difficulties in estimating robustly the scale of these markets over time and the market share that Welsh companies may be able to secure. Moreover, the greatest stimulus to the development of the Welsh supply chain comes from the development of the sector in the home market.

Types of Impact

2.6 The assessment considers both the core economic benefits associated with increased economic activity in the area as well as wider socio economic benefits that the wind farm development might deliver. The core economic benefits have been assessed quantitatively through an economic impact model which estimates:

 Direct Impacts. This measure captures the economic activity that is supported directly through the construction, operation and maintenance of the wind farm. This covers direct staff employed on the development and all first tier supply chain expenditure relating to the construction of the wind farm.

 Indirect Impacts. This measures the supply chain impact of the additional output generated by companies in the supply chain supporting the tier one suppliers.1 The additional economic activity in these companies is passed down through their supply chains and generates additional, indirect benefits for many other companies.

 Induced. This captures the knock on benefits that additional employment supported directly and indirectly has in the economy as salaries, earned by those employed in additional jobs are spent on goods and service elsewhere in the economy.

2.7 There are wider economic benefits associated with the development of the industry in Wales, including:

 Income to landowners. Onshore wind farms in Wales tend to be located on Forestry Commission land or on privately owned farmland. These landowners receive capital

1 Tier One suppliers are at the top of the supply chain, supplying directly to the Prime Contractor.

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payments and/or rental payments from developers/operators of wind farms in return for access to this land.

 Business Rates. Wind farm developers and operators pay business rates, which are then paid into the Welsh Government’s Non Domestic Rates Pool and are then redistributed amongst local authorities (pro-rata to the adult population) as part of the local government revenue settlement each year.

2.8 We consider these benefits alongside the core economic impacts.

2.9 Beyond these quantifiable economic benefits, onshore wind development has the potential to deliver a range of wider socio economic benefits, including:

 A boost to local and national renewables sectors. The increased opportunity associated with a pipeline of onshore wind projects in Wales in the medium term could deliver lasting benefits by stimulating increased capacity in the sector (e.g. as companies start up or diversify into other renewables activities to take advantage of new opportunities), and positioning local firms to access future opportunities in the sector.

 The scope for labour market impacts related to the new employment opportunities. There may be potential for skills development activity, for example, as a result of the scheme so that local people can be trained to help them take advantage of opportunities arising as a result of the development. The additional capacity developed in local training providers as a result of this would underpin further skills development activity.

2.10 Impacts for local economies are considered separately in Section 5 of the report.

Measures of Impact

2.11 The assessment uses two key measures to quantify the nature and scale of economic impacts from onshore wind development:

 Gross Value Added (GVA). GVA is the commonly accepted measure of wealth creation for an economy. It is what is left of gross output once bought in goods and services have been paid for. This residual output is then available for distribution as profits, wages and salaries and capital investment costs.

 Employment. This is the number of jobs that are created within Wales. We express these both as Full Time Equivalents, a measure that converts full- and part-time jobs into a common currency (where 1 PT job is equivalent to half a FT job), and, for temporary construction impacts, as person years of employment.

Time Period

2.12 The assessment covers the period 2005-2050. There is a clear rationale for selecting this time period: it covers the operational life of the majority of schemes that are either currently operational or in the pipeline (in construction, consented and submitted to the relevant planning authority). Most of the wind farms in the planning pipeline will, if

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approved, be operational by 2025, and the typical operational life of a wind farm is up to 25 years.

2.13 Within this period we focus in particular on the potential development of the industry up to 2025 as a policy period. This corresponds with the timescales for Welsh Government’s aspiration to grow onshore wind capacity, as well as wider EU level targets. We consider the following time periods:

 2005-11;

 2012-24; and

 2025-50

Spatial Focus

2.14 The focus of the study is on the impacts for Wales as a whole. The study also provides analysis on the impacts for the regions within Wales (North, Mid, South East and South West).

2.15 We also consider the scope for the local areas in which these developments have occurred, likely to occur, focussing in particular on supply chain opportunities and access to jobs.

Supporting Assumptions

2.16 The model uses assumptions on:

 Costs: the typical costs of developing and operating a wind farm are a key driver of the nature and scale of the associated economic impact. These have been estimated through a survey of all developers and operators of onshore wind farms in Wales (see Research Strands and Tools below), consultation with the industry and a review of other assessments. The likely costs of grid infrastructure have been estimated in consultation with the National Grid.

 Sourcing: the extent to which Wales benefits from this expenditure is determined by the amount of expenditure that is retained within Wales through Welsh firms supplying goods and services as part of the supply chain. Likely levels of expenditure retention for each part of the supply chain are estimated using evidence from our survey of developers and are subjected to sensitivity testing. Subsequent multiplier effects in Tier 2 of the supply chain and below are estimated using Welsh Input- Output tables (see Appendix A for more detail).

Use of Scenarios

2.17 It is helpful to make use of scenarios as a means of testing how economic impacts may change in response to changes in certain key variables. Our modelling tests scenarios in two regards:

 Development of installed capacity. Our model uses projections for installed onshore wind capacity up to 2025. Whilst we have a comprehensive picture of the capacity in

● Economic Opportunities for Wales from Future Onshore Wind Development ●

the pipeline, much of this is in the planning system at present and it is therefore uncertain which schemes may come forward and at what rate. We therefore use three scenarios for the build up of installed capacity:

 2,000 MW: achievement of the aspiration for 2,000 MW total installed capacity by 2025

 Historic Trends: a continuation of trends seen over the past decade

 Recent Trends: A continuation of more recent consenting trends

The basis for these scenarios is set out in more detail in Section 3 and Appendix A.

 Sourcing of suppliers. The most up to date view of developers in Wales is used to inform estimates on the retention of expenditure in Wales in our model. There is potential for the proportion of this expenditure retained in Wales to be both greater and lower than this baseline, in certain parts of the supply chain. We test this in the impact assessment.

2.18 A summary of the economic impact framework is set out in the diagram below.

Figure 2-1: Economic Impact Framework

Underpinning Assumptions Driver of Benefit Types of Benefit Measures Impact Areas

Core Economic Economic Impact Areas • Review of Development and Benefits • FTE Jobs Welsh targets Construction Phase • GVA • Wales • RenewableUK • Direct • Welsh regions database • Indirect Wider • Regional • Induced • Income to economic landowners analysis Operations and Economic • Local including Maintenance Development / Infrastructure sectoral mix Regeneration improvements • Review of Benefits • Skills impact • Employment evidence • Community Decommissioning / vitality • Survey of repowering developers & operators • Input-output tables • Testing & Community Benefit Wider socio- refinement Funds economic benefits

Research Strands and Tools

2.19 The research has been designed so as to provide an independent and robust assessment of the economic impacts of onshore wind up to 2050. As such, a number of research strands have been undertaken in order to build up a comprehensive and accurate picture of:

 Potential scenarios for the future development of installed capacity in the sector, based on recent experience and the Welsh Government’s stated aspirations.

 Likely levels of total investment associated with these development scenarios at 16

● Economic Opportunities for Wales from Future Onshore Wind Development ●

each stage of the project life cycle (planning and development, construction, operations and maintenance and repowering/decommissioning), including associated grid infrastructure, based on actual experience to date.

 Realistic levels of expenditure that are likely to be retained in Wales, and areas where there is potential for more expenditure to be retained, based on actual experience to date and assessment of the capacity of the Welsh economy.

 Multiplier effects for Wales, arising from subsequent rounds of supply chain expenditure (indirect effects) and consumer expenditure by employees (induced effects).

 Likely impacts on local communities, based on experience to date, and drawing out the key factors that constrain and encourage local economic benefit.

 Constraints to, and opportunities for, maximising the sector’s economic impact for Wales, based on views of industry and government and an analysis of the Welsh economy.

2.20 The principle has been to triangulate the findings by making use of available data sources, and gathering primary data and views from industry, Welsh Government and local stakeholders. The table below summarises the research tools that have been used to inform each of the study elements. We then discuss the research tools in more detail below.

Summary of Study Elements and Research Study Element Research Approach/ sources used Scenarios for future  RenewableUK database provides details on all wind farms in the UK that development are operational, in construction, consented, and in the planning system, including dates, installed capacity and location.  Consultation with wind farm developers and Welsh Government. Investment by project  Survey of all developers and operators of all wind farms in Wales that Life Cycle stage are operational, in construction, consented, and in the planning system.  Existing socio-economic impact studies of onshore wind farms.2 Investment in Wales  Survey of developers and operators by sector  Existing socio-economic impact studies of onshore wind farms. Multiplier effects for  Drawing on investment data above, use of Input-Output tables for Wales and its regions Wales to estimate indirect and induced impacts. Impacts on local  Four case studies on existing and planned onshore wind farms, communities  Informed by consultations with developers, operators and local authorities and document review, and the team’s experience. Constraints and  Survey of wind farm developers opportunities  Consultation with developers, Welsh Government, local government representatives.

Literature Review

2.21 We reviewed the literature on the economic aspects of onshore wind, including relevant

2 For example, Onshore Wind Direct and Wider Economic Impacts, BiGGAR Economics for RenewableUK and Department of Energy and Climate Change (DECC), May 2012.

● Economic Opportunities for Wales from Future Onshore Wind Development ●

policy documents and existing socio-economic assessment of onshore wind developments. This was used to inform an up to date picture of the policy context and our assumptions on expenditure and sourcing for the economic modelling.

Analysis of RenewableUK Database

2.22 RenewableUK holds a database of all onshore wind farms in the UK that are either in operation, in construction, consented or in planning. It provides information on a number of aspects including:

 The date when operations/construction commenced, when consent was given or when it entered the planning system

 Location

 Installed capacity, in MW

 Developer and operator.

2.23 This database was used to analyse trends in installed capacity in recent years and to understand the capacity in the pipeline. From this, data three scenarios for the future development of the sector were developed.

2.24 These scenarios are discussed in more detail in Appendix A.

Survey of Developers and Operators

2.25 A key research tool for the study was a survey of all developers and operators of onshore wind farms in Wales. The developer survey ran in October and November 2012 and solicited information on:

 involvement in the onshore wind sector in Wales, including details of existing or proposed wind farms and their perspectives on the strength of wind energy supply chains in Wales, and on Wales as an investment location

 onshore wind schemes in development in Wales, including expected development costs and timescales, and likelihood of sourcing of goods and services from Wales

 operational onshore wind schemes in Wales, including when schemes were developed, annual operational costs, proportion of goods and services sourced from Wales, employment created, community benefit funds provided and expectations regarding decommissioning or repowering at the end of the wind farms life.

2.26 The achieved response covered 66% of all existing and proposed capacity in Wales. The survey questionnaire is reproduced in Appendix B.

Consultations

2.27 We have consulted with developers, Welsh Government, local authorities and other stakeholders in the course of the study. The purpose of the consultations has been to gather up to date views on the development of, and prospects for, the sector, to inform 18

● Economic Opportunities for Wales from Future Onshore Wind Development ●

assumptions on the ability of the Welsh economy to benefit from the associated investment and expenditure, and to inform our assessment of the constraints, barriers and opportunities for the sector going forward.

Case Studies

2.28 Whilst rigorous economic modelling provides a robust picture on the potential economic impacts for Wales, assessing the impact at a very local level can only be done through the use of case studies. We therefore undertook case studies of operational and consented wind farms of various sizes across Wales in order to understand the factors that promote or constrain how the local business base, workforce and community benefit from the economic activity that arises as a result of the development of onshore wind farms in Wales.

● Economic Opportunities for Wales from Future Onshore Wind Development ●

3. The Onshore Wind Sector in Wales

Summary of Key Points  Welsh policy towards the onshore wind sector has evolved in recent years. TAN 8 planning guidance, published in 2005, sets out guidance on the location of wind farms in Strategic Search Areas (SSAs). These locations are expected to host the majority of wind farm capacity in coming years.  The latest planning guidance sets out an aspiration to deliver 2,000 MW of installed onshore wind capacity by 2025. Much of this is expected to be delivered up to 2020.  The Welsh Government recognises the potential socio-economic benefits from developing the sector. It aims to maximise these long term economic benefits and to ensure that local communities benefit from energy infrastructure developments.  The publication of TAN 8 was seen as providing an impetus to the development of the sector, although this proved to be short lived. After some additions to capacity in 2005 and 2006, the growth in capacity stalled, with no additions in 2007 and only two new wind farms in 2008. Only around a quarter of the TAN 8 target for 2010 has been met.  There is enough capacity in the pipeline to meet the 2,000 MW aspiration by 2025: there is approximately 2,200 MW in operation, consented or in the planning system.  Developers are generally positive about presence of Welsh based suppliers in the areas of civil engineering, environmental services and consultancy, and most are aware of the presence of towers manufacturing in Wales (i.e. Mabey Bridge).  The vast majority of respondents see some potential to increase their use of firms in the development and construction phase over the next three years, with a third reporting a lot of potential. A significant majority believe there to be scope to increase the use of firms in operations and maintenance.  Developers cite a range of policy and economic barriers to growing the Welsh supply chain, including significant risks and uncertainty over securing planning consent and a perception of a lack of buy in locally to national aspirations. Infrastructure constraints (road and grid related) are also commonly cited barriers.  40% of developers surveyed feel that Wales is either a reasonably or very favourable place in which to invest. Only a small minority of respondents view Wales as very favourable (7%). A third of developers state that Wales is fairly or very unfavourable.  Looking beneath these statements, the majority of respondents do not see the skills base as a constraint. Most were positive or neutral on national planning policy.  However, there was clear agreement that local planning policies and practice and grid and road infrastructure were negative factors in the consideration of Wales as an investment location for onshore wind projects.

● Economic Opportunities for Wales from Future Onshore Wind Development ●

Introduction

3.1 This section provides a discussion on the onshore wind sector in Wales, including:

 the policy context that has shaped the development of the sector, related sectors and the support infrastructure in Wales

 the development of the sector in Wales to date and possible scenarios for future development and

 perceptions of industry stakeholders of Wales as a location in which to develop onshore wind farms.

Policy Context

3.2 The Welsh onshore wind industry is subject to, and driven by, a wide array of policies at the EU, UK and Wales level. Here we focus on the evolution of Welsh policy to date, although it should be noted that projects with a capacity greater than 50MW are determined by the UK Planning Inspectorate (formerly this was the responsibility of the Infrastructure Planning Commission, which was abolished in April 2012).

3.3 Against the backdrop of numerous regulatory and statutory drivers, at the UK level, the key policy mechanism supporting the development of onshore wind is the Renewables Obligation (RO), which is intended to accelerate the deployment of renewable energy technologies in order to enhance energy security and contribute towards the delivery of wider carbon emissions targets and obligations.

3.4 Moving to low carbon energy production and maximising the economic opportunities from the low carbon transition have for several years been stated priorities for the devolved Welsh Government. Given Wales’ natural advantages in wind energy, development of onshore wind forms an important part of this response. The stated ambition within the current Programme for Government (2011-16) is to create a sustainable, low carbon economy for Wales.

3.5 Welsh policy towards renewables in general, and to onshore wind in particular, has evolved in recent years.

2005 Planning Policy

3.6 Back in 2005 the then Welsh Assembly Government issued a Ministerial Interim Planning Policy Statement3 that set a target for generating electricity from all renewable technologies to 4TWh by 2010, with an aspiration that this would then increase to 7TWh by 2020. Within this overall target, a technology specific target was set for an additional 800 MW of onshore wind capacity by 2010 (i.e. additional to the 233 MW that was already operational at that time). It was recognised that Wales had natural advantages in onshore wind:

3 Ministerial Interim Planning Policy Statement 01/2005 Planning for Renewable Energy, July 2005. Note that the latest Planning Policy statement is contained within Welsh Assembly Government, Planning Policy Wales Edition 5, November 2012. See below for reference to this.

● Economic Opportunities for Wales from Future Onshore Wind Development ●

“This is based on Wales’ abundant onshore wind resource and the fact that onshore wind power is the most viable commercial technology available that will provide a high degree of certainty of meeting the 2010 target.”

Technical Advice Note (TAN) 8

3.7 Subsequently, WAG published planning guidance known as TAN 8. This set out a strategic approach to enable the 800MW target to be met. A key element within this was the establishment of Strategic Search Areas (SSAs) where large-scale wind farms were to be located. Each SSA was given an indicative target that totalled to 1,120 MW amongst the seven Areas; the excess was to allow flexibility in reaching the 800 MW target. A footnote also explains that capacity in these Areas could be increased to give an overall SSA maximum capacity of around 1700 MW.

The Renewable Energy Route Map

3.8 Welsh Government, along with the UK Government and other devolved administrations, published its Renewable Energy Road Map4 in 2008 as a consultation document. This suggested that the target for 7TWh by 2020 be increased significantly to 33 TWh by 2025. The implication for onshore wind is that the capacity potential would be up to 2500 MW, or up to 6.5 TWh of electrical energy generated.

A Low Carbon Revolution (2010) and July 2011 Ministerial Letter

3.9 The increasing emphasis on renewable energy targets was reinforced with the publication of the Welsh Government’s Energy Policy Statement Low Carbon Revolution in 2010.5 The overall renewable electricity target jumped to 48TWh. To put this into context, this is twice the electricity that Wales currently consumes from all energy sources. The potential from onshore wind by 2025 however was revised down from the Roadmap consultation to 2,000 MW. This has subsequently been restated in the latest Welsh Government Planning Policy Document.6

3.10 In the meantime, the existing targets for onshore wind were being missed, with only 146 MW being developed by 2010 against the target of 800MW – putting Wales over 80% behind target (see below for a more detailed discussion on the development of capacity to date). In a Ministerial letter in July of that year the Government clarified the position with regard to onshore wind, stating the Garran Hassan upper level figures (1700 MW) as the total capacity for SSAs. The remaining 300 MW needed to reach the 2,000 MW target would be made up of existing wind farms and planned smaller private and community projects that lie outside these areas.

4 Welsh Assembly Government, Renewable Energy Route Map for Wales, Consultation on way forward to a leaner, greener and cleaner Wales, February 2008. 5 Welsh Assembly Government, A Low Carbon Revolution, The Welsh Assembly Government Energy Policy Statement, March 2010. 6 Welsh Assembly Government, Planning Policy Wales Edition 5, November 2012.

● Economic Opportunities for Wales from Future Onshore Wind Development ●

Related Economic Development Policy

3.11 The Welsh Government and its partners recognise that there are, potentially, highly significant economic benefits to be had from the development of onshore wind and are keen to maximise the benefits for Wales. This was recognised in the Energy Policy Statement cited above and the Green Jobs Strategy (2009). More recently the Government’s commitment to securing these economic benefits has been restated in Energy Wales: A Low Carbon Transition (March 2012). The two headline aims are:

 to maximise the long term economic benefits for Wales, particularly in terms of job creation, at every stage of development.

 to ensure that communities benefit from energy infrastructure developments.

3.12 It is recognised that whilst energy policy per se is not a devolved responsibility, Wales does have the power to pursue the opportunities and maximise the benefits from the move to renewable energy generation. The stated aim is therefore to ensure that energy efficiency and electricity generation support jobs across the supply chain over the lifetime of developments – from manufacturing to installation, construction through operation to decommissioning. The Government has committed, in particular, to:

 ensure every major energy development maximises economic benefits for Wales through targeted interventions into supply-chain development, business support, skills and training, procurement, innovation, and R&D.

 target the business support to help develop competitive Welsh supply chains – in energy sectors of greatest potential and, in the context of specific energy developments underway or expected in Wales – supporting and encouraging Welsh companies to engage in the procurement process.

 ensure energy-related procurement exercises are designed to stimulate demand for local labour, products and services and enable Welsh businesses to compete fairly and effectively.

 extract maximum long-term value to the Welsh economy by developing the future workforce to meet industry needs.

3.13 In addition, the Welsh Government wishes to see local communities benefit from developments. The desire is to go further than the community benefit fund standards set in England (a minimum £1,000 payment per year over the wind farm’s lifetime, per MW of installed wind power). Of most relevance are the commitments to:

 work in partnership with business to agree expectations for economic and community benefits from energy development.

 work with communities and partners to ensure wealth generated by energy development in Wales benefits communities.

 create a mechanism to report the level and nature of benefits associated with energy developments in Wales.

● Economic Opportunities for Wales from Future Onshore Wind Development ●

3.14 Welsh Government and partners are pursuing a number of specific initiatives to support the onshore wind sector, including:

 Supporting Welsh businesses to compete for and win large public and private sector contracts

 Supporting the skills development agenda by providing funding to HE/FE providers of training. A recent example is the support provided to Llandrillo College to deliver apprenticeships for RWE and Vattenfall.

 Working with the National Skills Academy (Power) and EU Skills on researching, designing, and delivering a skills and qualification programme for the renewable sector as a whole.

Development of the Sector: Experience to Date and Prospects

Experience to Date

3.15 Figure 3-1 sets out the trend in the level of installed operational capacity (MW) over the past decade. In the early 2000s installed capacity remained at a fairly modest level of around 150MW. In this period only a small number of relatively small scale wind farms were developed, the largest being Cemmaes in Powys (15 MW). Capacity began to increase more noticeably in 2005 and 2006, including:

 Tir Mostyn, a 21 MW Wind Farm in Denbighshire that became operational in October 2005

 Cefn Croes, a 59 MW wind farm in Ceredigion that came online in June 2005

 Ffynnon Oer, a 32 MW wind farm in Neath Port Talbot that became operational in June 2006.

3.16 Our consultations suggest that TAN 8 initially had a big impact in terms of new capacity being permitted and installed, as well as attracting firms to support this growth. For example, the law firm Eversheds set up an office in Cardiff on the back of the expectation of significant growth in the industry to support onshore wind projects. Given this rate of new capacity development it was reasonable to assume at the time that sufficient progress was being made towards the 800 MW target for 2010 (although this rate of capacity was somewhat behind the average monthly schedule that would be needed). However, capacity then flatlined in the following years, with no additions in 2007 and only two new wind farms in 2008, with a total of 15.6 MW of additional capacity coming onstream. It therefore became apparent that unless there was a significant shift, the target for 2010 would not be achieved.

3.17 This has proven to be the case, with a small number of relatively small scale wind farms being developed in 2009 and 2010. Only around a quarter of the TAN 8 target for 2010 has been met to date. The build up of cumulative installed operational capacity – and the extent of the shortfall on the 2010 target - is set out in Figure 3-1.

● Economic Opportunities for Wales from Future Onshore Wind Development ●

Figure 3-1: Cumulative Installed Operational Capacity in Wales, 2000-12

1,000

900 Target for 2010 800

700

600

500

Cefn Croes Carno 400 Tir Mostyn

300 Installed Operational Capacity (MW) Capacity Operational Installed

200 Alltwalis

100 Fynnon Oer

0 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012

Source: RenewableUK Database

3.18 There is currently 423 MW of installed onshore wind capacity across Wales. The map below illustrates their location.

● Economic Opportunities for Wales from Future Onshore Wind Development ●

Figure 3-2: Operational Wind Farms in Wales, as at December 2012

Source: RenewableUK Database

Future Prospects

3.19 RenewableUK holds records of all wind farms that are in construction, consented or in the planning system. The table below summarises the current operational capacity and that is in the planning and development pipeline. As this shows,

 111MW of capacity is under construction at present (35 MW commencing in 2011 and 77 MW in 2012) and is therefore likely to come onstream by 2014 at the latest.

 15 wind farms – totalling 449 MW of capacity - have been approved but construction has not yet commenced.

 A further 37 wind farms are in the planning system. These have the potential to bring a further 1,200 MW of capacity. However, it is highly unlikely that all of these will be approved, and indeed some are mutually exclusive.

● Economic Opportunities for Wales from Future Onshore Wind Development ●

Table 3-1: Installed Capacity in Onshore Wind in Wales: Operational and Pipeline Windfarms Turbines MW Capacity Operational 38 540 423 Approved not constructed 15 145 449 Under construction 5 44 111 Awaiting determination 37 490 1,204 Current Total Potential Capacity 95 1,219 2,187 Source: RenewableUK database, as at October 2012

3.20 This therefore suggests that given the current pipeline it is technically feasible to bring forward the Welsh Government’s aspirational target of 2,000 MW of onshore wind capacity. In addition, it is likely that schemes that are currently at a pre-planning stage will enter the planning system in coming years.

3.21 The map below illustrates the location of all wind farms in the pipeline, as well as those that are operational. As this shows, there is a clustering of both operational and pipeline projects in Mid Wales, and to a lesser extent in South West Wales.

Figure 3-3: Onshore Wind Farms in Wales (Operational and in Pipeline), as at December 2012

Source: RenewableUK Database

● Economic Opportunities for Wales from Future Onshore Wind Development ●

Development Scenarios

3.22 It is helpful to use what we know about the rate of progress that has been made in recent years to project forward for coming years. This serves to illustrate the shift in the rate of progress that will be needed in future if aspirations are to be met.

3.23 In the period 2001-11, a total of 270 MW of onshore wind capacity became operational (an annual average of 27 MW). Should this trend continue, there would be a total installed capacity of around 800 MW in Wales by 2025 – clearly, a significant (60%) shortfall on a 2,000MW aspiration.

Figure 3-4: Projection Based on Historic Trend (2001-11) 2,000 MW by 2025 2,000

1,800

1,600 60% shortfall

1,400 Actual installed capacity 1,200 Projection 1,000 27 MW p.a. additional 800 capacity on average

OperationalCapacity 600

400

200

0 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025

Source: RenewableUK Database

3.24 Underlying this scenario is the potential for the future rate of development and new capacity becoming operational to slow beyond the current rate of consenting (see scenario three), possibly due to the widespread failure of schemes to secure consents and a shift in investment to other investment locations or technologies.

3.25 In addition to this long term trend the RenewableUK database helps us to understand the more recent trend in consenting of onshore wind farms in Wales. As set out above, the database indicates that there is 493 MW of capacity currently in construction or consented prior to construction. Combining what we know about when these wind farms were consented and evidence from our survey of developers on the likely date when these will become operational, it is likely that the majority of this capacity in the pipeline will become operational by 2016. This equates to an annual average of 124 MW p.a. of additional capacity over the period. Assuming that this rate continues up to 2025, this would be more than enough to meet a 2,000MW aspiration. However, the recent approvals are heavily skewed by a very large scheme: namely, the Pen y Cymoedd scheme (256 MW). This was approved in May 2012 and is the largest proposed scheme in England and Wales at present. There are no other schemes of a comparable size in the planning system at the moment (the largest scheme is Carnedd Wen). It is therefore not realistic to project forward on this basis of a development rate including Pen y Cymoedd.

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3.26 Excluding Pen y Cymoedd from the recently consented schemes indicates an annual average additional capacity of 49 MW per annum. Projecting forward on this basis would also be dubious as we know that Pen y Cymoedd is in the pipeline. We have therefore taken a mid- point between 124 MW and 49 MW per year: that is, 86 MW per annum. Projecting forward on this basis would yield 1,560MW in installed capacity by 2025 – a 22% shortfall on 2,000 MW by 2025. This is set out in Figure 3-5 below.

Figure 3-5: Projection Based on Recent Consenting Rates (wind farms in construction and consented) 2,000 MW by 2025 2,000

1,800 22% shortfall 1,600 Actual installed capacity 1,400

1,200 Projection

1,000

800

OperationalCapacity 600

400

200 86 MW p.a. based on recent consenting

0 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025

Source: RenewableUK Database

3.27 These forward projections are used as the basis for the development scenarios that we test in our economic modelling (see section 4). We test three scenarios:

 Aspiration Scenario: 2,000MW by 2025

 Historic Trends Scenario: a continuation of 2001-11 trends

 Recent Trends Scenario: a continuation of more recent consenting rates

3.28 A full explanation of the basis for these scenarios is provided in Appendix A.

Industry Perceptions of Wales as an investment location

3.29 From our consultations and our survey of developers and operators (see Appendix A for further details on the survey method and the Appendix B for the survey questionnaire) we have gathered views from the industry on Wales as a location to develop onshore wind projects.

3.30 The key findings are discussed below.

● Economic Opportunities for Wales from Future Onshore Wind Development ●

Supply Chain

3.31 We asked developers and operators the extent to which they feel they are able to source goods and services at the right quality and price, and how this varied by the types of good and services that are needed in the construction and operation of wind farms. The proportion of developers that believe there was either a good, or some selection, of suppliers based in Wales is set out below, split by broad element of the supply chain.

Figure 3-6: Ability to source goods and services from suppliers based in Wales Development & Construction Operations and Maintenance

Good selection of suppliers in Wales Some suppliers in Wales 90% 80% 80% 70% 70% 60% 60% 50% 50% 40% 40%

30% 30% %of Developers

%of Developers 20% 20% 10% 10% 0% 0%

Source: Survey of Developers and Operators (September-November 2012) n = 15 To what extent are you able to source the range of goods and services, at the right cost and quality, used in the construction and operation of your onshore wind schemes from suppliers based in Wales?

3.32 For development and construction, the key points to note are:

 Just over half of the respondents reported that there was a good selection of civil engineering firms in Wales, with a further 33% stating that there were some suppliers in this area within Wales. This was confirmed in our more detailed interviews with developers and stakeholders, who highlighted the strong presence of firms for civils work. Examples include Jones Brothers, based in Denbighshire and Swansea, and Raymond Brown, in Bridgend. A lower proportion noted a presence of electrical engineering firms (27% saw a good selection and a further 40% saw some selection in Wales).

 Both environmental services and consultancy were also highlighted as having some presence in Wales, with 93% and 87% of respondents respectively believing there to be either a good selection, or some suppliers in Wales. Our consultations highlighted that there are several consultants in Wales with a capability in Environmental Impact Assessment. However, there is sometimes a tendency for developers to appoint larger firms with a strong track record due to the increased likelihood of facing a public enquiry in Wales, compared to England and Scotland. The concern was raised that there may not be enough firms of suitable size and experience to obtain project quotes from solely Welsh based firms (many of the larger firms used are not Welsh due to UK economies of scale). Other professional services firms (legal and financial) were generally thought to be present in Wales (two thirds thought there was at least

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some presence) but only 7% thought there was a strong selection of suppliers. Eversheds, based in Cardiff, is an example of such a firm.

 Three quarters thought there were some turbine towers suppliers in Wales, but none of the developers thought there was a good selection. This reflects the reality that there is currently only one supplier of towers in Wales (Mabey Bridge, located in Chepstow).

3.33 For operations and maintenance: the views on the presence of environmental services firms for operations and maintenance mirror those for development and construction. There was generally not thought to be a good presence of specialist insurers in Wales.

“While some turbine parts do still need to come from other parts of Europe, the skills and services needed to build, operate and maintain wind farms are not specialist. They already exist locally and within Wales – from civil engineering to plant operators, site investigation research to the production of steel and aluminium fittings and fixings.”

3.34 The survey asked respondents to what extent they see potential to increase the supply of goods and services from companies in Wales. The vast majority of respondents saw at least some potential to increase their use of firms in the development and construction phase over the next three years, with a third reporting a lot of potential. A smaller proportion – but nonetheless, a significant majority - believed there to be scope to increase the use of firms in operations and maintenance (80%). Almost half saw a lot of potential.

Figure 3-7: Scope for the supply of goods and services sourced from companies based in Wales to increase over the next three years 70%

60% A lot 60% A little 50%

47% 40%

30% 33% 33% %of Developers 20%

10%

0% Firms Used in Development & Firms Used in Operation & Construction Maintenance

Source: Survey of Developers and Operators (September-November 2012) n = 15 To what extent is there scope for the supply of goods and services sourced from companies based in Wales to increase over the next three years?

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Barriers to Further Development

3.35 To drill down further, the survey sought to establish the key barrier that developers perceived to be holding them back from growing the supply of goods and services from Wales used in the construction and operation of onshore wind schemes. A range of issues were highlighted, from policy-related barriers to the competitiveness of the current Welsh business base in relevant sectors. We draw out the most commonly cited ones below.

3.36 There is strong consensus that the current lack of consents in the pipeline, along with more general uncertainty, are a barrier to further development. This uncertainty over the future scale of opportunities is seen as holding back investment decisions of the supply chain. The view was commonly expressed that in order for growth in the supply chain to take place there needs to be a strong pipeline of potential work with a degree of certainty attached to it. A strong pipeline provides the underpinning rationale for investment in capacity and skills. The point was made that there are other locations globally that have a larger, more predictable pipeline of work: in this context, there is less of a business case to invest in Wales.

3.37 Some of the respondents took this further, identifying what they saw as underlying sources behind this uncertainty, including uncertainty and delays in securing planning consent. A number highlighted their own experiences and those of other developers of delays in securing planning permission for wind farms as being an important barrier. Delays of 5 or more years were mentioned.

3.38 Developers also expressed their perception of a lack of support locally for development, and a lack of recognition of the associated benefits. Some referred to the lack of strategic leadership and joined up approach from the Welsh Government and local authorities that is needed to ensure delivery through the planning system.

“The lack of consented sites, and lack of timescale certainty hampers efforts to develop the supply chain as future opportunities are uncertain.”

“If there was more certainty in gaining planning consent, and more local buy in of Welsh renewables targets and recognition of the associated benefits, there would be further confidence within the industry to further invest more time and money in helping develop the supplies of goods and services in Wales and the relevant skills base required.”

“Wales is seen as a favourable place to develop due to the good wind speeds and natural resources the country has to offer. Generally from a planning perspective and general development risk associated with getting a project consented Wales is not seen as a favourable place for development at all.”

3.39 A number of developers also highlighted the relative lack of capacity and competitiveness of the supply side in Wales as being a barrier in itself to further development. The scope of aspects of the supply chains is often global. As other locations have made more progress already in developing renewable infrastructure, their associated supply chains have grown their capacity and experience. Consequently they are often better placed to compete for onshore wind business in places like Wales, both on quality (due to their experience and

● Economic Opportunities for Wales from Future Onshore Wind Development ●

track record) and on price (due to organisational learning and economies of scale). The point was also made that since many suppliers in Wales are relatively small in scale, they lack the Quality Assurance systems required to compete for large projects.

3.40 Finally, other issues commonly cited included infrastructure constraints, principally, the lack of suitable grid access and infrastructure and the lack of highway infrastructure required to facilitate the construction process and avoid an additional cost burden for developers. This is a particular issue in Mid Wales, where grid infrastructure upgrades are required in order to connect the anticipated renewable energy infrastructure. Road infrastructure is also seen by some as an issue for Mid Wales, since many ‘A’ roads are narrow and become congested with holiday and business-related traffic at some times of the year. The view was expressed that regulators and Councillors are not engaging proactively with transport issues, to alleviate the concerns of investors.

“Availability of infrastructure and a suitable road network is lacking, hence the onus is on the developer to invest time and money to sort out transport issues, and to invest in strengthening the grid network”

Wales as an investment location

3.41 We asked developers how favourable they viewed Wales to be as an investment location for onshore wind projects. The response was very mixed. Overall, 40% of respondents feel that Wales is either a reasonably or very favourable place in which to invest. Only a small minority of respondents view Wales as very favourable (7%). Around a third of developers stated that Wales was either fairly or very unfavourable. The remainder were neutral.

Figure 3-8: Views on Wales as an Investment Location for Onshore Wind Projects

35% 33%

30%

25%

20% 20% 20%

15% 13% %of responses 10% 7% 5%

0% Very Favourable Reasonably Neutral Fairly Very Favourable Unfavourable Unfavourable

Source: Survey of Developers and Operators (September-November 2012)

3.42 In order to drill down into the specific factors that sit behind these overall perceptions, we

● Economic Opportunities for Wales from Future Onshore Wind Development ● asked developers to rate various factors as either positive, neutral or negative in terms of their contribution to Wales as an investment location. Whilst the response was mixed, a number of points stand out:

 The responses suggest that the skills base is not a constraint in Wales: 86% of responses were positive or neutral towards the availability of skilled workers.

 Planning policy at the Wales level (i.e. TAN 8) is generally viewed either positively or neutrally. Respondents were split on their views on the clarity on preferred development locations. However, there is clear agreement that local planning policies and practice are a negative factor in the perception of Wales as an onshore wind investment location. The local consent rate in Wales tends to be lower than in England and Scotland; this impacts on investor confidence. Delays, non- determination, and rejection all lead to increased business costs.

“Welsh planning policy is supportive, but there is no buy in politically at the local level”

 Infrastructure – both grid and other infrastructure such as the road network – are also seen as negative factors.

 Respondents were also divided on community and economic development support. A small minority saw these factors as positive, whilst around a third saw them as negative. Table 3-2: Contribution of Factors to Wales as an Investment location for Onshore Wind Factor Positive Neutral Negative Availability of Skilled Workers 43% 43% 7% Welsh Planning Policy 33% 47% 20% Clarity about Preferred Development Locations 33% 33% 33% Community Support 13% 40% 33% Economic Development Support for the Sector 13% 33% 27% Availability of Other Infrastructure (eg roads) 0% 20% 73% Availability of Grid Infrastructure 0% 13% 80% Local Planning Policies and Practice 0% 20% 80% Source: Survey of Developers and Operators (September-November 2012)

● Economic Opportunities for Wales from Future Onshore Wind Development ●

4. Economic Opportunities for Wales

Summary of Key Points

 We estimate that average construction costs per MW of installed capacity are £1.13m, and planning and development costs are £0.12m, in 2012 prices. An estimated 35% of all expenditure in the construction phase is expected to be retained within Wales, along with 71% of planning and development spend.

 Operations and maintenance (O&M) expenditure is £40k per MW per annum, with a greater expected retention of expenditure in Wales than for construction (76%).

 For construction, around 76% of expenditure on turbine towers is expected to remain in Wales, with Mabey Bridge and potentially other suppliers with the capability to supply steel towers. Civil engineering also has a strong presence of potential Welsh suppliers, along with forestry and environment services. For modelling purposes we have reduced this to 50%, for prudence and to reflect the downside risks on this expectation.

 For O&M, the largest items include land rentals and access payments paid to the Forestry Commission/ Welsh Government and local land owners. Direct employment costs total £9,800 per installed MW. Much of this is retained in the Welsh economy. Community Benefit payments are an important element of operational expenditure for local communities and the spending is largely local.

 The economic impacts across all phases of the wind farm lifecycle are set out in Table 4-6. Over the full assessment period 2012-2050, Wales could secure a total of £2.3bn in GVA, with over 2,300 FTE jobs per annum between 2012 and 2024 and 2,100 FTEs between 2025 and 2050. This would amount to:

 £1.4bn additional GVA than if historic trends continued

 £0.9bn additional GVA than if more recent consenting rates continued.

 Construction and manufacturing stand to see the most benefit, but impacts would be spread across the whole of the Welsh economy – see Table 4-7.

 It is important to recognise that this illustrates the potential economic benefit to Wales, should the sector develop as in the scenarios and should the supply side in Wales be able to absorb this demand as expected. In section 6 we look at ways of ensuring the opportunities are maximised.

 Based on an assessment of current capacity in the supply side and the marginal economic benefits of changes in sourcing, increasing expenditure retention in Wales for a range of sectors could lead to an additional £7.3m of GVA and 250 FTE jobs per annum in the 2,000 MW scenario between 2012 and 2024 – see Table 4-10. This table also illustrates the potential impacts that would be lost should sourcing rates be lower than expected.

● Economic Opportunities for Wales from Future Onshore Wind Development ●

 The largest ‘wins’ would potentially be gained from increasing sourcing from Wales of construction management, civils, electricals and grid connections. A 10 percentage point increase in purchasing in Wales in this aggregated sector would lever an estimated £3.7m of additional GVA and 140 FTE jobs per annum in the period 2012-24 in the 2,000 MW scenario.

Introduction

4.1 This section provides estimates of the economic impacts for Wales of future onshore wind development. It is divided as follows:

 Firstly, we provide an assessment of the economic impacts supported by the planning, development and construction phases of onshore wind farm development in Wales.

 Secondly, we estimate the economic impacts during the operational phase.

 Finally, we look at where there is the capacity and opportunity to extend local sourcing of goods and services, given the nature of the supply side in Wales, and the potential additional economic benefits that might be secured.

4.2 Throughout this we test the three development scenarios for the sector set out in Section 3 and Appendix A. We build in sensitivities showing how changes in the proportion of goods and services purchased in Wales might influence the magnitude of the economic outcomes going forward.

4.3 A detailed description of the methodology used, and the underlying issues to be overcome in the modelling of economic outcomes from onshore wind development, is set out in Appendix A.

Development and Construction Phase

Activities

4.4 In onshore wind energy projects much of the cost commitment is up front. Prior to on site construction significant sums are expended in the physical planning of the proposed site, seeking planning permission, and associated development of various impact assessments to inform planning the process. For selected developers this includes costs of developing tenders on Forestry Commission sites in Wales (TAN 8). Most of this expenditure is at the developers’ own risk. The higher the risk of an unfavourable outcome, the greater the likelihood that developers will seek alternative investment locations.

4.5 A typical larger scale project requires extensive civil engineering works for site access and preparation. Many of the largest wind farm sites (extant and planned) are in more rural locations and therefore require careful development of road access to hill side locations. The main capital components are the wind turbine itself and the tower. The size of the components makes transport and installation a specialist process akin to construction engineering. Once in place a series of further electrical engineering and grid connection works are required prior to operation. The initial development phase may also include works

● Economic Opportunities for Wales from Future Onshore Wind Development ●

to restore habitat, or develop habitat management plans.

Expenditure and Sourcing

4.6 The construction and development phase expenditure benchmarks used in this study are shown in Table 4-1. These are informed by our survey of developers, benchmarked against other published sources and tested with industry representatives. We estimate that total average construction costs per MW of installed capacity are £1.13m, and total development costs are £0.12m, in 2012 prices.7 Total construction and development phase expenditures therefore sum to £1.25m per installed MW of onshore capacity.

4.7 Our estimates suggest that 35% of all expenditure in the construction phase is on average expected to be retained within Wales, along with 71% of planning and development spend. As the table shows, there is considerable variance around these headline figures between the categories of expenditure. This is related to the presence of suitable suppliers in Wales and competition from suppliers based in overseas markets where onshore wind is a more mature sector:

 Wind turbine nacelle, rotor and blades is by far the largest single item, accounting for 47% of construction spend per MW of installed capacity. However, most suppliers are located overseas, for example, in Demark (e.g. Vestas), the US (e.g. GE Energy) and Germany (e.g. Enercon). There are at present no wind turbine manufacturers located in Wales or elsewhere in the UK. All of the first round expenditure therefore leaks out of the Welsh economy. The scenarios are developed on the assumption that this specialist capacity is unlikely to be developed in Wales.

 Development and planning – representing around 10% of all development and construction expenditure - has a high Welsh content (estimated at 71%). This includes surveys, design, grid and resource studies, legal and professional services.

 Turbine towers also represent around 10% of total spend and 76% of the requirement is expected to be purchased in Wales in future. Wales has one major supplier of Towers: Mabey Bridge, located in Chepstow. However, there are potentially other manufacturing and construction engineering firms in Wales with the capability to produce steel towers, for example, selected engineering and process skills in the Welsh supply chain serving the major oil refineries. The larger developers (e.g. RWE, Vattenfall) have a preference to source locally and, if possible, to source towers from Mabey Bridge and have been working closely with the supplier (RWE has a framework agreement with them). Whilst there is capacity to supply this expected requirement in Wales8, for modelling purposes we have reduced the sourcing assumption from 76% to 50%, for prudence and to reflect the downside risks on this expectation. Local sourcing levels for towers described in the survey are higher than historic levels, and stem from a specific commercial

7 Note that all values are expressed in 2012 prices. This allows us to express values in a common currency, adjusted for inflation. 8 Note that the annual demand for towers implied within our 2,000 MW scenario and using a 76% sourcing assumption represents around 15% of current capacity at Mabey Bridge.

● Economic Opportunities for Wales from Future Onshore Wind Development ●

relationship between the single tower producer in Wales, and a number of large developers. The historic estimates of economic impact (2005-11 below) therefore have been amended to represent actual previous sales from Mabey Bridge to Welsh developments.

 Civil engineering also has a strong presence of potential Welsh suppliers, and accounts for 12% of all expenditure. This includes suppliers for the building of access roads and spurs, foundations and hard-standings, fencing etc. In the case of grid connections this would involve engineering services, construction and components.

 Forestry and environment services such as tree felling, landscaping and other environmental works are typically a relatively low proportion of all expenditure, although the vast majority of these services are typically delivered by Welsh firms and Forest Enterprise.

4.8 Further, in all modelling and supply chain analysis from here on we have reduced the local sourcing assumption to 50% to reflect the risks associated with this concentration of supply once wind farms reach the end of their operational life, they are either decommissioned or repowered. Capital expenditure is needed to deliver both of these.

Table 4-1: Average Expenditure per MW of installed Capacity for Development and Construction Phase and Expected Sourcing Rate from Wales £ per MW % sourced £ per MW (total) from Wales (Wales) Development and planning 120,000 71% 85,000

Construction Project Management of Construction 58,000 82% 47,000 Wind Turbine Nacelle, Rotor and Blades 528,000 0% - Wind Turbine Tower 140,000 76%* 106,000 Wind Turbine Transport, Assembly & Installation 67,000 61% 41,000 Civil Engineering Works 147,000 76% 112,000 Electrical Engineering Works 85,000 28% 24,000 Grid Connection and Related Works 90,000 55% 49,000 Forestry & Environment Services (inc habitat 18,000 92% 17,000 management) Total Construction (not inc. planning) 1,133,000 35% 396,000 Source: Survey of Developers and Operators Note: Figures may not sum due to rounding * Note that whilst this represents developers’ intentions, in the modelling we have reduced this to 50%, in order to be conservative.

Economic Impacts for Wales

4.9 Table 4-2 shows the economic impact of installed capacity arising from development and construction phases over the period 2005-11. We estimate that once direct, indirect and induced economic effects in Wales are accounted for, £0.3m of GVA and around 12 FTE jobs are supported per MW of installed capacity. Allowing for the annual average of capacity

● Economic Opportunities for Wales from Future Onshore Wind Development ●

installed over this period, we estimate £7.8m GVA and 335 FTE jobs per annum were provided in Wales (a total of £54.6m GVA for Wales over the period).9

Table 4-2: Economic Impacts of Development and Construction of Onshore Wind Farms in Wales, 2005-11 Annual average Total over period GVA (£m) FTE Jobs GVA (£m) FTE Person Years Planning, development 7.8 335 £54.6 2,345 and Construction Source: WERU calculations, informed by developer survey and RenewableUK Database of wind farms. Note: All GVA figures expressed in 2012 prices.

4.10 Table 4-3 uses the baseline described above to project forward economic impacts for our three scenarios.

4.11 The economic impact results for the 2,000 MW scenario are as follows:

 Between 2012 and 2024 we estimate that the average annual effects of new development would be £38m of GVA and 1,610 FTE jobs. Given what we know about the pipeline, it is likely that more of this impact would be felt up to 2020, since many of the projects in the planning system are likely to come forward in this period.

 Between 2025 and 2050 we estimate that there would then be an average of £20m of GVA and 820 FTE jobs per annum, coming from the planning and construction work required to repower wind farms as they come to the end of their operational life.

4.12 This implies that between 2012 and 2024 around £500m of GVA would be supported in Wales, and a further £500m of GVA in the period 2025-50.

4.13 In interpreting these figures it is important to note that the jobs supported are mix of different positions, many of which are temporary in the construction phase, whilst others are longer term positions (e.g. tower manufacturing jobs supported on an ongoing basis by the development pipeline). Therefore, these jobs can be expressed in terms of “person years” of employment. In the period 2012-24 this would equate to over 20,000 person years of employment.

4.14 Turning to the other scenarios:

9 It should be noted that these are estimates and small changes in the value of contracts won by Welsh firms could shift the employment impacts. Also, only a proportion of this employment and GVA impact will be in the immediate vicinity of developed wind farms. However, this activity still represents welcome impacts on the local economy, particularly where development has occurred in more rural parts of Wales where access to economic opportunity is more limited. We look in more detail at local economic impacts in section 5.

● Economic Opportunities for Wales from Future Onshore Wind Development ●

 Should historic trends continue, between 2012 and 2024 there would be an average of £12m of GVA per annum, supporting 500 FTE jobs per annum. Over the period 2025-50 there would be an average of £6m of GVA and 240 FTE jobs per annum, since under this scenario much less capacity is developed and hence less repowering is required. Once again even this slower growth scenario would see a total of nearly £155m of GVA supported in the period 2012-24, and a further £148m in the period 2025-50.

 In the Recent Trends Scenario, between 2012 and 2024 an average of £23m of GVA would be supported per annum and 810 FTE jobs per annum. Over the period 2025- 50 an average per annum of £11m of GVA and 410 FTE jobs would be supported. This would translate into a total of £290m of GVA supported in the period 2012-24, and around £290m in the period 2025-50.

Table 4-3: Economic Impacts for Wales of Planning, Development and Construction Phase (average per annum) 2,000MW Scenario Historic Trends Scenario Recent Trends Scenario 2012-24 2025-50 2012-24 2025-50 2012-24 2025-50 GVA (£m) 38 20 12 6 23 11 Employment 1,610 820 500 240 810 410 (FTEs) Source: WERU calculations, informed by developer survey and RenewableUK Database of wind farms. Note: All GVA figures expressed in 2012 prices. Estimates assume 50% sourcing for towers and include impacts from decommissioning/ repowering.

4.15 Even the historic trends scenario would deliver around 6,000 person years of employment, during difficult economic times at present. It should be noted that the estimates presented take no account of displacement of other activity over the period. However, it is reasonable to assume that much of this economic impact will be net additional to Wales, given the considerable spare capacity in the construction sector under current economic conditions.

4.16 The analysis also highlights the economic consequences of not achieving the 2,000 MW scenario:

 Between 2012 and 2024 the 2,000 MW would deliver an additional £26m of annual GVA and 1,100 FTE jobs per annum compared to the Historic Trends scenario. Over this period, this would amount to a difference of over £340 million in GVA for Wales and 14,400 person years of employment.

 Over the period between 2025 and 2050, this would amount to a difference of £360m and 15,100 person years of employment.

4.17 The main effects under the 2,000 MW scenario would come through development and planning, tower construction and civil engineering works. For each of these the use of Welsh suppliers is expected to be relatively high, and there is scope to increase this further, particularly development & planning and civil engineering. Selected Welsh suppliers of civil engineering services have already developed the expertise and capacity to service contracts in other parts of the UK. There would also be strong economic effects connected to spending of wages and salaries in Wales, benefiting consumer-facing sectors.

● Economic Opportunities for Wales from Future Onshore Wind Development ●

Operational Phase

Expenditure and Sourcing

4.18 Patterns of expenditure during O&M differ significantly from those in construction, namely far higher local levels of purchase for O&M than for development and construction, with the exception of equipment and spares (Table 4-4). We estimate that 76% of all first round expenditure is expected to be retained in Wales.

4.19 We estimate that on average operational costs per MW of installed capacity (excluding community benefit provisions) are £38,600 per annum. This is much less than in the development and construction phases: on average, for every £1 levered per MW during operations some £33 is levered through development and construction. Table 4-4: Average Expenditure per MW of installed Capacity for Operations and Maintenance Phase, and % Sourced from Wales £ per MW % in Wales £ (total) Wales per MW Employment Costs:

- Wind Farm Operations and Management 3,600 79% 2,800 - Turbine Maintenance 5,700 89% 5,000 - Other Activities 500 75% 400

External Costs/Bought In

Equipment and Spares 8,400 22% 1,800 Forestry and Environment (including habitat management) 600 97% 500 Insurances 1,500 28% 400 Land Rentals/Access Payments 12,000 100% 12,000 Business Rates 6,400 100% 6,400 Total Operational Expenditure 38,600 76% 29,400 Source: Survey of Developers and Operators Note: Figures may not sum due to rounding

4.20 The largest item of expenditure is land rentals and access payments, which are paid to the Forestry Commission (and ultimately to Welsh Government) or to private landowners, depending on where the scheme is located. Clearly, the full economic impact of this spending varies according to how the income is ultimately used by these beneficiaries.10 The same applies to rates paid to local authorities. In both cases all of this expenditure is expected to remain in Wales (although the beneficiaries such as private landowners may not spend all of this money in Wales).

4.21 Direct employment costs borne by developers total £9,800 per installed MW, and much of this is retained in the Welsh economy. This varies in practice according to the extent to which activities are sub-contracted or delivered in house. Direct employment creation

10 The receipts to Welsh Government go into the central Treasury and are then used to finance a very wide range of activities. It is therefore not possible to be specific as to how this money is eventually spent.

● Economic Opportunities for Wales from Future Onshore Wind Development ●

during operational phases of onshore wind is understandably less than during the construction phase. However, where employment supported is in complex maintenance roles with higher earnings levels, the skilled opportunities provided would be in line with the socio-economic needs of rural areas in particular, which host some of the largest wind farms.

4.22 Community Benefit payments are an important element of operational expenditure for local communities around wind farms. The common features of community benefits schemes include:

 flows of financial benefits to local communities e.g. community fund to meet community objectives and needs; subsidised energy etc.

 contributions in kind to local assets and facilities i.e. environmental enhancement measures, in the context of wind farm externalities; development of visitor facilities, education programmes.

4.23 For these payments, expenditure is often calculated as a fixed sum per MW of installed capacity. Importantly, the spending linked to community benefit schemes is largely local because they are often managed by community institutions, often with involvement of community councils and developer personnel. Previous research has shown that in Welsh schemes funds varied and has been increasing in recent years (Cowell et al., 2011). Funds of £5,000 per MW are now not unusual. Our central assumption for the economic modelling is an average of £3,000 per installed MW. It is recognised that further work is likely to be necessary in coming years to quantify the full impact of community benefit payments, given the scale of funding and geographical focus.

Economic Impacts

4.24 We estimate that over this period this activity supported an annual average of £6m of GVA and 210 FTE jobs per annum. Table 4-5 summarises the findings from the economic impact assessment for the operations and maintenance phase. The key points to note are as follows:

 In the 2,000 MW Scenario we estimate that an annual average of £22m of GVA is supported between 2012 and 2024, and 720 FTE jobs per annum. Given the increase in capacity, this rises to an annual average of £37m of GVA in the period 2025-50, with an associated 1,260 FTE jobs per annum. In very broad terms, between 2012 and 2024 under the 2,000 MW scenario, development and construction activity would support almost twice the amount of GVA per annum compared to operational activity.

 In the Historic Trends scenario, between 2012 and 2024 there would be £11m of GVA per annum, and 370 FTE jobs per annum. Operational activity would support £15m of GVA and 500 FTE jobs per annum between 2025 and 2050 (i.e. less than half of that which would be secured in the 2,000 MW scenario).

 The Recent Trends scenario would deliver £13m of GVA and 470 FTE jobs per annum in the period 2012-24, and £23m of GVA and 770 FTE jobs per annum between 2025-2050.

● Economic Opportunities for Wales from Future Onshore Wind Development ●

4.25 Comparing the 2,000 MW and Historic Trends scenarios shows a difference of around £11m of GVA per annum in the period 2012-24 and some 350 FTE jobs per annum. Over this period, this would amount to a difference of over £130 million in GVA for Wales.

4.26 Given the current profile of operational spending much of the economic impact in the operational phase comes from the spending of wages and salaries of those involved in routine operations, and then the uses to which rental and rate payments are put.

Table 4-5: Economic Impacts for Wales of Operations and Maintenance Phase (average per annum) Scenario 2,000 MW Historic Trends Scenario Recent Trends Scenario

2012-2024 2025-2050 2012-2024 2025-2050 2012-2024 2025-2050 GVA (£m) 22 37 11 15 14 23 Employment (FTE) 720 1,260 370 500 470 770 Source: WERU calculations, informed by developer survey and RenewableUK Database of wind farms. Note: All GVA figures expressed in 2012 prices.

Forecast Economic Impacts

4.27 Table 4-6 shows the overall economic impacts for Wales across all phases of the wind farm lifecycle under our scenarios, for 2005-2050.11 The range of average GVA impacts per annum 2012-24 is from £60m under the 2,000 MW scenario to £23m under the historic trends scenario. Over this same period total employment effects would vary between 870 FTE jobs to 2,330 FTE jobs per annum.

4.28 This implies that over the full assessment period 2012-2050, Wales could secure a total of £2.3bn in GVA should installed capacity increase to 2,000MW by 2025. This would amount to:

 £1.4bn additional GVA than if historic trends continued

 £0.9bn additional GVA than if more recent consenting rates continued.

Table 4-6: Overall Economic Impacts For Wales of Development, Construction and Operations and Maintenance Scenario 2,000 MW Historic Trends Scenario Recent Trends Scenario 2012-2024 2025-2050 2012-2024 2025-2050 2012-2024 2025-2050 GVA (£m) 60 57 23 21 36 34 Employment (FTE) 2,330 2,080 870 740 1,280 1,180 Source: WERU calculations, informed by developer survey and RenewableUK Database of wind farms. Note: All GVA figures expressed in 2012 prices. Estimates assume 50% sourcing for towers.

11 It is important to recognise that our estimates throughout this chapter take no account of discounting of future jobs and GVA back to 'present' 2012 values. Then we recognise that a £m of GVA generated in 2025 is worth less than a £m of GVA generated in 2012.

● Economic Opportunities for Wales from Future Onshore Wind Development ●

4.29 Our modelling provides an indication of how these economic impacts are spread across sectors. Table 4-7 presents the sectoral impact of employment for the 2,000 MW scenario:

 Construction activities comprise the largest FTE impacts, with well over half (58%) of all employment in the Construction and Development phase. This totals almost 1,000 FTE jobs in construction annually to 2024. Construction is also the biggest portion of operations and maintenance phase employment, albeit only at around 40% of all jobs. In total, the construction industry could supply 1,220 FTE employees annually in the period to 2025 and 960 FTE employees annually thereafter in support of wind farm development and operations.

 Manufacturing also benefits, particularly the metals industries. Given the far higher capital intensity, the investment supports fewer jobs –around 250 in total to 2025 and around 150 thereafter.

 Impacts are spread across the entire Welsh economy. Private services are estimated to increase employment by almost 300 FTE jobs annually to 2025 and almost 400 thereafter, whereas professional and financial services (focussed here on planning and engineering activities) accrue around 300 jobs annually to 2050.

Table 4-7: Annual FTE Job Impacts by Industry Sector: 2,000 MW Scenario 2012 – 2024 2025-2050 Development & Operations & Development & Operations & Construction Maintenance Construction Maintenance Primary & minerals 190 20 100 40 Manufacturing & 230 20 120 40 Energy Construction 930 290 460 500 Private Services & 110 180 60 320 transport Professional & Fin 130 70 70 120 Services Other 20 140 10 240 Total 1,610 720 820 1,260 Source: WERU calculations, informed by developer survey and RenewableUK Database of wind farms.

Spatial Distribution

4.30 The above analysis has focused on economic effects at an all Wales level. It is more difficult to gauge where economic effects will fall within Wales. Under the 2,000 MW development scenario the expectation is that areas of Mid-Wales (Powys and Ceredigion) and South West Wales will host some 80% of the installed capacity, and with much of the different categories of spending tied with expected developments in these same areas.

4.31 However, the economic impacts are unlikely to follow the spatial pattern of the development with construction teams mobile and the supply side in Mid-Wales in particular very limited in terms of the development and construction categories of spend. For example, the five counties of Carmarthenshire, Powys, Ceredigion, Swansea and Pembrokeshire together made up about 22% of the Welsh economy in terms of contribution to GVA in 44

● Economic Opportunities for Wales from Future Onshore Wind Development ●

2010. Indeed Munday et al (2011) argued that the limited supply side immediately surrounding the largest wind farm developments in Mid-Wales up to 2007 provided key context for the evolution of community benefit provisions by developers.

4.32 Our conclusion is that the spatial distribution of the direct, indirect and induced economic impacts from onshore wind is likely to follow the existing distribution of economic activity in Wales i.e. with around 60% of the direct, indirect and induced effects falling in South East Wales, and around one fifth of the effects falling in Mid and South West Wales. The remainder would accrue to North Wales.

Grid Infrastructure

4.33 The placement of wind turbine developments currently approved and in planning requires the upgrade of grid connections (by National Grid) from Mid-Wales East through Shropshire to population centres. This significant investment will itself bring economic impacts, for Wales and Shropshire as well as further afield.

4.34 There is limited information available on the economic nature of this development, although the decision on the preferred route(s) has been comprehensively covered in the National Grid documentation12. This report does provide overall capital and lifetime costings for a number of mutually exclusive routes from proposed substations at either Cefn Coch or Abermule. In each case these are provided for wholly overhead and underground connections.

4.35 National Grid were unable to provide any information on the geographic or commodity breakdown of expected spending. We have nevertheless sought to estimate (albeit in indicative terms only) the likely scale of economic impact in Wales following these works. The prior modelling assumptions are listed in Appendix A.

4.36 Table 4-8 shows the estimated economic impact on Wales of the Mid-Wales grid improvements. Of the £130m spend associated with the overhead option, we estimate Wales captures around £22m, and with this relating to over £10m in Welsh GVA. This additional economic activity is associated with around 360 person years of employment.

4.37 Clearly the underground option is more expensive and hence greater economic impact. Of the almost £0.5 billion in expenditure, Wales is estimated to capture £83.2m and with this then leading to £56.5m in additional GVA. This scenario posits an additional 1,950 person- years of employment in Wales over the lifetime of the infrastructure.

12 http://www.nationalgrid.com/NR/rdonlyres/DC97DCAA-A978-4292-B7E7- 61827F57AB4D/55369/MidWalesStatementofPreferenceDraftJuly2012.pdf

● Economic Opportunities for Wales from Future Onshore Wind Development ●

Table 4-8: Estimated Economic Impact of Mid Wales Grid Infrastructure Development Overhead Underground Gross Expenditure (Lifetime costs) (£m) 130 495 Estimated expenditure in Wales (£m) 21.7 83.2 Economic Impact (Wales): GVA (£m) 10.6 56.5 FTEs / Person years 360 1,950 Source: WERU calculations using published National Grid data Note: the construction period is unknown, so employment impacts are expressed as person-years.

Scope to Maximise Benefits for Wales

Implications of Expected Sourcing Patterns

4.38 It is important to note that our analysis indicates the potential scale of economic impacts, should development proceed in line with the scenarios and should the Welsh supply chain be able to respond to the resultant demand for goods and services.

4.39 A critical driver of the level of economic impacts for Wales is the degree to which it is possible to source from Wales the various goods and services required at each of the wind farm lifecycle stages. Clearly there are limits on what a small economy such as Wales can provide in terms of goods and services to meet the needs of wind farm developers.

4.40 For example, the scale economies required in the production of turbine, rotors and blades means that just a small number of plants across Europe would be viable. Given the geographical pattern of wind farm development to date, turbine manufacturers have developed in various locations on continental Europe. There is currently only one such manufacturer that is likely to be located in the UK (Siemens’ factory in Hull). At the same time our survey of developers revealed that in some cases Welsh purchasing of selected goods and services was already at high levels.

4.41 It is also worth noting that the increases in activity described under the 2,000 MW scenario could result in a fundamental change in the supply side of the economy. For example, a change in the demands from developers might serve to reduce costs per installed MW as scale increases. Moreover, the strong growth in demand under this scenario could bring forward significant new capacity in the supply side for this sector which could also have subtle effects on prices.

4.42 Table 4-9 revisits the survey information for selected expenditure categories both during operational and development phases. The third column sets out the expectations on purchasing in Wales, while the fifth column shows an estimate of the total expenditure that is lost to Wales per MW of installed capacity due to these sourcing patterns. For example:

 71% of spending in development and planning is within Wales, the balance (equivalent to £3,500 per MW), sourced from outside of Wales

 76% of civil engineering works is purchased from Wales; again around £35,000 is lost per installed MW through imports

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 Imports rise to nearly £62,000 per MW for electrical engineering works and over £0.5m per MW for turbine nacelle, rotor and blades.

Scope to Increase Sourcing from Wales

4.43 This therefore hints at the areas where improvements in purchasing from Wales would have the greatest direct spending effects. Based on the potential spending lost to Wales per MW of installed capacity, and on whether a supply side already exists in the Welsh economy in the category, the fifth column colour codes the potential to lever increases in spending in Wales.

4.44 The judgements on the sectors where there is greatest scope for improvements in local sourcing are partly based on levels of existing employment in Welsh sectors that link to the spending categories. For example:

 In 2011 Welsh employment in manufacture of tubes, pipes, metal structures, and other fabricated metal projects was over 6,800.13 Whilst little of this employment is currently connected to construction of wind turbine towers we believe that this level of employment is an indicator of the skills and processes available to produce relevant large metal structures. Furthermore, we believe that elements of the supply side in Wales that serve the oil refineries (Valero and Murco in Milford Haven), existing power stations, and firms such as Tata Steel at Port Talbot could potentially serve the onshore wind industry in the event of a strong increase in demand. This is without the potential for new inward investment to serve this demand.

 The construction sector in Wales is diverse but construction of roads or civil engineering projects employed close to 10,200 people in Wales in 2011.14 A similar number were employed in electrical installation. Furthermore, we expect that the propensity of developers to import service requirements during the development and planning stage link to existing firm ties, rather than lack of capacity in Wales to provide the relevant services. For example, Welsh employment in architectural, engineering and other technical consultancies alone was over 10,000 in 2011.15

4.45 Whilst this focusses on the potential to improve the proportion of purchasing from Wales in the categories, it also hints at what would happen were developers to reduce local spending in some of the categories. This could happen were local suppliers to become uncompetitive or were simply unable to respond to the increases in demand that are expected over the next decade.

13 Source: ONS, Business Register and Employment Survey (BRES), SIC 2420, 2511, 2599 14 Source: ONS, (BRES. 15 Source: ONS, BRES

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Table 4-9: Propensity to Source Goods and Services from Wales and Scope to Increase £ per MW % Sourced £ per MW £ per MW Scope (total) from Wales Wales Lost to Wales Development and planning 119,700 71% 85,078 34,700 High

Construction

Project Management of Construction 58,000 82% 47,000 10,400 High Wind Turbine Nacelle, Rotor and Blades 528,000 0% - 528,400 Low Wind Turbine Tower 140,000 50%* 106,000 70,000 High Wind Turbine Transport, Assembly & 67,000 61% 41,000 26,000 High Installation Civil Engineering Works 147,000 76% 112,000 35,000 High Electrical Engineering Works 85,000 28% 24,000 61,600 High Grid Connection and Related Works 90,000 55% 49,000 40,800 High Forestry & Environment Services 18,000 92% 17,000 1,500 High Operations

Employment Costs: Ops 9,800 85% 8,300 1,500 Low Equipment and Spares 8,400 22% 1,800 6,600 Low Insurances 1,500 28% 430 1,000 Low Source: WERU calculations, informed by developer survey and RenewableUK Database of wind farms. *Note that we have reduced the sourcing assumption for towers from 76% and 50% for prudence and to reflect the downside risks.

4.46 The overall implication of this analysis is that a number of sectors in Wales could be developed in order to increase the amount of onshore wind expenditure retained. Given the scale of potential impact that could be secured these all relate to the planning, development and construction phase.

Economic impacts from Changes in Sourcing

4.47 Using Table 4-9 as a starting point we take the analysis further by considering what would occur given a 10 percentage point sourcing increase in:

 Planning, professional services and project management

 Construction elements including construction management, civils, electricals and grid connections etc.

 Turbine towers

 Turbine transport, assembly, installation, forestry and environmental services.

4.48 Table 4-10 shows the approximate spend per MW in each of these categories,16 and the average spending in the four categories in the Welsh economy as a percentage of the total.

16 Note that two of these categories are aggregated from sectors noted earlier

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4.49 The fourth and fifth columns show the economic impact of a 10 percentage point increase in purchasing from Wales. For example, a 10 percentage point increase in Planning, professional services etc. would take the percentage spent in Wales from 71% to 81%. This would result in an additional estimated £10,100 in GVA per MW and an additional 0.3 FTE jobs per MW (including indirect and induced effects).

4.50 In the final columns of the table these per MW changes are translated into estimated additional annual impact 2012-24 for the 2,000 MW scenario. This shows that increasing each of the categories by 10 percentage points leads to an additional £7.3m of GVA and 250 FTE jobs per annum on the 2,000 MW scenario between 2012 and 2024. The largest ‘wins’ would potentially be gained from increasing sourcing from Wales of construction management, civils, electricals and grid connections etc. Indeed, our analysis earlier showed that in grid connections and electrical engineering the percentage of inputs purchased in Wales was estimated to be just 55% and 28% respectively. As Table 4-9 shows:

 A 10 percentage point increase in purchasing in Wales in this aggregated sector would lever an estimated £3.7m of additional GVA and 140 FTE jobs per annum in the period 2012-24 in the 2,000 MW scenario.

 A similar increase in Welsh purchasing in planning, professional services and project management would yield £1.6m in GVA and 50 FTEs per annum.

4.51 Clearly this analysis also provides insights into what might occur if local sourcing propensities in these spend categories were to fall by 10 percentage points. It is conceivable that the level of new capacity highlighted in the 2,000 MW scenario could attract more firms from further afield to tender for activity (e.g. civil engineering works). However, prior analyses of Welsh construction engineering have revealed that on strategic projects, even where projects are regularly won by managing contractors from outside of Wales (or the UK), significant activity is still supported within Wales as work is subcontracted back (Construction Excellence in Wales, 2012).

Table 4-10: Economic Impact of Increased Local Sourcing – Development and Construction Phase £ per % in 10 percentage points Increase in Local MW Wales Sourcing Per MW Additional Annual Impact in 2,000 MW Scenario; 2012-24 GVA FTEs GVA FTEs Planning, Professional Services & 120,000 71% £10,100 0.3 1.6 50 Project Management Construction, Groundworks and 380,000 61% £23,300 0.9 3.7 140 Electrical Engineering Manufacturing 140,000 50% £7,000 0.2 1.1 30 Transport, forestry & Other 85,000 67% £5,700 0.2 0.9 30 10%age point increase in local £46,100 1.5 7.3 250 sourcing across all inputs Source: WERU analysis

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5. Local Economic Benefits

Summary of Key Points  The economic opportunities outlined in Section 4 will not be spread evenly throughout the nation, with a concentration of the benefits outside the immediate area around wind farm developments due to the greater presence of relevant sectors and the density of suitable businesses.  Nonetheless, there are important economic opportunities for local areas hosting wind farms to benefit from the developments in a variety of ways.  Rural areas will often be very well placed to supply some types of goods and services, due to a combination of the economies associated with sourcing these inputs benefiting local suppliers and the presence of a good supply base locally. Examples include aggregates, non-specialist civils, and forestry and environmental services.  Service based rural local economies also often benefit in the construction phase by providing services to the contractors that are temporarily located there, such as hospitality and retail.  Evidence from our case studies shows that there are examples of good work being done to engage with the supply chain in local areas, to link up prime contractors with local suppliers, as well as to support potential suppliers to tender for opportunities.  Rural localities are also often well placed to benefit from opportunities in operations and maintenance activity. This is especially the case for larger schemes with a need for locally based maintenance support.  All local communities hosting wind farms will see long term benefit from Community Benefit Payments. In some cases these payments can be very substantial and offer potential for significant positive economic and community benefit. For example, the community benefit fund (CBF) for Pen y Cymoedd will be worth around £1.8 million per annum. Some larger developments also include a dedicated economic development fund alongside the CBF. For example, RWE npower renewables is proposing a £3,000 per MW economic development fund alongside the £5,000 per MW CBF (both are index linked) for Clocaenog wind farm.  Wind farm developments often include investments in environmental improvements as part of the package of infrastructure works, including the restoration of important habitats.  Another valuable benefit for rural economies is the income generated for local landowners who receive capital and/or rental payments in return for the siting of wind farms on their land. Depending on the landowner, this either goes to local farmers, other landowners or to the Forestry Commission/Welsh Government. This income provides a benefit in terms of additional investment in rural businesses.

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Introduction

5.1 This chapter considers the extent to which the economic impacts outlined in Section 4 can generate economic benefits for the local communities in which the developments are located. It draws on evidence concerning the approaches which developers and operators adopt to promote these benefits, as well as a number of case studies of a mix of existing and proposed wind farms. The section also considers the potential to secure greater economic benefit locally as the extent of onshore wind capacity within Wales expands up to 2025.

5.2 The assessment is restricted to the economic benefits which arise from the expenditure associated with the construction and on-going operation of the wind farms. It does not consider other economic impacts which may arise locally due to the presence of these developments currently or in the future.

Sources of Local Impact

5.3 For the purposes of the assessment, we have defined ‘local’ as the economy within which the wind farms, existing or proposed, are located. Clearly the nature of these local economies, in terms of their urban-rural character, size and mix of sectors, and skills and travel to work areas, will vary widely between wind farms. As outlined below, these differences in economic character and geography are important factors explaining the way in which the local areas can benefit from the developments.

5.4 The development and operation of an onshore wind farm can benefit the local economy in which it is located in a number of ways – the main ways are through:

 The contracts won by local firms as part of the planning, development, construction and operational phases – that is the supply chain

 The employment of local residents supported in these phases, either directly or through the supply chains

 The local expenditure in the retail and hospitality sectors as workers involved in these phases spend their income in the local economy

 The wider economic benefits for local communities, including investment in local physical, economic and community infrastructure and financial benefit for particular groups such as land owners.

5.5 Whilst the nature and scale of these core economic benefits varies from one wind farm to another, there are a number of common factors that will influence their nature and scale locally. These include:

 The scale of the wind farm

 The duration of the construction programme, the extent to which construction work takes place on-site or off-site, and origin of the workers who work in site

 The approach to procurement adopted by the developer/operator

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 The nature and capacity of the local business and skills base

 The degree to which proactive action is taken by the developer and local agencies to engage with the local supply chain and local workforce.

5.6 In practice these factors are complex and inter-related. To understand how these effects manifest themselves in practice we have drawn upon four case studies of onshore wind farms across Wales, as well as the wider consultations we have undertaken. The purpose was to obtain the views of the developers, operators and local stakeholders on the nature and scale of these impacts, and what is driving them. The rationale for selecting these was to obtain a diverse selection of schemes in terms of location, size, developer and age. The case studies undertaken were:

 Ffynnon Oer, a 32 MW scheme located in Neath Port Talbot operational since 2006

 Cefn Croes, a 59 MW scheme located in Ceredigion, operational since 2005

 Wern Ddu, a 9.2 MW scheme located in Denbighshire, approved on appeal in June 2007 and operational in March 2010

 Pen y Cymoedd, a 256MW scheme located in Neath Port Talbot and Rhondda Cynon Taf, approved in May 2012 and expected to be operational 2016.

5.7 In interpreting the evidence in this section it is important to note that the case study evidence obtained was of variable quality and coverage. Developers in some cases did not retain records that would allow us to drill down into the nature and scale of local economic benefits. This was especially true where a significant amount of time had elapsed since wind farms had been constructed. However, sufficient evidence was obtained across all of the research strands of the study to help us to draw out the key factors that typically drive local economic impacts.

Local Context for Current and Proposed Wind Farms

5.8 Figure 5-1 shows the locations of current and proposed wind farms in Wales, with a 10km isochrome around each, and an urban context underlay. This serves to illustrate the rural context for many of the wind farms especially in Mid- and South East Wales. Those wind farms located in South East Wales are closer to urban centres.

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Figure 5-1: Operational, Consented and Proposed Wind Farms in Wales

Source: RenewableUK database

Approaches to Local Economic Benefit

5.9 The survey of developers and operators explored the extent to which they pursued various actions to help secure local economic and community benefits as a consequence of their onshore wind farms in Wales. Figure 5-2 summaries the results, whilst the most notable points are:

 All developers/operators that responded to the survey state that they provide a community benefit payment and the vast majority report that they work with local communities to help them maximise the benefits from these payments.

 Around two thirds of the respondents report that they work with local schools and colleges on topics covering renewable energy and energy efficiency.

 A little less than a half of respondents (around 46%) currently run any supplier events or training initiatives. However, closer inspection reveals that the larger developers – who are delivering or due to deliver a lot of the operational and pipeline capacity – are typically more active in this regard.

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 The respondents were evenly split in terms of the prevalence of actions to invest in improvements to local visitor and recreational facilities. The drivers of these types of actions tend to be very scheme-specific and depend on the local needs and opportunities of the development.

 Around 40% of respondents encourage contractors to adopt local training initiatives.

5.10 In interpreting these results some care is required in that the extent to which the developers in our sample are active in these areas will partly depend on the stage that their developments are at.

Figure 5-2: The Extent to which Developers Pursue Actions Secure Economic and Community Benefits in Wales

90% Large Extent 80% Some Extent

70% Do Not

60% Don't Know

50%

40%

%respondents of all 30%

20%

10%

0% Running supplier Running your own Encouraging The provision of Working with local Investing in Working with local events or similar local training contractors to community benefit communities to improvements to schools and initiatives to help initiatives (eg adopt local training payments proactively help local visitor and colleges on topics companies based providing initiatives them maximise the recreational covering in Wales to access training/work benefits of using facilities renewable energy supply chain placements to local these community and energy opportunities residents) benefit payments efficiency

Survey of Developers and Operators (September-November 2012); n = 15 To what extent do you pursue the following actions in order to secure social and economic benefits of onshore wind in Wales?

Findings from the Case Studies

Development and Construction Impacts

5.11 There are several factors that explain the extent to which local economies benefit from the development and construction of wind farms. We look at these below.

Scheme Size and Duration on Site

5.12 Clearly, the scale of the potential local economic benefit brought by a wind farm is closely related to the size of the scheme. Larger schemes (in terms of number of turbines and level of installed capacity) will have a greater capital cost and typically require more labour input 54

● Economic Opportunities for Wales from Future Onshore Wind Development ●

on or close to the construction site. For these schemes, the size and duration of the total expenditure injection and therefore potential economic impact will be greater. For example, it is expected that the 256 MW Pen y Cymoedd scheme will take almost three years to construct, whilst Wern Ddu, a 9 MW scheme, took just 5 months.

5.13 Where local firms are not of sufficient scale to compete for or win the main or larger sub- contracts, the local economy still has the potential to secure significant benefits from larger schemes with a more lengthy construction period given the greater/longer presence of construction workers over a period in the local area. This presence supports the local economy through the expenditure of these workers on local retail goods and on accommodation and so on.

Economic Geography

5.14 Of all the factors that influence the extent to which local economies can benefit from onshore wind farms, location and local economic considerations are amongst the most important. There are several dimensions to this, which are interlinked to some extent.

Nature and Scale of Business Base

5.15 The ability of a local area to benefit from the contracts on offer in the construction phase depends on the capacity of the supply side. Local economies with a sufficient presence of suitable firms in construction and manufacturing have a greater chance of being able to participate in the supply chain and retain personal expenditure of non-home based construction workers.

5.16 The upshot of this is that wind farms located in close proximity to urban centres, with a greater density of firms and workers to draw on as part of the supply chain, are likely to capture more of the benefit. The potential to secure local benefit will be markedly less where wind farms are being constructed in the more peripheral parts of Wales, with low economic and labour market density.

5.17 For example, whilst Cefn Croes is a relatively large scheme (59MW), the sourcing of inputs from the local area during the construction programme was limited due to its rural location (see Figure 5-3) and lack of suitable contractors for the types of construction inputs which might feasibly be sourced within Wales. However, suitable prime contractors were available in other parts of Wales, demonstrated by the fact that Jones Brothers of Ruthin, Denbighshire17, secured the £6.3 million Balance of Plant contract (c.13% of total construction value).

17 This included construction of access roads, turbine bases, crane bases and the 33kV cabling.

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Figure 5-3: Cefn Croes Wind Farm in Context

Source: Renewable UK

5.18 By contrast, an estimated 13% of the overall construction value for the Ffynnon Oer wind farm, located in Neath Port Talbot and in close proximity to urban centres (see Figure 5-4), was sourced from within a 30 mile radius (see the table below). The prime contractors were able to source a range of sub-contracted services locally including from Neath, Swansea and Bridgend, ranging from aggregates and related civils through to specialist environmental services. Table 5-1: Goods and Services Sourced from Companies Local to the Ffynnon Oer Wind Farm Site Approximate Area Total Value of Sub Type of Goods and Services Distance from Site Contracts Fewer than 10 Neath £99,300 Aggregates, building materials, plant miles hire Briton Ferry £18,000 Security services 10 to 20 miles Aberdare £725,700 Concrete for bases, cabling, building materials, skip hire Swansea £63,500 Plant hire, appliance testing 20 to 30 miles Bridgend £202,300 Investigatory drilling / soil consultancy, plant hire Source: RWE npower renewables

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Figure 5-4: Ffynnon Oer Wind Farm in Context

Source: Renewable UK

5.19 Local economic density is also an important factor in the ability of an area around a wind farm development to secure the subsequent supply chain multiplier effects. The larger the local economy, the greater the chance that it is able to supply the goods and services required from lower tiers of the supply chain, generating indirect multiplier effects. Conversely an economy with a lower density is more likely to see this lower tier supply chain expenditure leak out of the local area.

5.20 However, rural areas will often be very well placed to supply some types of goods and services, due to a combination of the economies associated with sourcing these inputs benefiting local suppliers and the presence of a good supply base locally. Examples include aggregates, non-specialist civils, forestry and landscaping.

5.21 Whilst the presence of suitable sectors in the local area is clearly a necessary condition for winning any sub-contracts that come forward, it is of course not sufficient. In order for firms to win these sub-contracts they need to have the capacity to deliver them. Given the scale of the contracts commonly on offer, the size and competitiveness of the businesses in the local economy can therefore be an important factor. Larger construction contracts and more specialist activities in particular often require tenderers to meet certain quality standards, to demonstrate efficiencies and to offer guarantees. This favours larger firms that have the experience, management and operating systems, and economies of scale to meet these requirements.

5.22 Given the demands associated with such large contracts, many of the main contracts and large first tier sub-contracts in the construction phase are let to companies outside of Wales. This is due to there being only a limited number of companies within Wales with the capability to bid directly for these large contracts. The majority of value secured by Welsh companies tends to be in lower tiers of the supply chain (second tier and below). However, 57

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this can be influenced to some extent by specific local supply chain initiatives and by the procurement process. For example, Neath Port Talbot BC in conjunction with the developer, Vattenfall, is undertaking an initiative to help develop the local supply chain so that it is ready to compete for contract opportunities through the Pen y Cymoedd development. This includes efforts to create Joint Venture companies that may have the capacity to compete for the larger tier one and two sub-contracts.

5.23 Whilst rural local economies that are predominantly service sector based will struggle to meet many of the immediate direct needs of the construction supply chain, these local economies can and do benefit in the construction phase by providing services to the contractors that are temporarily located there, such as hospitality and retail. Anecdotal evidence from several case studies points towards benefits for local hotels, B&Bs, publicans and the retail sector in particular as hundreds of construction workers stay in the area over the construction period. This includes Cefn Croes, for example, where many construction workers including Jones Brothers were located on site for the best part of a year.

5.24 The case studies point to a number of factors influencing the ability of the local economies in which the development occurs to benefit from this induced personal expenditure:

 The remoteness of the construction site – the remoter the site, the greater the need for contractors to be non-home based and hence the higher the demand for accommodation;

 The availability of accommodation – local areas that are able to provide sufficient accommodation for workers will be best able to secure the associated benefits.

 The availability of related hospitality and retail – likewise, the greater the presence of other services that construction workers will need, the greater the ability of the local area to benefit from this expenditure.

 The duration of the construction period – the longer the construction period, the greater will be the duration of these benefits as workers will be present in the local area.

 The country of origin of the main component suppliers and their contractors – for suppliers that are located outside of Wales and the UK that bring their existing workforce with them on a temporary basis, there is potential for significant demand for accommodation and related services.

Labour Market

5.25 A further relevant factor bound up in the location of a wind farm is the extent to which suppliers and contractors which are based on or close to a site, bring their workforces with them or recruit locally. This is typically driven by three factors:

 The duration of the construction activity on-site;

 The degree of specialism in the skills required on-site and the manner in which these vary during the construction phases;

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 The density and nature of the labour market for these skills, including the travel to work areas.

5.26 Feedback from developers suggests that whilst turbine components and the associated assembly are mostly sourced from other areas in Europe, many of the skills required in the construction of wind farms (site investigators, civil engineers, plant operators, manufacturers of metal fittings and fixings) are available in locations in Wales.

5.27 Nonetheless the availability of these skills and the labour market varies from location to location within Wales. There is a reasonably strong presence of consultancy, civil and electrical engineering firms and their workforces located in South East Wales in particular, as well as some other clusters in North East Wales and South West Wales (e.g. the Port Talbot and Swansea areas).

5.28 The case studies and related research suggests that it is not uncommon for much of the on- site employment to be filled by workers from other parts of Wales, the UK or Europe. The origin of the contractors and the nature of the work mean that there can be limited opportunities currently to recruit locally, even if the skills were available locally. Whilst Wales undoubtedly has strength in some aspects of the supply chain, these firms are not located in the areas in which the new developments are located.

5.29 For example, in Powys there is currently over 900 MW of capacity in the planning system (17 schemes) and due for determination in the next couple of years. Although not all of the schemes may be built, the capacity which does come forward will provide major opportunities for both local firms and workers. However, the scope for these firms and their workforces to benefit will be constrained by a lack of suitable skills in sufficient volume.

5.30 Where skills are currently in short supply, this can be countered through appropriate efforts to upskill workers, given sufficient time to plan. This underlines the importance of local businesses being made aware of future opportunities and being assisted to access them. Businesses often report a lack of awareness and sufficient lead-in time to respond appropriately as key barriers to entering the supply chain. This can be addressed through supply chain events and these are being increasingly integrated into procurement processes (e.g. by RWE and Vattenfall). For example, the developer Vattenfall has partnered with a local engineering business (ISO Fab Ltd) to deliver a three year apprenticeship scheme to train wind turbine technicians for Pen y Cymoedd.

5.31 It is worth stressing that at the current time, given the state of the economy, there is generally a lot more spare capacity within the labour market than in more buoyant times to absorb any increases in demand. This means that displacement in both the factor market (e.g. firms poaching workers from other firms) and product market (i.e. firms taking market share away from one another) is likely to be minimal.

Procurement Approach

5.32 A strong message from the case studies is that even if many of the factors set out above are favourable, ultimately the approach to procurement followed by the developer can be very important in shaping the level of local economic benefit that is ultimately secured. Moreover, the actions taken by the developer can themselves shape some of these other

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factors.

5.33 Whilst in some cases Welsh firms lack the scale and track record necessary to compete for the main/first tier contracts, the developer can influence the main contractor to maximise use of local suppliers in their supply chain. The approach to procurement being followed for Pen y Cymoedd has some good lessons in this respect. Given the scale of the scheme, the local authority recognised that there is significant potential to secure economic benefits for the community. Accordingly, the local authority has been working closely with the developer from an early stage to ensure that the local supply chain of Neath Port Talbot/ Rhondda Cynon Taf is made aware of the opportunities. A business briefing event was held in March 2011 attended by around 140 people in the South West Wales region. The purpose was to provide the local business community with details on the project and consult on the intended procurement process.

5.34 There was strong feedback that in order to maximise the opportunities for local firms, Meet the Buyer events needed to be held before the main contracts had been let. Accordingly, these events have been held with potential main contractors and potential local subcontractors both in attendance, meaning that they are able to have a dialogue to understand each other’s requirements. Furthermore, Vattenfall incorporated use of local suppliers as a criterion within the procurement of main contractors, and has made it a requirement for monthly reporting on the use of local supply chain firms from its contractors.

5.35 Neath Port Talbot County Borough Council subsequently developed a supply chain support package, funded by themselves and by Welsh Government. The funding was used to support local businesses to further develop the skills and capacity needed to work in the renewables sector, from training and workshops to direct one-to-one support that will enable local businesses to prepare for the project.

5.36 Whilst this approach is not common practice and is seen by the local authority as an exemplar, it is likely that the use of these approaches has improved over time amongst other developers, especially in the years following TAN 8. For example, RWE has been regularly holding supplier events in the areas local to their developments for its proposed schemes. In May 2012 RWE hosted a major South Wales Supply Chain Event at the Liberty Stadium in Swansea. The event was intended to inform awareness of the types of opportunities which could exist within the sector and RWE’s portfolio of developing projects, how procurement works, and what kind of qualifications might be expected from the sector’s prospective supply chain. The map below summarises the location of suppliers that attended the event.

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Figure 5-5: Location of Attendees at a RWE Supply Chain Event (held in Swansea)

Source: RWE, 2012

Operational Impacts

5.37 As the analysis in Section 4 makes clear, operational impacts from onshore wind farms are much lower than those associated with construction, although they last for much longer and on average a greater proportion of the associated expenditure is retained in Wales. Several factors influence the level of benefit that can be secured in the operations and maintenance phase, some of which are in common with the construction phase.

Scale of Scheme

5.38 Scale is again a factor in so far as it influences the degree to which there is a need for on-site operational staff. Whilst staff posts associated with core management functions are to some extent fixed, other elements vary with the size of the wind farm, including the level of maintenance work required. For smaller schemes it is often possible for the

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developer/operator to service the maintenance requirements centrally, using staff based in other locations within or outside Wales. Larger schemes tend to require more workers to be permanently located on the ground. For example, Wern Ddu, a 9.2 MW wind farm, only requires 2-3 weeks of maintenance per year. By contrast, Cefn Croes requires 4 operations and maintenance FTEs and Pen y Cymoedd is expected to require 12 FTEs, with 90% of these being based locally.

Maintenance

5.39 The maintenance of wind farms is often built into the turbine manufacturing contract for a specified warranty period. Therefore, since the turbine contracts typically go to overseas firms, maintenance is often undertaken by non-UK based firms. The extent to which local firms and employees are able to benefit from this work depends on the balance between the manufacturers’ use of local teams and their use of their own workers.

5.40 At Ffynnon Oer the turnkey contractor, RePower, delivers this maintenance as part of the warranty agreement. Despite this, there is some direct on-site employment generated to deal with routine maintenance and checks of the turbines (for example dealing with routine changes of oils and components). Two technicians are employed directly by RWE and based on-site on a full time basis. Prior to their employment on-site, these technicians did not have experience of wind farm maintenance so were trained via a six week intensive course in Germany (at RePower’s headquarters) to provide the turbine skills required for their O&M role.

5.41 The turnkey contractor at Cefn Croes – GE Energy - also delivers maintenance for Cefn Croes. GE Energy employs four staff in wind farm O&M. While the posts were not all recruited from the local workforce, all four are currently based within a radius of around 20km from the wind farm.

5.42 Following the expiry of the warranty, maintenance may either continue to be contracted out by the developer or managed in-house. Evidence from our survey and case studies suggests both approaches are used. Where activities are contracted out this is sometimes done through a single contract covering all O&M activities. This brings the potential for local companies to benefit through the use of a framework agreement of local contractors which the main O&M contractor can draw on where required. This has been achieved around various wind farm sites in Wales by holding open days for local firms to highlight the potential supply chain opportunities and supporting local suppliers to become approved suppliers for the wind farm.

5.43 Where developers choose to deliver the maintenance in-house, the extent of local opportunity partly depends on the developer’s approach to managing their portfolio of wind farm schemes across Wales (especially relevant for larger developers):

 Larger developers may have a portfolio of wind farms in Wales, and choose to centralise their approach to operations and maintenance of these wind farms, sharing responsibility across existing staff, especially for smaller schemes.

 It is also possible that where a developer/operator/turbine supplier has several sites in reasonably close proximity, local bases are set up for the purpose of providing co-

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ordinated support across the sites. This would happen where there is a sufficient clustering effect that creates the critical mass for scale economies to be achieved.

Other Bought in Goods and Services

5.44 As set out in section 4 there are a range of other bought in goods and services in the operations and maintenance phase, including forestry and environment (£600 per MW of installed capacity), equipment and spares (£8,400 per MW) and insurances (£1,500 per MW). As the analysis in section 4 showed, a relatively small proportion of equipment and spares tend to be sourced from Wales, since this generally links to where turbines and components are actually manufactured.

5.45 However, there is much more scope for forestry and environment services to be sourced from local areas given the presence of these skills, especially in rural areas. This includes activities such as habitat management and monitoring, forestry and so on. There is also scope for induced benefits to be secured locally within the hospitality sector where maintenance staff need to stay locally.

Wider Impacts

Community Benefit Payments

5.46 The inclusion of Community Benefit Funds as part of wind farm developments offers significant potential to secure positive impacts for local communities. Indeed, CBFs are the main source of longer term local benefit for communities from the presence of the wind farms. A recent report by the Joseph Rowntree Foundation found that CBFs bring the potential to secure benefit through the sharing of benefits of developments with host communities, linking local resources to local economies and securing local community support.

5.47 A recently published study18 maps the extent and nature of CBFs across Wales at present. This mapping study found that a number of different mechanisms were used to make the CBF payments. Of 32 funds examined, the most commonly used mechanism was a fixed annual payment (24), followed by payments per MW of installed capacity (6), equity share (1) and in-kind payments (1). RenewableUK has proposed a minimum payment of £1,000 per MW of installed capacity (index linked to RPI for schemes over 5 MW) as part of its community benefits protocol for England. Nonetheless payments of £5,000 per MW have become more frequent in recent years.

5.48 The size of payments is closely linked to the scale of the wind farm (especially if set on a per MW basis). For larger schemes this gives potential for significant ongoing benefits to be secured from CBFs if they are spent on activities that align with local need and have potential to deliver local impact. Of the case studies we looked at, the annual level of community benefit payment varied from £10,000 for Wern Ddu (a 9.2 MW scheme) to an anticipated £1.8 million for Pen y Cymoedd (a 256MW scheme). Using a central assumption of £3,000 per MW, our modelling indicates that in the 2,000 MW scenario this would

18 RenewableUK, Enjoying The Benefits: The Value of Onshore Wind Farm Community Benefit Funds to Wales, 2012

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generate annual payments of £6m (£150m over the period 2025-50).19 It is worth noting that the size of the payment varies considerably on a per MW basis, with some developers offering in excess of £5,000 per MW.

5.49 Developers typically are very keen to ensure that local communities are fully engaged in the process of designing, delivering and managing the Funds as it is important that they take ownership of the Funds. Developers generally devolve responsibility for the CBFs, although they may offer advice on administrative issues. CBFs are then delivered by Community Trusts (e.g. Cefn Croes), Town/Community Councils (e.g. Wern Ddu), local charities and other bodies. CBFs can be delivered either by a single organisation or multiple bodies (e.g. at Ffynnon Oer it is delivered jointly by a charity and a limited company). This community ownership of CBFs means that they are spent on a variety of activities that are deemed to be a priority for individual communities – there is no single model for how funds should be spent. Given the decentralised approach to CBFs there is little in the way of evidence on the local impacts of CBFs. However, we have a flavour of the kinds of activities that have been funded:

 Cefn Croes: the £1,000 per MW fund (index linked) has to date paid for equipment for community groups, minor repairs and improvements to buildings for the community, community events, festivals and trips, training and educational courses and so on. The list of organisations supported includes community councils, schools, churches and chapels, village halls, community transport schemes, an art group, a garden club, a heritage trust and a youth group, reflecting a wide cross-section of local community groups and activities.

 Ffynnon Oer: Grants have been provided to a variety of local organisations including youth and sports clubs, groups set up to support OAPs and parents. Payments have also been made to the South Wales Miners Museum. While the grants made are, on the whole, relatively small in value they are often related to the purchase of equipment and materials required to set up longer lasting services (e.g. coffee mornings for elderly residents, equipment for sports clubs etc).

5.50 In the case of Pen y Cymoedd the proposed CBF of £1.8m per annum is clearly very large and has potential to deliver significant socio-economic benefits locally. Accordingly, the developer is kick starting the process of designing the fund by commissioning socio- economic research to inform the assessment of local needs and priorities, other funds that could potentially complement the CBF and lessons from previous interventions as to what has worked in the past.

5.51 Some larger developments also include a dedicated economic development fund alongside the CBF. This is driven by Forestry Commission requirements for wind farms located on their estate. For example, RWE npower renewables is proposing to do this for its proposed wind farms at Brechfa and Clocaenog. For Clocaenog, a £3,000 per MW Economic Development fund is being proposed alongside the £5,000 per MW CBF (both are index linked). While the focus of investment of each of the funds would be determined by local communities, the provision of two separate pots of funding means that there may be scope for each to be

19 These are expressed in 2012 prices – for many schemes the payment is index linked so would rise with inflation.

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invested with a focus on different sorts of activities. For example, the community benefit fund may be used to develop community facilities or services for use by local residents, whilst the economic development fund could be invested in activities aligned towards the needs of the local business base.

Local Infrastructure Impacts

5.52 Wind farm developments often include investments in environmental improvements as part of the package of infrastructure works. Sometimes these are included to mitigate construction effects from the development, or are included as part of negotiation with local communities. Examples include:

 Cefn Croes: the developer has contributed £10,000 per annum to an ongoing environmental enhancement project around the wind farm site. This supports an environmental management plan and is overseen by a committee of local stakeholders including the developer, local authority, landowner, Welsh Government and other partners.

 At Pen y Cymoedd, a Habitat Management plan will be implemented, with a value of £3m over 25 years. The aim will be to restore, conserve, enhance and manage local peatland habitats.

 At Ffynnon Oer, the developer has sponsored improvements to the Afan Mountain Bike Trails, which are an important tourism asset in the Afan Valley. The improved trail runs close to the Ffynnon Oer wind farm, through the nearby Afan Forest Park. The improvements include upgrades to key sections of the trails as well as provision of new signage and related information to help with navigation. The Afan Forest Park is described as “world class” on its website and these upgrades will have made some contribution to its offer.

Income for Landowners

5.53 An important benefit for local rural economies hosting wind farms is the capital and revenue payments made to local landowners on which the wind farms are situated. Wind farms in Wales are either located on Forestry Commission Wales land, privately owned farmland or occasionally common land. Developers typically negotiate an annual rental payment in return for access to the land. The level of payment negotiated of course varies with the amount of land used and the value that is negotiated. Our survey suggests an average of £12,000 per MW across all respondents.

5.54 This can result in significant income for landowners, much of which will be reinvested in local businesses in one way or another. For example, should our average for the survey be broadly representative, this would imply payments of over £3m per annum at Pen y Cymoedd.

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6. Conclusions and Recommendations

Conclusions

6.1 Our analysis has highlighted the potential for a significant and steady stream of economic benefits for Wales that could arise from the development and operation of additional onshore wind capacity in coming years. Drawing on the latest views and intelligence from the industry, the study has looked at the likely level of investment and expenditure that could flow to Wales in various scenarios for the development of the industry, which sectors stand to benefit from this, and what this could mean in terms of Gross Value Added and employment in Wales.

6.2 This analysis has shown that, should 2,000 MW be developed by 2025 and should Wales be able and prepared to capture its expected share of investment, there is the opportunity to secure £2.3 billion of GVA for Wales between 2012 and 2050, with over 2,000 FTE jobs per annum supported in this period. Whilst construction and manufacturing could stand to see a particular benefit from this activity, the benefits could be spread across a range of sectors throughout Wales, with the supply chain effects and the consumer expenditure of employees.

6.3 There are downside risks to the achievement of these benefits:

 Should development proceed at a slower rate, there would be less investment in Wales and consequently fewer jobs and less GVA supported. A continuation of historic trends in development rates would see £1.4 billion less in GVA than if 2,000 MW were achieved, and only around a third of the jobs could be supported. A continuation of more recent trends could mean £0.9 billion less GVA and around 1,000 fewer jobs on average per annum. Our research has highlighted a number of barriers to achieving development, including local planning issues and to a lesser extent, grid and road infrastructure constraints.

 Moreover, should 2,000 MW of capacity be achieved, a proactive approach is nonetheless required to ensure that the potential benefits outlined above are secured. The analysis in section 4 has illustrated the consequences of investment in Wales being below expectations. In our recommendations below we explore some of the options available for maximising the benefits.

6.4 The economic opportunities outlined in Section 4 would not be spread evenly throughout the nation and, reflecting the economic geography of Wales, many of the supply chain benefits would be concentrated in the larger urban areas. Nonetheless, there are opportunities for the immediate local areas to benefit from the developments:

 Those areas that are in close proximity to urban centres have the potential to benefit from opportunities in the supply chain, given the greater presence of relevant sectors and the density of suitable businesses.

 Rural areas will often be very well placed to supply some types of goods and services, due to a combination of the economies associated with sourcing these inputs benefiting local suppliers and the presence of a good supply base locally. 66

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Examples include aggregates, non-specialist civil engineering, forestry, and other environment/ habitat improvements works.

 Service based rural local economies also benefit in the construction phase by providing services to the contractors that are temporarily located there, such as hospitality and retail.

 Evidence from our case studies shows that there are examples of good work being done to engage with the supply chain in local areas and to link up prime contractors with potential local suppliers.

 There is some scope for rural localities to benefit from opportunities in Operations and Maintenance. This may be the case for larger and remoter schemes where it makes more economic sense to locate maintenance services locally. However, where developers have a number of wind farms across these areas, they may choose to concentrate these activities in hubs in the main towns in Mid Wales.

 Most local communities hosting wind farms will see long term benefit from Community Benefit Payments. In some cases these payments can be very substantial and offer potential for very significant positive economic and community benefits for local communities.

 Wind farm developments often include investments in environmental improvements / remediation as part of the package of infrastructure works. These can help to address existing concerns as well to fund improvements to visitor facilities, for example. Some of the larger schemes include major habitat restoration plans.

 Landowners receive capital and/or rental payments in return for the siting of wind farms on their land. Depending on the landowner this income either goes to local farmers, other landowners or to the Forestry Commission/Welsh Government. These substantial levels of income are often used to support investment in land based and related rural businesses.

Recommendations

6.5 Maximising the opportunities from onshore wind in Wales will require proactive effort, co- ordination and partnership in the coming years. We set out potential areas for attention here.

Planning System

6.6 There is a clear planning framework for the development of onshore wind across Wales. However, our research has highlighted problems in implementing this national framework at a local level. Approval rates in Wales have been lower than the rest of the UK (and in particular Scotland), and delays have been more common and longer. If national aspirations for the development of the sector are to be realised, steps need to be taken to ensure that investors and developers have confidence in the prospect of developments going ahead. Otherwise, given the considerable upfront investment that is required, there is a danger that planning risks will deter investment and developers will seek alternative locations in the UK and overseas. There is also a role for developers to engage with communities as early as 67

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possible in the planning process and to invest resources in communicating the benefits of their schemes to the local community. The current review of the planning system provides the opportunity to ensure that the system is fit for purpose and to address specific barriers.

Recommendation 1: Welsh Government and developers should work together to ensure that concerns on planning constraints are fed into the current review of the planning system, which will in turn inform the forthcoming Planning White Paper due to be published in 2013.

Recommendation 2: Developers to liaise closely with communities from an early stage in the planning process and to ensure that the benefits (and disbenefits) of the scheme for the local community are communicated clearly and effectively.

Enabling Infrastructure

6.7 It is clear from our research that a lack of grid infrastructure – particularly in mid Wales - is widely recognised as a constraint to onshore wind development. For particular locations, road infrastructure is also seen by some investors and developers as a constraint. Local authorities can help to alleviate these pressures on existing roads by carefully managing the movement of large loads and advising local people on convoy times. Local authorities could also consider making smaller roads one way only, with suitable, clearly signposted diversions on convoy days. This approach has been used in locations in Scotland and could be adopted to minimise the impact of proposed schemes in Powys.

6.8 Co-ordinated action between developers, Welsh Government and local planning authorities is required to ensure that the infrastructure necessary to enable national aspirations for onshore wind development is delivered and ready in time to facilitate the implementation of onshore wind capacity. Again, in the absence of this there remains a risk of delays, a loss of investor confidence and a failure to deliver on national aspirations.

Recommendation 3: Welsh Government, working in conjunction with developers and relevant local planning authorities, to jointly identify barriers to development of necessary grid infrastructure, key road infrastructure constraints, and effective solutions.

Supply chain and sector development

6.9 This study has gathered headline data on the nature and scale of the Welsh supply chain for onshore wind, but there is scope for a more comprehensive exercise to map the supply side in detail, in order to better understand areas of strength, to identify key current and potential suppliers, which locations have the strongest presence, current levels of awareness of the opportunities from onshore wind, as well as key gaps in the supply side in Wales and the potential to address these.

Recommendation 4: RenewableUK, Welsh Government and developers to consider undertaking a mapping study of the onshore wind supply chain in Wales, with a view to:

 filling gaps in developers’ awareness of the supply chain and prime contractors

 understanding current levels of awareness within the supply chain of opportunities in onshore wind. This would need to be targeted on different tiers of the supply chain depending on the particular part of the supply chain (e.g. for tier 1 for environmental 68

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services; lower tiers for manufacturing)

 understanding the existence of any key gaps in the supply chain that could be realistically targeted for inward investment promotion

 understanding the extent to which existing supply chains for other industries (e.g. metals and engineering for steel and oil exploration) may possess the skillsets and capital equipment necessary to enter supply chains for the onshore wind sector, and what support they need to do this

 informing future action to address other identified support needs (e.g. support with strategic business planning, tendering advice, access to finance, skills development).

6.10 Whilst there is scope to enhance knowledge of the supply chain and its support needs, there are already examples of good practice in the work of developers to engage with the supply chain and local authorities to raise awareness of opportunities and help local suppliers to compete for contracts. It is important that this good practice is explicitly drawn out and used to inform plans for future developments, where appropriate.

Recommendation 5: RenewableUK Cymru and developers to share good practice on approaches to engaging with the supply chain, with a view to creating a knowledge bank and evidence base on approaches and their effectiveness.

Community Benefit Payments

6.11 Community Benefit Payments linked to onshore wind farms represent a significant resource, presenting opportunities for real and long term benefit for local communities if spent in the right way. Efforts are being made to map out the current uses of CBFs across Wales20, and recommendations have been made to create a CBF register of live or approved wind farms, and to support communities to develop the best CBF for their needs. There is potential to build on this to understand how money is being spent and what benefits are being generated.

Recommendation 6: Continue the work being undertaken by RenewableUK Cymru, with a view to understanding how CBFs are being used across Wales and the rest of the UK, the benefits they are securing and good practice.

6.12 CBFs are generally handed over to local community bodies to be used as they see fit on local community projects. Whilst this brings benefits to these local communities, given the scale of the CBFs that are coming forward and the considerable socio-economic challenges facing many of the host communities, there is the opportunity to use CBF more strategically in order to address socio-economic challenges in the host areas. This could be done by pooling together some of the forthcoming CBFs to create a fund of sufficient scale to deliver economic development benefits, and to be matched with existing economic development resources.

20 E.g. The value of onshore wind farm Community Benefit Funds to Wales, RenewableUK Cymru, 2012 and Cardiff University (2008) Wind Farm Development in Wales: Assessing the Community Benefits.

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Recommendation 7: Welsh Government to investigate the feasibility of aggregating and top slicing a portion of future CBFs, to create a fund to be used by Welsh Government and Local Authorities to address socio-economic issues in local communities, matched with other economic development funds (such as the European Structural Funds and Rural Development Programme).

Local Benefits

6.13 Our case study work has revealed examples of good practice in the use of locally focussed initiatives to maximise the local benefits of wind farm developments (for example, at Pen y Cymoedd). We have recommended sharing and learning from this best practice. Following on from this, these examples of good practice should be mainstreamed where possible.

Recommendation 8: For developments of sufficient scale, it should be standard practice for developers to work with local authorities at an early stage to raise awareness amongst the local business base of the range of opportunities potentially open to them throughout all stages of development of the wind farm. This should be done through events and a variety of marketing channels (online, print and broadcast media as appropriate).

Recommendation 9: Developers and Meet the Buyer events should, where possible, be held prior to main contracts being let. These should bring together potential main contractors and local sub-contractors so that mutual requirements can be understood at an early stage.

Recommendation 10: In ways which are practical, use of local suppliers should be encouraged through the procurement process for main contractors (and in turn, their subcontracting of activities), with the monitoring of achievements built into contract management procedures.

Recommendation 11: Where there is a sufficient pipeline of opportunities in a local area (e.g. from clusters of developments in Powys), there would be merit in these developers exploring the feasibility of joint training and recruitment schemes for relevant occupations targeted at local residents.

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Appendix A Economic Impact Methodology

1. Here we provide details on the methodology that was used to arrive at the economic impact estimates set out in Section 4. We describe

 The inputs to the model and key assumptions

 The modelling process

Inputs to the Model 2. There are two key inputs into the model:

1) Development and operational profile – scenarios for the build-up of operational capacity over time

2) Expenditure and sourcing – assumptions on the typical average levels of capital and operational expenditure per MW of installed capacity.

1. Development and operational profile

Current pipeline 3. The table below summarises the current operational capacity and capacity in the planning and development pipeline. As this shows, it will be possible to meet the target (assuming that most of the pipeline comes through). With 13 years until 2025, it would be technically possible for this to happen in the 2025 timeframe, although challenging given the development rate over the past decade and the current delays facing schemes in Wales. Installed Capacity in Onshore Wind in Wales: Operational and Pipeline Windfarms Turbines MW Capacity Operational 38 540 423 Approved not constructed 15 145 449 Under construction 5 44 111 Awaiting Determination 37 490 1,204 Current Total Potential Capacity 95 1,219 2,187 Source: RenewableUK database

4. Of course, this analysis does not take into account any schemes that are at the pre-planning stage and may be developed in this timeframe. Given the lack of information and uncertainty on these schemes, these are outside the scope of the modelling.

Scenario 1: 2,000 MW Installed Capacity by 2025 5. The overarching purpose of the economic impact assessment is to model the potential economic impacts that could be secured for Wales if Welsh Government’s current stated aspirations for development of the sector are fulfilled. Recent statements by the Welsh Government (The Low Carbon Revolution and the Statement by the Environment Minister in Summer 2011) have clarified that the overall aspiration is to bring forward a total of

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2,000MW of onshore wind capacity in Wales by 2025. This scenario therefore looks at how much additional capacity is required for this to happen. 6. The headline picture for this target is complicated somewhat by the fact that some of the currently installed operational capacity will be due to reach the end of its operational life before 2025. Hence if some of this capacity is decommissioned in this period then correspondingly more capacity will need to come forward if the target is to be met. Clearly, the more of this capacity that is repowered, the less additional capacity needs to come forward for this to happen. 7. In light of this the model needs to assume a sensible rate of repowering vs. decommissioning of existing capacity. Having consulted with developers we assume that of the existing MW capacity that is due to reach the end of its operational life between 2012 and 2025, 75% is repowered and 25% is decommissioned. Further, it is assumed that the capacity of those wind farms that do repower increases by 50%. 8. Given this assumption, a total of just over 1,500MW of additional capacity will be needed by 2025 (equivalent to an annual average of 120MW p.a).

Scenario 2: Continuation of 2001-11 rate 9. It is useful to construct a scenario that looks at how much capacity would be developed if trends over the past decade continue. In this period a total of 270MW of onshore wind capacity became operational (an annual average of 27MW p.a.). Should this trend continue, there would be a total installed capacity of around 800MW in Wales by 2025 – clearly a significant shortfall on the 2,000MW aspiration. 10. Underlying this scenario is the potential for the future rate of development and new capacity becoming operational to slow beyond the current rate of consenting (see scenario three), possibly due to the widespread failure of schemes to secure consents and a shift in investment to other investment locations or technologies.

Scenario 3: Recent Consenting Rates 11. Our final scenario takes into account the more recent trend in consenting of wind farms in Wales. 12. The RenewableUK database indicates that there is 493MW of capacity currently in construction or consented:

 111MW is in construction: 35MW commenced in 2011; 77MW commenced in 2012. It is safe to assume that this will become operational in the next couple of years.

 382MW has been approved but construction has not started yet. The database tells us when each of these wind farms was consented and we have some survey evidence from developers that have responded, indicating the likely start date for operations. 13. Bringing all of this together it is likely that the majority of this capacity in the pipeline will become operational by 2016. This equates to an annual average of 124MW p.a. of additional capacity over the period. Assuming that this rate continues up to 2025, this would be more than enough to meet the 2,000MW level. However, the recent approvals are heavily skewed by the Pen y Cymoedd scheme (256MW). There are no other schemes of a comparable size

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in the planning system at present (the largest scheme is Carnedd Wen). It is therefore not realistic to project forward on this basis. 14. Excluding Pen y Cymoedd from the recently consented schemes indicates an annual average of 49MW per annum. Projecting forward on this basis would also be dubious as we know that Pen y Cymoedd is in the pipeline. We have therefore taken a mid-point between 124MW and 49MW per year: 86MW per annum. Projecting forward on this basis would yield 1,560MW in installed capacity by 2025.

Overview of the Scenarios 15. The profiles for installed capacity by 2025 for each of the scenarios are summarised below.

Operational Capacity, by Scenario 2,000

1,800

1,600

1,400

1,200

1,000

800 OperationalCapacity 600 Scenario 1: 2,000MW by 2025 Scenario 2: 2001-11 trend continues 400 Scenario 3: Recent consenting rates 200

2013 2039 2048 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 2026 2027 2028 2029 2030 2031 2032 2033 2034 2035 2036 2037 2038 2040 2041 2042 2043 2044 2045 2046 2047 2049 2050 2012

Building the Full Development Profile

Each of these scenarios for new capacity can then be translated into profiles for planning and development, construction, operations and maintenance and decommissioning and repowering from 2005 to 2025, and then on to 2050. This has been done using the following assumptions, drawn from our survey evidence and from other published work:

 Planning and development: an average of four years prior to the construction start date

 Construction: an average of two years for new capacity to be constructed before becoming operational

 Operations and maintenance: each newly constructed wind farm has an operational life of 25 years

 Decommissioning/repowering: as stated earlier, 25% of existing capacity coming to the end of its life up to 2025 is decommissioned, and 75% is repowered. Thereafter,

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the model assumes a constant profile of operational capacity, assessing the economic impact associated with the on-going capital investment and operational expenditure necessary to maintain this.

2. Expenditure and sourcing 16. To model the economic impact of these scenarios it is necessary to translate these profiles for planning, development, construction, operations and maintenance and decommissioning and repowering into profiles for the investment /expenditure associated with each phase. 17. This requires informed and realistic assumptions on:

1) The total level of investment/expenditure per MW for each stage

2) The typical proportions of this total investment/expenditure that takes place in Wales.

18. To arrive at robust figures the key research tool used to inform this has been a survey of developers and operators of wind farms in Wales.

Purpose and Content of the Survey 19. All onshore wind farm developers with schemes in planning or operation in Wales were invited to complete a written survey providing intelligence to assist in our economic modelling of the impacts of the sector for Wales. 20. The survey asked developers to provide information on:

 Their involvement in the onshore wind sector in Wales, including details of their existing or proposed wind farms and their perspectives on the strength of wind energy supply chains in Wales, and on Wales as an investment location

 Their onshore wind schemes in development in Wales, including expected development costs and timescales, and likelihood of sourcing of goods and services from Wales

 Their operational onshore wind schemes in Wales, including when schemes were developed, annual operational costs, proportion of goods and services sourced from Wales, employment created, community benefit funds provided and expectations regarding decommissioning or repowering at the end of the wind farms life. 21. The survey questionnaire is reproduced in Appendix B.

Survey Approach and Timing 22. The survey was distributed to all developers of onshore wind farm schemes set out in the comprehensive RenewableUK wind farm database, for whom contact details were obtainable. 23. The survey was sent out in October 2012 and responses were received through October and November 2012. The chart below sets out the overall response rate from the survey.

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Summary of Sample Size and Response Rates 100% 90% 43 36 45 2,130 2,000 80% 41 36 31 70% 60% 1,410 50% 40% 23 30% 15 13 20% 10% 0% Number of Number of Number of Total Capacity of Developers Operational Wind Proposed Wind Operational and Farms Farms Proposed Wind Farms (MW)

Total Sample Coverage Response from Sample

24. Of the 43 developers of existing and proposed onshore wind farm schemes set out in the RenewableUK database, a total of 15 responses (35%) were received. This group however represented the majority of larger developers, meaning that responses were received relating to 36 of the 81 existing and proposed wind farms (44%). These wind farms comprise 66% of all capacity in operation and in the pipeline. 25. The fact that the survey responses cover 66% of all existing and proposed capacity gives us a reasonably high level of confidence in the resulting figures on investment and sourcing.

The Modelling Process 26. In analysing the economic significance of any industrial activity (actual or proposed), it is important to distinguish direct, indirect (and then induced) economic effects. The direct effects are associated with the activity itself. Here direct effects might be understood in terms of the initial expenditure injection in Wales associated with the onshore wind development. 27. However, to provide a complete appreciation of economic effects the research required an assessment of the economic benefits for Wales deriving from local procurement during onshore wind development and operation. For example, the three development scenarios we have developed, in combination with the findings from our developer survey, tell us much about the direct spending on the range of required goods and services by developers and operators through development, operations and maintenance and estimates of their potential payments to labour. This is an important step in moving on to consider the wider supply chain effects linked to this spending. For example the spending of the onshore wind developers supports economic opportunities in local and Welsh suppliers. However, these same suppliers also spend monies in the local economy that support further economic output and employment. Furthermore employees of the developers and their suppliers also spend money in the local economy that supports further economic output and jobs. These effects through the supply chain and household sector are termed indirect and induced effects respectively. 28. The magnitude of indirect effects is largely determined by how far wind energy developers and their suppliers of goods and services purchase goods and services in Wales as opposed

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to outside of Wales. Similar arguments apply to the employees of the developers. This analysis requires care. For example an employee of a wind farm developer may spend within local shops and restaurants etc., however, the majority of the products could have been made outside of the locality. In this case the retail ‘margin’ would be a local spend whereas the spending relating to the product itself would ‘leak’ out to the rest of the UK or overseas. Similarly, construction firms may purchase large amounts of diesel within Wales, but much of this is a leakage outside of Wales in terms of taxes to UK government. 29. Consequently once in possession of direct spending estimates for onshore wind development and operations, it is necessary to subtract spending which is likely to be outside of Wales, to give the Welsh direct spending impact. These expenditures, by item, are then an input into a modelling process which allows the indirect and induced effects (multipliers) to be estimated. Adding the direct to these multiplier effects gives an estimate of the total economic impact on the Welsh economy of development and operations of wind farms both now and in the future. 30. To estimate these indirect or multiplier consequences a picture of the local economy that specifies how the various Welsh industry sectors ‘fit together’ in terms of their trading relationships is a key requirement. This then allows the effects of spending and employment activity connected to on-shore wind to be traced through the entire Welsh economy. 31. A comprehensive picture of the Welsh economy in these terms is an Input-Output table, which is essentially a spreadsheet detailing transactions between different sectors of the Welsh economy and beyond. As well as being an important descriptive tool, the Input- Output tables can be used for economic modelling and for impact assessment. Input-Output Tables for Wales are the product of a continuing research project at the Welsh Economy Research Unit to develop a comprehensive picture of the Welsh economy, and the way it is changing over time (see Bryan et al., 2004). 32. Figure 1 outlines the economic modelling process adopted.

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Figure 1: Methodological approach in summary

Total construction or operational expenditure by item expenditures

Deduct spending outside Wales

Expenditure Input- Supplier within Wales by Output effects item (direct Model Total impact) for economic Multiplier effects Wales impact on Welsh Induced economy income Taxes and imports (leakages) effects

Grid Infrastructure 33. As set out in Section 4 there is limited information available on the economic nature of the grid infrastructure investment required for Mid-Wales, although the decision on the preferred route(s) has been comprehensively covered in the National Grid documentation21. This report provides overall capital and lifetime costings for a number of mutually exclusive routes from proposed substations at either Cefn Coch or Abermule. In each case these are provided for wholly overhead and underground connections. 34. We have made the following modelling assumptions in assessing the impact of this expenditure:

 Commodities of spend major on construction, electrical engineering and (for overhead options) structural materials (metal and wood)

 Excluding the special case of towers22, local sourcing propensities for each commodity/service follow those established from the survey of wind farm developers for the within-Wales portion of the route (approximately half). The English proportion is wholly spent outside Wales

 We model the preferred substation and route – Cefn Coch and Red North – for overhead and underground options

21 http://www.nationalgrid.com/NR/rdonlyres/DC97DCAA-A978-4292-B7E7- 61827F57AB4D/55369/MidWalesStatementofPreferenceDraftJuly2012.pdf 22 Here we assume 33% sourced within Wales rather than the survey (76%).

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 Whole-lifecycle costs rather than capital costs are modelled to then include operations and maintenance

 Impacts are modelled using the 3.5% discount rate applied by National Grid and hence on a different basis to the wind farm impact (current £)

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Appendix B Survey Questionnaire

1. The survey questionnaire sent to developers and operators of wind farms in Wales is reproduced below. Developer / Operator:

Introduction

RenewableUK Cymru and the Welsh Government have commissioned Regeneris Consulting to assess the annual economic impacts of the onshore wind energy sector in Wales up to 2050. The findings will provide important information for policy makers, sector stakeholders and communities, demonstrating the overall economic benefits the onshore wind sector provides for the Welsh economy.

To ensure that there is robust evidence for the study, it is important for us to gather information from developers and operators of current and prospective onshore wind schemes in Wales. We appreciate that you will have many calls on your time, and so we appreciate your inputs for this important research.

When completing this survey, please bear in mind the following:

 All information provided will be treated confidentially, with any financial information you provide only presented in aggregate. The report will not disclose any information provided for any individual wind farm.

 We recognise that for some of the information requested it may be difficult to give a precise answer. Where this is the case, please provide your best estimate.

 The completion of the questionnaire may require inputs from a number of different people within your organisation or other organisations. Please let us know if this will cause delay in completion of the questionnaire or prevent the completion of any aspects of the questionnaire.

The survey is broken down into the following sections:

 Part A - gathering general information on your involvement in the onshore wind sector in Wales;

 Part B - seeking information on your onshore wind schemes in development in Wales;

 Part C - seeking information on your operational onshore wind schemes in Wales.

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Part A - Involvement in the Onshore Wind Sector in Wales

The questions in this section will help us to develop a greater understanding of the way in which the economic impacts of onshore wind farm developments can be retained in Wales, through the approaches you and other stakeholders take to development and operation.

Your Investment and Operational Activity in Wales

3) What is the estimated capital investment that your company has made in the development of onshore wind capacity in Wales over the last three years?

Please state the estimated investment in the box below. Provide a range if it is not possible to precise.

£ ____(millions)

4) What is the expected capital investment your company is planning to make in onshore wind capacity in Wales over the next three years?

Please state the estimated investment in the box below. Provide a range if it is not possible to precise.

£ ____(millions)

5) Please indicate the scale of your current or proposed onshore wind generation activity in Wales?

No. of Installed Capacity Wind Farms (MW) Onshore wind capacity in operation Onshore wind capacity currently under construction Onshore wind capacity consented but not yet built Onshore wind capacity in development or planning

6) Who owns the land on which your operational and planned wind schemes in Wales are / will be based?

 Please tick the relevant owner type(s) for each listed wind farm in the table below. Please add any schemes which your company is responsible for. Developer- Local Forestry Other Wales- Other landowner owned Farmer Commission based landowner based outside Wales

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Onshore Wind Supply Chains

7) To what extent are you able to source the range of goods and services, at the right cost and quality, used in the construction and operation of your onshore wind schemes from suppliers based in Wales?

Please treat goods manufactured outside of Wales but sold wholesale by Welsh companies as being sourced from outside the country.

Please tick as appropriate

Broad Category of Good or Service: Good Some No Don’t Selection of Suppliers Suppliers Know/ Not Suppliers In Based in Currently Sure Wales Wales Based in Wales Development & Construction Category: Planning and Environmental Consultancy Services Legal and Financial Services Wind Turbine Nacelle, Rotor and Blades Wind Turbine Towers Wind Turbine Transport, Assembly & Installation Civil Engineering Works Electrical Engineering Works Grid Connection and Related Works Forestry and Environment (inc habitat management) Operational Category Management of Wind Farms Operations Turbine Maintenance Forestry and Environment Services Operational Equipment and Spares Insurance

8) To what extent is there scope for the supply of goods and services sourced from companies based in Wales to increase over the next three years?

Scope to Scope to No Scope to Don’t Know/ Increase a Increase a Increase Not Sure Lot Little Goods and services used in development and construction Goods and services used in operation and maintenance

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9) What do you see as the main barriers to growing the supply of goods and services used in the construction and operation of your onshore wind schemes from suppliers based in Wales? Please write your response in the box below

Maximising Social & Economic Benefits of Onshore Wind in Wales

10) To what extent do you pursue the following actions in order to secure social and economic benefits of onshore wind in Wales?

Potential Actions: Importance placed on these actions: To a Large To Some We Do Don’t Know/ Extent Extent Not Not Sure Running supplier events or similar initiatives to help companies based in Wales to access supply chain opportunities Running your own local training initiatives (eg providing training/work placements to local residents) Encouraging contractors to adopt local training initiatives The provision of community benefit payments Working with local communities to proactively help them maximise the benefits of using these community benefit payments Investing in improvements to local visitor and recreational facilities Working with local schools and colleges on topics covering renewable energy and energy efficiency Other (please write in)

11) Do you consider that any of your approaches or actions in this regard represents good or best practice?

Tick as appropriate Yes No Don’t know/not sure

If yes, please outline the nature of this good practice in the box below

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Wales as an Investment Location

12) Overall, how would you rate Wales as a location to invest in onshore wind schemes? Please tick the relevant box as appropriate.

Please Tick as Appropriate A Very Favourable Location A Reasonably Favourable Location A Neutral Location A Fairly Unfavourable Location A Very Unfavourable Location Don’t Know / Not Sure

13) Please indicate whether the following factors make a positive or a negative contribution to Wales as an investment location for onshore wind?

Factors Positive Neutral Negative Not Sure/ Don’t Know Welsh Planning Policy Local Planning Policies and Practice Clarity about Preferred Development Locations Availability of Grid Infrastructure Availability of Other Infrastructure (eg roads) Economic Development Support for the Sector Community Support Availability of Suppliers Availability of Skilled Workers

If you wish, please expand on any of these or related factors you see as particularly important in the box below.

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Part B – Onshore Wind Capacity in Development in Wales

In order to understand the economic impacts of the future development of onshore wind in Wales, we need to understand the nature of the proposed wind schemes which are emerging, their costs and the potential to source inputs from companies based in Wales. The following questions will help us to build this understanding.

Please base your answers on your experience of the onshore wind schemes you have or are currently developing in Wales, as well as your wider knowledge of the sector and supply chain in Wales (and elsewhere as relevant).

If you are not currently proposing or developing any new onshore wind schemes in Wales, please go on to Part C.

Development Prospects, Timescales and Costs

14) What is the current status of each of the onshore wind schemes you are developing in Wales?

 Please tick the relevant development stage for each listed wind farm in the table below. Please add any schemes which your company is responsible for. Pre-application Examination and Consented but not Construction/ Determination yet in Construction Commissioning

15) For each of your currently proposed onshore wind schemes in Wales, please provide the following information in the table below:

 (A) The expected year in which each scheme will commence construction, commence operations, and the duration of its operational life.

 (B) An estimate of the expected total capital cost of development & construction of each wind scheme23. Please state costs in 2012 prices.

Please provide your responses in the table below, for each listed wind farm in development. Provide a cost range if it is not possible to precise.

(A): Expected Timescales (B): Construction Costs Year Year wind farm Operational life Estimated Development construction will become for wind farm and Construction Costs will/did begin operational (years) (£m) £ £

23 Capital Expenditure to include all development and planning costs, supply of turbine, supply of balance of plant, transportation, assembly, installation and commissioning of all parts of the wind farm.

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16) Please provide an indication of the development and construction costs of the onshore wind schemes by broad category of expenditure. You can provide this information either as (i) the percentage which each category accounts for out of the total cost or (ii) a cost per MW. In answering this question, you may wish to consider the following:

 We appreciate that construction costs will vary depending upon location, site characteristics and scale (amongst other factors as well). With this in mind, if you have more than one proposed development scheme, please provide an average breakdown in costs across these schemes.

 If you present the data in £s per MW, please provide it on a 2012 price basis. If this is not possible, please indicate the alternative price basis you have used.

We have included the standard cost categories – please add other categories if you feel they are relevant. Provide a range if it is not possible to precise.

Expenditure Categories: % of Total Alternative Costs format: £s per MW Development (inc planning costs, legal and financing) % £ Project Management of Construction % £ Wind Turbine Nacelle, Rotor and Blades % £ Wind Turbine Tower % £ Wind Turbine Transport, Assembly & Installation % £ Civil Engineering Works % £ Electrical Engineering Works % £ Grid Connection and Related Works % £ Forestry & Environment Services (inc habitat % £ management) Other (please specify) % £ Other (please specify) % £ Total 100% £

Construction Spend in Wales

17) In order to estimate the economic impact of the proposed onshore wind developments, it is important to understand the scope for associated development and construction expenditure to be captured by companies based in Wales.

Looking across all of your current proposed schemes, please provide a best estimate of the likely average proportion of expenditure in each cost category which might be captured by companies based in Wales. Please consider the following in responding to this question.

 We appreciate that the extent to which inputs are sourced from companies

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based within Wales, or particular parts of Wales, will depend on various factors and it might vary across different wind farms. With this in mind please provide a best estimate of the average proportion you would expect to be spent with firms based in Wales.

 This estimate should be based on your existing suppliers and your knowledge of the onshore wind farm supply chain in Wales.

 The estimate should include only the main contracts and sub-contracts placed with suppliers based in Wales - it should exclude expenditure which might flow to lower tiers of the supply chain in Wales (typically tier two and three firms).

 Provide a range if it is not possible to precise. Expenditure Categories: % of Construction Expenditure Expected to be Spent with Companies Based in Wales Development (inc planning costs, legal and financing) % Project Management of Construction % Wind Turbine Nacelle, Rotor and Blades % Wind Turbine Tower % Wind Turbine Transport, Assembly & Installation % Civil Engineering Works % Electrical Engineering Works % Grid Connection and Related Works % Forestry & Environment Services (inc habitat management) % Other (please specify) % Other (please specify) % Note: the percentages are the estimated proportion of expenditure for each category which might be spent with companies based in Wales. Therefore, the categories will not necessarily sum to 100%.

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Part C – The Operation of Onshore Wind Schemes in Wales

The questions in this section seek to draw on expenditure and supply chain information for the wind farms which you currently operate in Wales. This will help us to build an understanding of the economic contribution which the operational onshore wind capacity makes to the Welsh economy.

If you do not currently operate any onshore wind schemes in Wales, please go to the end of the questionnaire.

Background Information

18) For each of your operational onshore wind schemes in Wales, please provide the following information in the table below:

 (A) The expected year in which each scheme commenced operation and the expected duration of its operational life.

 (B) An estimate of the annual operational costs of each wind scheme24. Please state costs in 2012 prices.

Please provide your responses in the table below for each of the wind farms listed. If you operate other wind farms which are not included, please also include these. Provide a cost range if it is not possible to precise.

(A): Timescales (B): Operational Costs Year Commenced Operational life for Estimated Annual Operation wind farm (years) Operational Costs (£m) £ £ £

Operational Costs

19) Please provide a best estimate of the average proportionate breakdown in operational costs for your onshore wind schemes in Wales by the broad expenditure categories. You can provide this information either as (i) the percentage which each category accounts for the total annual cost or (ii) a cost per MW. In answering this question, you may wish to consider the following:

 We appreciate that operational costs will vary depending upon scale, location and site characteristics (amongst other factors as well). With this in mind, if you operate more than one scheme, please provide an average breakdown in the costs across these schemes. Also please provide a range if

24 Operational Expenditure to include operator costs that are attributable to the wind farm, including direct staff employment in management and maintenance (but not including corporate overheads), equipment and spares, related environmental improvements, grid charges, business rates, insurances, land rental/access payments, and community benefit payments. Do not include financing charges.

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it is not possible to precise.

 If you present the data in £s per MW, please provide it on a 2012 price basis. If this is not possible, please indicate the alternative price basis you have used.

 We have included standard cost categories – please add other categories if you feel they are relevant to you. Operational Expenditure Categories % of Operational Alternative format: Costs £s per MW Employment Costs: - Wind Farm Operations and Management % £ - Turbine Maintenance % £ - Other Activities % £ Equipment and Spares % £ Forestry and Environment (including habitat % £ management) Insurances % £ Property and Utilities % £ Land Rentals/Access Payments % £ Business Rates % £ Community Benefits Payments % £ Other (please specify) % £ Other (please specify) % £ Total Operational Expenditure 100% £

20) In order to estimate the economic impact of the operational onshore wind schemes in Wales, it is important to understand the scope for bought in goods and services25 to be sourced from companies based in Wales.

Looking across all of your operational schemes, please provide a best estimate of the likely average proportion of expenditure in each cost category which might be captured by companies based in Wales.

We appreciate that the extent to which goods and services are sourced from companies based within Wales will depend on various factors and it might vary across different wind farms. With this in mind please provide a best estimate of the average proportion you would expect to be spent with companies based in Wales.

Provide a range if it is not possible to precise.

25 Bought in goods and services are those goods and services which you purchase from your suppliers. This could include goods and services which you purchase from subsidiary companies at market prices.

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Expenditure Categories: % of Operational Expenditure Spent on Bought in Goods and Services Spent with Companies Based in Wales Maintenance Services % Equipment and Spares % Forestry and Environment Services (inc habitat management) % Property Services (including rental of buildings and land) % Utilities % Insurances % Other (please specify) % Other (please specify) % Note: the percentages are the estimated proportion of expenditure for each category which might be spent with companies based in Wales. Therefore, the categories will not necessarily sum to 100%.

Jobs and Salary Costs

21) Please provide a best estimate of the number of staff and associated salary costs arising from the on-going operation and maintenance of the onshore wind schemes you are responsible for. Please also provide a best estimate of the extent to which this employment is likely to be taken by workers local to the onshore wind schemes26.

Please consider the following notes in providing this information:

 This could include your own employees but also the inputs of maintenance staff employed by the turbine manufacturers which are provided as part of a warranty agreement.

 Employment information should be provided as full time equivalents (treat part-time employment as 0.6 of a full time job).

 Consider local workers to reside within a 20km radius of the wind farm. Total Salary Costs for Number of Full Time Best Estimate of No. of Direct O&M Employees Equivalent O&M Direct O&M Jobs Held by (£thousands) Jobs Local Residents (ie within 20km radius)

26 This could be workers local to the wind farm itself or a control centre

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Community Benefits

22) We are interested to find out more about the level and nature of community benefit packages which have been agreed with local communities. Please provide the following information:

 What is the current annual value of the community benefit package (£thousands per MW) that you are making to local communities for each of your onshore wind schemes in Wales?

 To the best of your knowledge what types of activities are the local communities using these payments for?

Annual Value of Types of Activity Being Undertaken by Communities the Community (please tick all that are relevant) Benefit Package Community Community Energy Energy Education Skills & Enterprise Other (£1000s per MW) Services Facilities Efficiency Generation Jobs

Decommissioning and Repowering

23) For the onshore wind schemes you are currently operating in Wales, please provide the following information:

 The expected year in which each wind farm is due to reach the end of its operational life;

 Whether you currently expect to decommission the scheme or seek to permission to repower it? If repowering, please identify the expected total MW capacity of the scheme once repowered.

 As appropriate, the estimated costs of decommissioning or repowering the wind farm (please provide an estimate based on £m per MW). Provide a range if it is not possible to precise.

Expected End of Current Plans: Estimated Decommissioning / Operational Life Decommissioning or Repowering Costs (year) Repowering? (£m per MW) (write in)

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Appendix C Consultees

2. The following organisations have been consulted with in detail as part of the research (in addition to the survey of developers).

 Welsh Government (BETS, Sustainable Futures, Energy Wales)

 RenewableUK

 RWE npower renewables

 Vattenfall

 West Coast Energy

 Falck Renewables Wind Limited

 Tegni

 Neath Port Talbot Council

 Denbighshire Council

 Mabey Bridge

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Appendix D Case Studies

1. Here we set out the findings of four case studies of onshore wind farms in Wales.

Wern Ddu (Craig Lelo) 2. The wind farm was developed and constructed by the Welsh wind farm developer, Tegni Cymru. The planning and development of the wind farm was conducted by Tegni, with development costs amounting to circa £250k. The total costs of construction were in the region of £10million for the four turbines. Overview of Case Study Background Information Developer & Technical Operations Tegni Owner Triodos Renewables Local Authority Location Denbighshire Number of Turbines 4 (9.2 MW installed capacity) Date of Secured Consent June 2007 Period of Construction 6 months Date at which the Wind Farm March 2010 became Operational Expected Operational Life Up to 2035 (25 years) Expectation Regarding Unknown Decommissioning / Repowering

Impacts during the Construction Phase 3. Tegni’s approach to constructing wind farms emphasises the importance of involving local companies in the supply chain wherever possible and where local companies are competitive. However, the absence of Wales or UK based turbine manufacturer means that this element of the supply chain can only presently be procured from companies based overseas. 4. A German firm (Enercon) was contracted to supply the turbines. As a policy, Enercon procures its own foundation works. In this instance Enercon used the services of a sub- contractor based in South Wales. As a result of this the contract for the supply of the turbines also included a portion of the balance of plant activity. The majority of the construction cost was therefore contracted directly to Enercon. However some of the investment was retained in the UK:

 Tegni acted as main contractor.

 Powersystems UK Ltd of Bristol were contracted to provide much of the electrical work. Although not based locally some local labour was used during construction. Powersystems procured the majority of the electrical equipment from UK sources.

 Natural Power Consultants projects supervised the civil and electrical engineering works on behalf of Triodos Renewables.

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5. Enercon brought their own labour with them. During the erection of the turbines there would have been in the region of 50 people on site. At this time, there would have been 50% local people (the remainder being Enercon’s own staff). 6. The remainder of the construction programme (accounting for circa 10% of construction costs) was procured directly by Tegni. The majority of this was procured locally. The main sub-contracts included:

 A local civil engineering contractor (based within 20km of the site) was used for access road construction, base excavation, construction of crane hardstandings and cabling works.

 A local building contractor, utilising local labour and material suppliers was used to construct the electrical switchroom

 Concrete for the turbine was sourced locally.

 Cranes were sourced in the UK. 7. Although the developer seeks wherever possible to source goods and services for construction locally, the extent to which this was practical was influenced by a number of wider factors, including:

 Capacity within the local business base. The areas immediately surrounding the wind farm are rural in nature and therefore business density is much lower. Where there are appropriate suppliers, these do not always have sufficient capacity to deliver within the construction timeframe.

 Approach of turbine manufacturer. Enercon’s policy of maintaining control of the turbine foundations is presumably in place to ensure that the supporting structure is to their specifications and will not cause problems at a later stage. While this makes sense from Enercon’s perspective, it can serve to limit local impacts. While Enercon sub-contracted the work for the turbine foundations to UK based companies, neither of these were locally based (although the electrical contractor did use some local labour).

 Competitiveness is the main consideration but this extends beyond just price. Reassurance that the job will be done well is given importance within the firm and the right quality of staff is equally important. 8. As Tegni are a smaller sized, independent developer, the organisation is able to take a more flexible approach to procurement than larger developers might. The smaller size of Tegni means that there are fewer structural barriers to smaller firms’ involvement in the supply chain (e.g. procurement processes are straightforward, large guarantees are not required). While all suppliers need to be competitive, Tegni’s view on what constitutes competitiveness extends beyond price alone. The ability to maintain a relationship with a contractor is an important element here. Similarly, Tegni prefers to work with small and medium sized organisations where it is thought that their contracts would be viewed as a priority rather than larger organisations where their work has less overall importance.

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Impacts During the Operations and Maintenance Phase 9. Although the development is now owned and operated by Triodos Renewables, Tegni has been contracted to provide on-going operations and maintenance support. Tegni is responsible for day to day maintenance of the turbines. Enercon (the manufacturers of the turbines) are contracted to provide routine maintenance and servicing for a period of 15 years. 10. As Tegni’s base is within 30 minutes of the site, they are able to provide a rapid response to any problems which stop the turbines from generating or reduce the efficiency of their operation. All of this activity is carried out in-house at Tegni although as the wind farm is small and the turbines are still under warranty, the scale of activity is limited at present. 11. Tegni estimates that throughout a year, the activity would support between two and three weeks of full time work although maintain a daily watching brief on the site.

Impacts Created by the Community Benefit Fund 12. The community benefit fund of £10,000 per year is split between three communities in the vicinity of the site:

 Gwyddelwern

 Betws Gwerfil Goch

 Derwen 13. The fund awards grants on the basis of fit with the aim to promote community spirit and bring people together, enhance quality of life and promote people’s well being, foster vibrant, sustainable communities. Grants can be awarded to individual persons, constituted and informal groups or consortia of organisations. 14. Trustees are keen to see the funding matched with other sources to maximise the impact of the fund and encourage it to be used more strategically. In reality, the majority of the investments have been small scale, including upkeep and maintenance of local buildings, new community facilities, play equipment, and support for local sports teams (e.g. to provide new kits). 15. There are some examples of more strategic investments being made, which could deliver wider benefits for the local community. For example a grant was provided towards upgrading works to a caravan site in the area.

Wider Benefits of the Scheme 16. Denbighshire County Council are keen to maximise the benefits of wind farm developments in the county although there are no specific programmes in place to enable or assist local businesses to enter the supply chain.

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Cefn Croes 17. At the time of commissioning, Cefn Croes was the largest wind farm in the UK. An overview of the wind farm is shown in the table below.

Overview of Case Study – Background Information Developer RDC Operator Cambrian Wind Energy (subsidiary of Falck Renewables) Landowner Forestry Commission Local Authority Location Ceredigion Installed Capacity 58.5MW Number of Turbines 39 Date When Planning May 2002 Consent was Secured Period of Construction 2004-05 Date When Wind Farm April 2005 Became Operational Expected Operational 20 years Life

Impacts during the Construction Phase 18. The construction of Cefn Croes was a £50m contract let as a turnkey contract and won by GE Energy, led largely from their German base. 19. Whilst the developer was keen to encourage the appointment of Welsh firms, this aspiration was limited by the availability of firms with the appropriate capabilities to support the construction phase (notably a lack of wind turbine suppliers based in Wales). 20. The most significant construction sub-contract awarded to a Welsh company was the £6.3m ‘balance of plant’ contract (c.13% of total construction value) to Jones Brothers of Ruthin, Denbighshire. This included construction of access roads, turbine bases, crane bases and the 33kV cabling. 21. Over the nine month construction period, around 100 employees worked at the construction site, a large proportion of which were from Jones Brothers. The construction workers on- site over this construction period provided further knock-on benefits for the local area, including additional spend in local shops as well as local food and accommodation services.

Impacts during the Operation and Maintenance Phase 22. Cefn Croes has been operational since 2005 and is expected to continue operations until 2025. At present, annual operational spend for the scheme sums to around £4m. At a local level, this activity has:

 Created four jobs in wind farm operation and maintenance, working for GE Energy which continues to hold the maintenance contract for the wind farm. While the posts were not all recruited from the local workforce, all four are currently based within a radius of around 20km from the wind farm.

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 Invested an estimated £500,000 into the local economy each year, through landowner payments (to the Forestry Commission, business rates (to the local authority) and other goods and services (from local suppliers).

 Contributed to an ongoing environmental enhancement project around the wind farm site. This annual £10,000 funding supports an environmental management plan and is overseen by a committee of local stakeholders including the developer, local authority, landowner, Welsh Government and other partners.

Impacts Created by the Community Benefit Fund 23. Cambrian Wind Energy committed to providing £1,000 per MW of installed capacity, per year to a local Community Benefit Fund. It also committed to raising this each year in line with increases in the retail price index. The fund therefore began at just under £60,000 per year, but is now worth almost £75,000 per year. 24. The fund is run by a Community Trust set up specifically for the purpose of administering the CBF, and is also a registered charity. As well as a representative from Cambrian Wind Energy, the trust has four locally appointed trustees, including two each from the communities of Blaenrheidol and Pontarfynach – covering the local area around the wind farm. 25. The trustees oversee a formal process whereby applications can be made twice a year in April and October and are assessed and allocated funding by the trustees. Guidelines for the fund include the following:

 The fund is available for small community-led organisations and not-for-profit groups

 Priority is given to projects supporting the communities in Blaenrheidol and Pontarfynach, and then to the wider area of the county of Ceredigion

 Project activities must provide some measure of economic, environmental, educational, social or cultural benefit for people living in the area

 Any one organisation can apply for a maximum of £25,000 from the fund in one financial year. Funds have to be spent within a year from their allocation, or returned.

 Except for smaller projects, projects are expected to provide at least 25% match funding for their projects (i.e. only asking for 75% from the fund)

 Types of activities that could be supported include:

 equipment for community groups

 minor repairs and improvements to buildings for the community

 community events, festivals and trips

 activity-based environmental schemes

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 community run newspapers

 training and educational courses. 26. All supported projects are listed online to ensure full transparency. The list of organisations supported includes community councils, schools, churches and chapels, village halls, community transport schemes, an art group, a garden club, a heritage trust, and a youth group, reflecting a wide cross-section of local community groups and activities. 27. In each case projects have to report back and invite the trustees to see how the money is being spent, to ensure that this fund is being used appropriately and for the best purposes.

Wider Benefits of the Scheme 28. In addition to all of the impacts set out above, the scheme has had positive wider benefit on a number of other local issues:

 The creation of permanent local turbine maintenance jobs by GE Energy has also led to upskilling of the local workforce, through ongoing development of these staff, having an overall benefit by increasing skills levels of the local population.

 The site welcomes school and college visits for educational purposes and one college currently visits annually, bringing students studying environmental management, enhancing their educational experience.

Ffynnon Oer Wind Farm 29. The Ffynnon Oer Wind Farm is a mid-sized (32 MW) development in Neath Port Talbot. The wind farm site spans approximately 150 ha and is located on rough grazing upland between Resolven and Croeserw. The land is owned by the Forestry Commission. 30. The wards which include or adjoin the Ffynnon Oer wind farm site are Resolven, Cymmer, Glyncorrwg and Pelenna with the first three containing settlements close to the site. Overview of Case Study Background Information Developer RWE npower Operator renewables Local Authority Location Neath Port Talbot Public (Forestry Private or Public land Commission) 16 (32 MW installed Number of Turbines capacity) Date of Secured Consent May 2003 Period of Construction 7 months Date at which the Wind Farm became 2007/8 Operational Expected Operational Life Up to 2031 Expectation Regarding Decommissioning / Currently unknown Repowering

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Impacts During the Construction Phase 31. The total planning, development and construction cost for Ffynnon Oer Wind Farm was in the region of £16 million. At the time of construction, RWE’s approach was to let a small number of turnkey contracts rather than to procure each element of the programme separately. As a result, the developer contracted directly with only two companies:

 REpower UK. RWE contracted directly with REpower UK (UK subsidiary of Germany based REpower Systems) for the supply, delivery, assembly and commissioning of the turbines. REpower UK subcontracted the civil engineering elements of this work to McNicholas Construction Services ltd (a Hertfordshire based firm).

 Western Power Distribution. As the electricity distribution network operator for South Wales and the South West of England, Western Power Distribution were contracted directly for the grid connection elements of the construction programme. REpower UK also sub-contracted all other aspects of the electrical installation work to Western Power Distribution. It is not clear whether Western Power Distribution carried out this work in-house or sub-contracted this work. 32. The cost and specification of the services offered by contractors was clearly an important factor in procurement decisions. The use of turnkey contracts placed the need to manage risks associated with sub-contracting at the heart of the approach. As a result, the guarantees that contractors were able to provide in relation to their performance and ability to meet the technical specifications of the project were key considerations. 33. The emphasis on risk management within the procurement process, in addition to the size and value of the turnkey contracts acted as a barrier to the involvement of local companies in the upper tiers of the supply chain. The local area around Ffynnon Oer is highly rural and therefore does not have a strong base of businesses of sufficient scale to complete for and win upper tier construction contracts. 34. As a result of this, the procurement strategy of REpower (RWE’s main contractor) was the driving factor in delivering local economic impact. There is no information available about the overall procurement approach that repower took at this time, however RWE’s monitoring data indicates that goods and services to the value of £1.1 million were procured from companies located within a 30 km radius of the site. This accounts for around 7% of the total construction costs for the development. Table 6-1: Goods and Services Sourced from Companies Local to the Ffynnon Oer Wind Farm Site Total Approximate Value of Distance Area Type of Goods and Services Sub from Site Contracts Fewer than Neath £99,300 Aggregates, building materials, plant hire 10 miles Briton Ferry £18,000 Security services 10 to 20 Aberdare £725,700 Concrete for bases, cabling, building materials, skip hire, miles Swansea £63,500 Plant hire, appliance testing 20 to 30 Bridgend £202,300 Investigatory drilling / soil consultancy, plant hire miles 35. As Table 5-1 shows, the locally procured contracts tended to be relatively small in size and confined largely to the lower tiers of the supply chain. As the goods and services that were procured locally were a number of steps removed from RWE, it is not possible to provide any

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detailed information on the way in which contracts were accessed by local suppliers. The nature of the goods and services procured would suggest that, for the most part, local suppliers will have had a locational advantage insofar as the goods and services procured tend to be those for which transport costs are greatest. For example, stone was sourced from the existing Bwlch Ffos Open Cast site in Cwmgwrach, less than five miles from the site. 36. While much of the expenditure associated with the construction of the wind farm was spent with companies from outside of the local area, there is scope for impacts to be supported locally if companies from outside of the area use local labour. Although the extent to which local workers were recruited by supplier businesses during the construction period is not monitored or recorded by the developer, there is anecdotal evidence that there was some, albeit minor, local recruitment. For example, a site engineer for the construction phase was recruited using a Cardiff based recruitment agent (although there is no information available in relation to whether the engineer lived locally). 37. ED unit at NPT council is very active in relation to helping local companies. Although they were not explicitly involved with the developer in developing local supply chain programmes for the Ffynnon Oer scheme, they have since started to work alongside developers to deliver programmes which help to ensure that businesses are aware of opportunities and supplier ready.

Impacts During the Operations and Maintenance Phase 38. The turbines manufacturer’s warranty expired in 2011 but was extended until 2013. This covers routine servicing of the turbines and major component replacement that might be required. During the warranty period, there are few opportunities for significant expenditure with local suppliers. 39. RWE may engage additional suppliers to undertake any maintenance activity that is not included within the warranty agreement. The nature of the work required would determine whether this was carried out directly through RWE’s O&M base (in Mid-Wales) or by other contractors. Although there have not been any instances of this nature yet, there are local firms which would be considered as suppliers (for example, there are electrical contractors in Bridgend, less than 10 miles from the site which have provided services to RWE in the past). 40. In spite of the schedule operations and maintenance activity and component replacement being carried out by the original equipment manufacturer, there is some direct on-site employment generated to deal with routine maintenance and checks of the turbines (for example dealing with routine changes of oils and components etc). Two technicians are employed directly by REpower, the OEM and based on-site on a full time basis. Prior to their employment on-site, these technicians did not have experience of wind farm maintenance so were trained via a six week intensive course in Germany (at REpower’s headquarters) to provide the turbine skills required for their O&M role. 41. Once the warranty period for the turbines expires, there will be scope for more local involvement in the O&M supply chain. It is expected that a single O&M contract covering the main components of the turbine would be let. Alongside this, other contracts for civil engineering, electrical work, safety inspections, cranage and security would be let. While it is not possible to say at this stage which firms could potentially access these opportunities, there is confidence within RWE that there is capacity within the local business base to fulfil

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the wind farm’s O&M requirements in respect of civil engineering, electrical works and cranes. 42. The extent to which these benefits will occur locally would depend on the approach taken by RWE. For example, as for the construction phase, a decision might be taken to appoint a single supplier for all O&M activities, rather than procure the elements individually. If a single contractor option is preferred, RWE expect that there would be scope to construct a framework agreement of local contractors which the main O&M contractor can draw on where required. This has been achieved around other wind farm sites elsewhere in wales by holding open days for local firms to highlight the potential supply chain opportunities and supporting local suppliers to become approved suppliers for the wind farm.

Impacts Created by the Community Benefit Fund 43. The decision in relation to the form that the Community Benefit Payments would take was reached in agreement with representatives from the local communities around Ffynnon Oer. It was agreed that an annual payment would be made, but in addition the feasibility of securing funding for the local community organisations to purchase one of the 16 turbines was explored. It was expected that this would allow the community to earn all of the revenue generated by the turbine (between £120 – 140k per year) but funding for the project could not be found. 44. RWE provides community benefit payments totalling in the region of £31,000 each year. The hills on which the wind farm is constructed act as a physical barrier between the communities surrounding the wind farm. To reflect this, an agreement was reached for the funding to be paid to two community based organisations:

 The Community Foundation: The registered charity receives £9090 per year (index linked to 2006) and makes investments on behalf of the residents of Resolven, Clyne and Melincourt.

 Upper Afan Forum: The limited company receives £22,000 per annum (index linked to 2006) and makes investments on behalf of the Glyncorrwg and Cymmer areas. 45. Both organisations are wholly responsible for the management and investment of the community funds in their area and have appointed steering groups which consist of members of the community councils covered by the groups. RWE provides advice and guidance to support the ongoing administration and promotion of the fund but does not have any decision making power over how the funds are invested. 46. In both areas, the management body promotes the availability of the funds to local organisations and invites applications for funding. Within the community benefit funding agreement, there is a stipulation that the funds should be invested in projects related to charitable, educational, environmental or community purposes. However, aside from this broad remit, there is no more detailed focus or strategic plan set out for the investment of the funds. 47. Grants have been provided to a variety of local organisations including youth and sports clubs, groups set up to support OAPs and parents. Payments have also been made to the South Wales Miners Museum. While the grants made are, on the whole, relatively small in value they are often related to the purchase of equipment and materials required to set up longer lasting services (e.g. coffee mornings for elderly residents, equipment for sports clubs

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and equipment for afterschool play schemes). Capital grants have been used to improve community facilities such as helping to refurbish community centres and revenue grants have been used to develop local events including hosting the first Welsh Waterways Festival.

Wider Benefits of the Scheme 48. Wider benefits associated with the scheme include:

 RWE have sponsored improvements to the Afan Mountain Bike Trails, which are an important tourism asset in the Afan Valley. The improved trail runs close to the Ffynnon Oer Wind Farm, through the nearby Afan Forest Park. The improvements include upgrades to key sections of the trails as well as provision of new signage and new guidance to help with navigation.

 As the Ffynnon Oer construction site has local conservation importance, RWE was asked to establish a Habitat Management Plan for the area surrounding the wind farm as a condition of the planning consent granted by Neath Port Talbot council. The long term vision for the site following the development and implementation of the Habitat Management Plan is to increase the biodiversity value of the site by habitat enhancement and habitat creation. Activities are focused around pool creation and wall construction (to encourage nesting birds and wildlife) in addition to blanket bog enhancement and heathland regeneration activities.

Pen y Cymoedd Wind Farm

49. Pen y Cymoedd is the largest onshore wind farm proposal in the UK at present. An overview of the wind farm is shown in the table below. Developer Vattenfall Operator Pen y Cymoedd Wind Farm Limited Landowner Welsh Government Woodland Estate Local Authority Location Neath Port Talbot/ Rhondda Cynon Taf Installed Capacity Approx 256MW Number of Turbines 76 Date When Planning Consent 8th May 2012 was Secured Period of Construction Q1 2014- 2017 Date When Wind Farm Became Expected to be from Q4 2016 Operational Expected Operational Life 25 years

Impacts during the Planning and Construction Phase 50. Construction at Pen y Cymoedd is expected to commence in 2014. Given the scale of the wind farm there has been an extensive process of planning and development, which commenced in April 2008 when Vattenfall (then Nuon Renewables) was selected by Forestry Commission Wales on behalf of Wales Government to look at developing a wind farm project on its Estate in SSA F in the area. Based on the latest costing information from

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Vattenfall, the total cost of planning and developing the wind farm will have amounted to £16.8 million including option fees. It is estimated that 90% of this expenditure will have taken place within Wales, covering expenditure on services including surveys, design, legal and professional services as well as land option payments. Some examples of companies that have worked on the project include Natural Power Consultants (Aberystwyth), Ecology Matters (Talybont), Nitelite (NPT), Wardell Armstrong (Cardiff), IsoFab ltd, Treherbert. 51. Construction at Pen y Cymoedd is expected to commence in 2014. Latest estimates indicate that the total value of the construction contracts will amount to £334 million. Vattenfall is committed to maximising local content in the construction phase to as great an extent as possible. It is recognised that such a large project has significant potential to benefit local firms and, accordingly, the developer has designed the procurement approach in consultation with the local business community. This commenced in March 2011 with a business briefing event attending by over 140 people in the South West Wales region. The purpose was to:

 Provide the local business community with details on the project

 Describe the intended procurement process and obtain views on this

 Explain the requirements of the project and the contracts that would be let. 52. The feedback from the event was positive and highlighted that the key barrier to local firms accessing contracts was the lack of early information to plan for the opportunity and the structure of the procurement that would take place. Consequently, Vattenfall made a number of changes to the proposed procurement process:

 Detailed information was provided on the criteria/requirements to work in the supply chain for the project

 Use of the local supply chain has been made a key assessment criterion within the contracts

 Vattenfall has made it a requirement for monthly reporting on the use of local supply chain firms from its contractors. 53. Vattenfall subsequently worked with Neath Port Talbot County Borough Council to develop a supply chain support package. The funding was used to support local businesses to further develop the skills and capacity needed to work in the renewables sector, from training and workshops to direct one-to-one support that will enable local businesses to prepare for the project. 54. The main elements that Vattenfall expect to be able to be sourced from Wales during the construction phase are the civil works and towers. Onsite materials such as stone will also be sourced locally. Plant hire will be sourced locally or within Wales wherever possible. 55. Recently a two day Meet the Contractor event has been held to host opportunities for potential subcontractors to engage with the companies shortlisted for the lead contracts before the appointment of the main contractors for the various work packages. Discussions on the day and subsequently highlighted that this gave the main contractors and subcontractors an earlier opportunity to understand each other’s requirements and

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procedures ahead of the selection process. Around two thirds of the local businesses in attendance were in a position to compete for contracts.

Impacts during the Operation and Maintenance Phase 56. Pen y Cymoedd is expected to become operational in 2016 and to continue operations until 2042. The expectation is that there will be a requirement for a minimum of an additional 12 staff to be employed directly within Vattenfall on the operations and management of the scheme. Vattenfall set up a Cardiff office in order to serve its Welsh projects that are currently in development, including Pen Y Cymoedd, and currently employs 7 people at the office. The developer recognises that there are business benefits from having people on the ground and will seek to employ local people as appropriate. There will also be indirect subcontracting opportunities.

Community Benefit Fund 57. Vattenfall has committed to provide a Community Benefit Fund which is currently worth £1.8m per annum, equivalent to £6,000 per MW of installed capacity. The value will be index linked so will remain the same in real terms (i.e. after inflation) over the life of the wind farm. 58. The Fund will be designed over coming years, and Vattenfall is in the process of commissioning socio-economic research to inform an assessment of the challenges and opportunities for the local community and lessons from previous interventions. The next stage will be to engage with local community stakeholders, with a commitment for this to be an inclusive and thorough process. Given the scale of the Fund, Vattenfall is keen to encourage a flexible approach that goes beyond traditional uses of Funds seen in other onshore wind farms – it is felt that these are not of comparable scale so do not provide a suitable reference point. 59. It is recognised that robust monitoring and management processes will need to be in place to ensure that the Fund is managed effectively.

Wider Benefits of the Scheme 60. The scheme will bring other positive impacts for the local community, including:

 Benefits to wildlife through a Habitat Management Plan, worth £3 million over 25 years. This aims to restore, conserve, enhance and manage local peatland habitats.

 Improved access and enhanced public amenity through new mountain biking trails & signage.

 Engagement with schools and young people, who will be involved with the community fund to ensure they are represented. Vattenfall is also looking at running an “on the job” work experience scheme with local schools to give them a chance to learn about opportunities that might be available to them in the renewables sector.

 Tourism. Vattenfall has committed to work with the local community to create a tourism concept linked to the project. This will be developed in due course.

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