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Local Economy 2020, Vol. 35(6) 545–565 Capital ownership, innovation ! The Author(s) 2020 and regional development Article reuse guidelines: sagepub.com/journals-permissions policy in the economic DOI: 10.1177/0269094220968048 periphery: An energy journals.sagepub.com/home/lec industry case

Calvin Jones and Max Munday Cardiff Business School, UK

Abstract This paper examines how far patterns of external ownership affect benefits from industry geo- graphical proximity. The case explores investments in energy and electricity supply in . Geographically related benefits are examined through a Smart Specialisation lens, in the areas of innovation; firm-to-firm interaction; the labour market and public sector intervention. We find evidence that the ownership model or ‘home location’ of key firms is an important factor driving local economic benefits, and explore related policy implications. The case shows that the location of ownership is a key factor in firm innovative behaviour, and that the scale and nature of any benefits from industry geographical proximity will be dependent on where key decision centres lay. In spite of Wales’ comparative advantage in energy, the paper reveals no dynamic ‘melt’ of interactive and engaged firms and labour, but a functionally narrow, low value economic land- scape. This leads to a request for more focus on the ownership and contextual factors that may drive the benefits of industrial proximity for places.

Keywords capital ownership, energy, renewables, smart specialisation, Welsh economy

Introduction Ownership, and specifically the location of Corresponding author: ownership, could be an important factor in Max Munday, Welsh Economy Research Unit, , Colum Drive, Cardiff, South Glamorgan explaining the extent of geographical (and CF103EU, UK. indeed a-spatial) proximity benefits accruing Email: [email protected] 546 Local Economy 35(6) to firms and in understanding whether such benefits through a Smart Specialisation lens benefits translate to improved regional per- in the areas of innovation; firm-to-firm inter- formance. For example, patterns of owner- action; the labour market and public sector ship and ‘allegiance’ of capital have been intervention, and in each case seek to uncov- shown to be important in debates around er whether the ownership model or ‘home the regional economic benefits of externally location’ of key firms, organisations and owned capital (Phelps and Fuller, 2000: institutions (both development and regulato- Phelps, 2009, and see also early work by ry) are a factor in driving the nature of Firn, 1975). Externally owned plants (and behaviours and local economic benefits. here we focus on ownership of capital out- The paper contributes further through side of the region – see later) and firms in revealing that issues of ownership (and infra- peripheral regions are known to behave dif- structure) have been neglected somewhat in ferently from those domestically owned in work around Smart Specialisation. their use (and payment) of labour, develop- The next section outlines the connections ment of supply chain and other relationships between regional development policy, Smart and in the location and orientation of their Specialisation and capital ownership. This innovative processes (McNabb and leads to an argument on why ownership Munday, 2017). Also important might be might influence within-region innovation the uses to which economic surpluses are and other behaviours important for regional put, in terms of taxation, re-investment or economic development prospects. The third disbursement to firm owners, and impor- section provides background and justifica- tantly, whether the ultimate destination of tion for the Welsh case focusing on the such surpluses is ‘local’, or involves distribu- regional economic context and energy- tion or ‘repatriation’ to a non-local entity. related investment. The fourth describes This paper discusses how far defined pat- how far different energy activities (differen- terns of external ownership affect the bene- tiated by technology and ownership model) fits from industry geographical proximity. are oriented towards the development of The case examined involves investments in within-region supply-chain links, knowledge energy and electricity supply in Wales. and technology transfer and the develop- Wales has rich advantages in terms of ment of high-trust relationships. The paper access to wind and marine renewable resour- also comments on whether sustained energy ces and has recently seen strong increases in energy supply linked to renewables. investment has positively affected the Welsh Moreover, Wales as a region has seen con- labour market. The fifth section contextual- siderable success in the attraction of inward ises these findings within the wider debate investment (McNabb and Munday, 2017), around a Smart Specialisation approach in but with virtually no consideration of regions. The final section concludes and con- inward investments in energy-related sectors, siders how far recent changes in Welsh which in terms of capital investment are sig- policy on renewable energy might address nificant when compared to inward invest- some of the issues covered in the case. ment in manufacturing sectors. We consider how far the cluster of energy devel- Capital ownership, Smart opments creates benefits from the concentra- Specialisation and regional tion of related activity in the region, and then how far such benefits might translate development to improved regional economic perfor- The Smart Specialisation framework has mance. We consider geographically related evolved from analysis of how productivity Jones and Munday 547 is derived in private sector firms. The application, being unsuited to large core approach is founded on the recognition regions where all activities are likely pre- that private sector enterprises may be best sent, or to small, isolated regions where placed to identify growth opportunities in agglomerative economies are not applicable an economy. Consequently, the process of due to issues of population, economic scale ‘entrepreneurial discovery’ in the private or connectivity (McCann and Ortega- sector might serve to inform public policies Argiles, 2015). for innovation. The Smart Specialisation Proponents accept that the move from approach also argues that innovating entre- what was originally a sectoral theory to a preneurial businesses should work closely regional and policy tool is problematic (see with higher education institutions, state Baier et al., 2013; McCann and Ortega- policy makers and delivery partners such Argiles, 2015). One problem with the con- that new investments are embedded in cept is that it is closely related – at least in places to maximise local economic poten- the perception of regional stakeholders and tial, but at the same time link to interna- indeed some academics – to former or still tional trade flows, international ideas and extant regional development and innova- investment finance. tion strategies based on regional compara- Smart Specialisation has gained a central tive advantage, clusters and related variety importance in European Union regional (Asheim, 2013; Baier et al., 2013). This economic policy debates (McCann, 2015; raises the spectre of regional policymakers McCann and Ortega-Argiles, 2015) with simply couching existing policies in a its focus on the ability of the private ‘SmartSpec wrapper’ whilst continuing to sector to evolve growth opportunities, and favour existing regional lobby groups, on the hope that the innovative processes industries and researchers, rather than adopted by leading firms might be replicat- undergoing a real process of entrepreneurial ed in state innovation policy, and in both discovery. The potential for rent seeking to private and public sector investments better soften or destroy the benefits of such poli- reflecting regional economic potential and cies is then strong (Asheim et al., 2011; then improve trade, knowledge flows and Pugh, 2014). economic growth. Our contention is that if regions are ori- The concept is held to move beyond ented to large, non-locally owned ‘anchor former cluster and other policy as its firms’, such rent seeking may have even ‘smartness’ lies in the ‘entrepreneurial dis- more severe consequences. This is because covery’ of relevant key sectors, activities evidence for knowledge spillovers and pos- and competencies by knowledgeable actors itive innovative impacts from non-domestic from across the civic and private spectrum, firms is weak, or at least mixed (Bishop and with this reducing the chances of policy Wiseman, 1999). Where smaller states (even effort being wasted on activities where in the West) might have a lack of critical there are no true regional comparative mass or absorptive capacity, and where advantages (Boschma, 2014). Also, the con- much of their new investment originates cept is held to take account of the potential outside the economy and is perhaps economic evolution and ‘knowledge ecolo- resource rather than market-seeking, such gy’ of the context region (McCann and spillovers may be still more limited (Gorg€ Ortega-Argiles, 2015): thus Smart and Greenaway, 2001). Specialisation is embedded, not parachuted This could be a critical problem for in. Importantly however, the concept is smaller states and more economically admitted (in theory at least) to have limited peripheral regions. The paucity of a local 548 Local Economy 35(6) base of strategic decision-making is a com- development paths linked to ‘thin’ regional monly cited issue in the regional economic innovation systems, and more dependence development literature. Firn (1975) for on external technology provision. Where example, revealed, how in the case of exter- capital is locally owned and controlled nally owned branch plants, that strategic and firms have a deeper functional base in decisions tended to be made by specialists a region, this would seem to one precondi- in the parent organisation. In consequence tion for more ‘thick’ regional innovation a region with a significant branch plant systems. presence could lose control to other areas Indeed, even if inward investors to and with an intraregional swap from ‘entre- regions do develop relationships which pos- preneurship’ activity towards ‘management’ itively impact regional innovation or lead to activity. Firn noted that this could have labour market and other co-location syner- longer term developmental implications, gies, it is clear they might do so in ways and we suggest this would link at very different to nationally- or regionally domes- least to characteristics of innovation sys- tic firms (Knell and Srholec, 2005). tems. The factors driving innovation sys- Accounting for such ownership issues tems have been shown by authors such as would seem to be a key element in under- Isaksen (2015) and Todtling€ and Trippl standing the strengths and weaknesses of a (2005) to be quite different in regional inno- Smart Specialisation approach. More gen- vation systems characterised by being erally a paucity of work on ownership and organisationally thin or thick. It may be infrastructure in research on Smart the case that the presence of thin or thick Specialisation needs to be addressed. systems tells us something about, or is even in part consequent on, the ultimate owner- ship of capital in regions. Thin systems Case: Energy in the periphery might be identified, for example, with Here the focus is on the energy and electric- branch plant economies where ultimate ity supply sector in Wales. There are a series ownership of facilities even in strong of reasons why this case is of interest in the growth sectors rests elsewhere. In cases of context of the above review. organizationally thin research and innova- Firstly, Wales has a strong and enduring tion systems, development might be more (properly ‘Ricardian’) comparative advan- based on connections to external expert milieus and imports of new technologies, tage in the energy sector (and more broadly and with this route providing regional in resource extraction and resource process- firms with new competences and solutions. ing) as evidenced by the continued exploi- In these cases, new development paths are tation of (surface) coal, tentative driven by ‘solutions’ successful in other exploration for shale gas and the develop- regions. Alternatively, in organizationally ment of a major liquefied natural gas thick regional innovation systems develop- (LNG) terminal at Milford Haven. The ment paths might be spurred more by indig- region has for many years had significantly enous spin-offs from knowledge institutions more per-capita electricity generation working closely with the regional industry capacity than the UK average (Jones, base, and with this resulting in more likeli- 2010). It is a test bed for novel energy tech- hood of extant regional industries diversify- nologies, and remains a likely home for a ing into new areas. Critically here it might new-generation nuclear power station. be external to the region capital ownership Table 1 provides some key facts on energy in industry that may contribute to output within the Welsh economy. Jones and Munday 549

Table 1. Wales energy generation – Key facts.

2005 2013 2018

Total electricity generated 34,653 gwh 26,351 gwh 20,185 gwh Of which Renewables 1196 gwh 2664 gwh 7426 gwh Coal 6772 gwh 11,478 gwh 439 gwh Gas 15,926 gwh 4956 gwh 21,852 gwh Nuclear 7842 gwh 4326 gwh – Oil and other 3914 gwh 2926 gwh 468 gwh

Source: DECC (via Welsh Government, Energy generation and consumption for Wales, 2013); See also, https://gov.wales/ sites/default/files/publications/2019–10/energy-generation-in-wales-2018.pdf for 2018 energy generation figures. Welsh Government, Energy Generation in Wales 2018.

The regional space brings a second ben- • Innovative and potentially disruptive efit for our analysis in terms of the scope of technology (in-stream wave and tidal). electricity generation. Even where, as for electricity, final products are physically This range of technologies and homogeneous, the method of production approaches allows us to explore (qualita- encompasses a range of techniques analo- tively at least) whether the product (or gous to the product cycle cited as important rather plant/capital) cycle has an impact for Smart Specialisation and evolution on the nature of proximity and related syn- (Neffke et al., 2011), and with this produc- ergies or weaknesses, and to take a more tion having important implications for the sophisticated view on how the region sits cost-competitiveness and market prospects within (and develops across) the relevant (here of the electricity produced), and hence product space (Hidalgo et al., 2007). for the scale and characteristics of the cap- Third, the place of ownership in the ital employed in its creation, as well as for regional electricity landscape is important the behaviour and orientation of relevant for us. In the Welsh case this landscape actors (International Energy Agency, (Table 2) is dominated by non-regional, 2015). Electricity generation technologies largely multinational capital ownership. In employed (commercially or experimentally) this respect, external ownership here is in the region include: external to the region and includes rest of UK firms. Table 2 shows that for Wales, • fully mature and in terminal decline large-scale within-region electricity genera- (coal); tion is undertaken by large externally incor- • mature approaches with continuing porated firms, including vertically innovative aspects (conventional and integrated European energy companies, unconventional gas; hydropower; poten- although identifying ultimate ownership is tially nuclear – although with planned difficult here. In Table 2 just two of the activity to develop a new nuclear reactor firms have an identifiable Wales registered on Anglesey in stalled at office (Calon Energy and Pennant Walters). the time of writing); The firms vary according to whether they • technologies that are globally mature but actually have a registered office in another regionally novel (onshore and offshore part of the UK or overseas. There has been wind; Solar PV) an active debate in Wales (and other UK Table 2. The ‘big’ energy generation landscape in Wales (2019). 550

Installed Year commission/ Company name Ultimate owner/interest Station name Fuel capacity (MW) generation began

Calon eEnergy Part MPF Holdings UK but part Baglan Bay GT Diesel/gas oil 32.3 2002 owned from Macquarie Australia Baglan Bay Natural gas 520.0 2002 Severn Power Natural gas 850.0 2010 Engie power Ultimate owner Engie France Dinorwig Pumped storage 1,800.0 1984 Ffestiniog Pumped storage 360.0 1963 Falck Renewables Part of Finmeria SRL, Italy Cambrian Wind (onshore) 58.5 2005 Foresight Group Foresight Group Holdings, GB Shotwick Solar 72.2 2016 Greencoat Capital Greencoat Capital LLP, London Maerdy Wind (onshore) 24.0 2013 John Laing Environmental John Laing Environmental Llynfi Afan Wind (onshore) 25.3 2017 Asset Group Asset Group, GB Lightsource BP Ultimate owners, London Crundale Solar 43.7 2015 Magnox Electric Nuclear Decommissioning Maentwrog Hydro 35.3 1928 Authority, UK Pennant Walters Pennant Walters GB Maesgwyn Wind (onshore) 26.0 2011 Mynydd Bwllfa Wind (onshore) 22.5 2015 Pant y Wal Wind (onshore) 47.5 2013 Pant y Wal Ext. Wind (onshore) 20.0 2017 (Mynnyd Yr Aber Substation) RES Group McAlpine Partnership Trust, UK Garreg Llwyd Wind (onshore) 30.4 2017 RWE Npower E.On Group, Germany Aberthaw B Coal 1559.0 1971 Aberthaw GT Diesel/gas oil 51.0 1971 Pembroke Natural gas 2199.0 2012 Gwynt y Mor Wind (offshore) 576.0 2013 North Hoyle Wind (offshore) 60.0 2004 Flats Wind (offshore) 90.0 2009

Brechfa Forest West Wind (onshore) 57.4 2018 35(6) Economy Local Mynydd y Gwair Wind (onshore) 32.8 2019 Scottish Power Iberderola, Spain Penrhyddlan and Llidiartywaun Wind (onshore) 30.6 1993 Statkraft Statkraft, Norway Rheidol Hydro Scheme Gen 2 Hydro 20.5 1962 Rheidol Hydro Scheme Gen 3 Hydro 20.5 1962 Alltwalis Wind (onshore) 23.0 2009 (continued) oe n Munday and Jones

Table 2. Continued.

Installed Year commission/ Company name Ultimate owner/interest Station name Fuel capacity (MW) generation began

Uniper UK Ultimate Valtioneuvoston Connahs Quay Sour gas 1380.0 1996 Kanslia Finland Vattenfall Vattenfall AB Sweden (Regeringskansleit) Pen Y Cymoedd Wind (onshore) 228.0 2016 Venitent Energy Services Scottish Registered Company Carno Wind (onshore) 33.6 1996 Ffynnon Oer Wind (onshore) 32.0 2006 Llyn Alaw Wind (onshore) 20.4 1997 Viridor waste management Part Pennon Group PLC, Exeter Cardiff EfW Waste (municipal solid waste) 30.0 2014 WPO Pamir Holdings, SARL, France Tir Mostyn & Foel Goch Wind (onshore) 21.3 2005

Source: Derived from Digest of UK Energy Statistics (2015) and FAME. Note: Excludes small schemes and large-scale combined heat and power schemes. 551 552 Local Economy 35(6) regions) on the regional economic conse- ownership of electricity generation projects. quences of external ownership (see most In this respect, Lesley Griffiths, the recently McNabb and Munday, 2017; Xu Minister for Energy, Environment and et al., 2019) but limited UK research ana- Rural Affairs was able to report in 2018 lysing the specific effects of inward invest- that: ‘We now have 778 MW of renewable ment in electricity supply. Prior research energy capacity in local ownership, against has examined linkages between inward our target of 1 GW by 2030. We expect all investment in power generation and eco- new energy projects to include an element nomic growth (see, e.g. Khatun and of local ownership’ (Welsh Government, Ahamad, 2015). Therefore in the discussion 2018: 3). of the case, it is possible to comment on Finally here, Wales is an interesting whether the model and location of ultimate region because Smart Specialisation has ownership might be an important driver of been an important reference point for the benefits arising regionally from location regional economic policy (Pugh, 2014; of capacity. McCann and Ortega-Argiles, 2015). The Fourth, Wales provides an interesting Welsh Government was notionally a whole- case due to the underlying consenting hearted and early adopter of the framework around energy development. In ‘SmartSpec’ approach (see Welsh Wales, direct responsibility for economic Government, 2013). However, Pugh (2014) development is devolved, but factors shap- points out that government policy looks ing the broader economic and regulatory more like an adaptation of existing (notion- environment are determined by UK govern- al) clusters and key sectors to a ‘SmartSpec’ ment. Under the Wales Act 2017, further world than a ‘clean sheet’ appreciation of powers were devolved to the Welsh current and potential strengths, with the Assembly and Welsh Ministers in areas risk that both the nuances and like local such as transport, energy and the natural success of the policies are at risk. This gov- environment. We note here that the ernment orientation is also relevant to our Assembly had existing powers to legislate study, as the Welsh Government identified in planning but this had until 2017 excluded ‘key’ sectors, including energy and environ- major energy infrastructure classed as over ment, overlap considerably with sectors 50 MW installed capacity (onshore). dominated by firms that the government However, the regional government (follow- has identified as ‘anchor companies’ – ing the Wales Act 2017) has consenting understood by Welsh Government as powers for energy projects up to 350 MW major companies that are deemed impor- capacity. This would still exclude powers tant for increasing jobs and growing the over major energy infrastructure (such as, economy. Typically these are global or e.g. new nuclear capacity). This means that international organisations with headquar- there are some limits in devolved capacity ters or a ‘significant corporate presence’ in to change the energy mix in Wales within Wales. However, it is largely the latter; in such multi-level governance, and it is very large measure these are externally important to note that it is the UK owned and controlled (e.g. Tata and Government that is in control of the subsi- Airbus, an exception being Admiral dy regime around electricity production. Insurance). The extent to which regional While, this somewhat restricts the Welsh Smart Specialisation policies can be suc- Government’s room for manoeuvre, it has cessful in sectors dominated by very large sought to actively encourage renewables multinationals such as in energy is of inter- development and encourage more local est. We seek here to contribute in terms of Jones and Munday 553 the role of external ownership in impacting project work was both ex post and ex on successful policy development and out- ante, referring to projects and developments comes around Smart Specialisation. that are completed and operational; in con- In the case, the paper draws upon a struction or planning; or not yet begun. Our series of researches into specific electricity assessment of geographical proximity generation technologies, places and facili- effects (and of production approaches and ties and their impacts; and into the regional economic relationships more generally) is development potential of novel innovative therefore made at different developmental renewables. We summarise the projects that stages: for some activities (notably marine inform the case in Appendix 1 and firms/ renewables) they are the best estimates of institutions involved. We accept some of participants and of the research team, sup- the material is dated and since the research plemented where appropriate by evidence has occurred, the energy mix has continued from elsewhere. to change in the UK and Wales, and the subsidy regime has also evolved (Table 1 Case: The energy sector in Wales reveals the near term evolution in the elec- tricity production mix in Wales). However, Supply chain linkages – Proximity to key while the energy mix has evolved patterns suppliers, and the sharing of supply chains of external ownership of major electricity and inputs, enables a lower production cost generation capacity in Wales have been for purchasers and suppliers alike. There more stable. This is the context for a are some instances in the Welsh energy recent Welsh Government focus on work- case, but with rather different character ing towards higher levels of local ownership and implications in comparison to other in new projects (Welsh Government, 2018). studies. Key contextual issues here are pat- Critically we are able, for this broad terns of capital ownership among develop- sector and in this region at least, to illumi- ers as well as limitations of regional supply nate some of the actual processes and path- that restrict economic externalities from ways along which synergies and positive (or energy development in Wales. negative) externalities might arise for relat- Firstly, for energy, the relative economic ed activities and industries (Puga, 2010). importance of both external supply chains Our results are also comparable across tech- and the development and construction nologies at different stages of development, phases is notable. Importantly, high value, which share a broad regulatory context but manufacturing-linked capital spending is with important differences. We can then outside the region, and in many cases out- assess how far different sorts of geographi- side of the UK. Table 3 summarises the esti- cal proximity might vary in importance for mated regional purchasing propensities of very specific activities, directly addressing selected technologies. For many categories the heterogeneity concerns of Bishop and of goods and services there is simply no Gripaios (2010). supply capacity in Wales. Indeed where Clearly there are limitations associated there is potential to source locally, the with a case study approach, and with the opportunity is often lost because externally case formed from different elements of proj- owned developers and managing contrac- ect research (summarised in Appendix 1) tors have dedicated supply chains formed taking place at different times, and with over many years. some of the referenced work involving Turbines and related components are survey information from developers, and typically the highest value element in devel- some not. In addition, our underlying opment spend. The case of on-shore wind is 554 Local Economy 35(6)

Table 3. Local sourcing propensities under different technologies.

Onshore Offshore Solar Tidal Capital and development costs Coal Gas Nuclear wind wind PV energy Wave

Grid connection and installation 60% 30% 50% 30% 70% 70% 50% Nacelles/turbines/device manufacture 0% 0% 0% 0% 30% 30% Other electrical (inc. solar cells) 20% 10% 40% 30% 50% 20% 20% Metalworks 10% 10% 50% 40% 80% 10% 10% Foundations, mooring and 50% 35% 80% 30% 90% 40% 70% other site and port works Planning, project management, 60% 20% 55% 50% 90% 70% 90% surveys, consultancy

Operations

Maintenance inc. port operations 70% 70% 50% 80% 50% 100% 90% 70% and on-going surveys Grid connection charges 0% 0% 0% 0% 0% 0% 0% 0% Insurance 10% 10% 0% 30% 20% 20% 0% 0% Other 50% 45% 40% 50% 50% 50% 0% 0% Rates/seabed lease etc. 100% 100% 100% 100% 50% 100% 0% 0%

Note: These percentages and classes of expenditure should be considered indicative only due to differences in the nature of developments across technologies. These are estimates of regional sourcing behaviours in aggregate. Source: Cardiff University and Regeneris (2013). See also Bryan et al. (2017). indicative. The average spend per sector and indeed regional residents. Megawatt (MW) of installed capacity in For many private and third sector develop- Wales during the development and con- ers, the operational phase of the energy struction phase was around £1.25 m development (usually conceptualised and (£2012) (Regeneris and Cardiff University, financially planned according to the length 2013a). However, regional purchases aver- of the relevant subsidy) would imply a sig- aged around £0.4 m per installed MW. This nificantly reduced level of local staffing and pattern is repeated in other technologies interest. For established technologies and mentioned in Table 3. This reflects a limited both large and small developers, both pri- supply side, the significance of scale econo- vate and otherwise, once the turbines were mies in some parts of the dedicated erected (on land, in buildings, in rivers or at manufacturing sector, but also reflects pat- sea) they were effectively static and unalter- terns of ownership in managing contractors able capital for the period of the relevant and developers. subsidy and interest moved to the next proj- In many of the technologies embraced in ect, inside the region or outside. Table 3 much of the life cycle spending is Again on-shore wind is a good case. It focused in the development and construc- was revealed above that the estimated cap- tion phase as opposed to the operational ital spend per MW installed on-shore wind stage. This leads to labour market conse- in Wales was around £1.25 m. This com- quences considered later. It is during oper- pared to £30,000 per annum per MW ational phases when the complex within- installed during operations and mainte- region relationships are developed between nance (a period lasting 20–25 years). This firms, their commercial partners, the public ratio of operational and maintenance costs Jones and Munday 555 to development and construction varies, purchase locally where possible – and and with some technologies such as biomass indeed to convince local companies of the and coal requiring more material handling opportunities on offer in supplying to (espe- during operations. However, with renew- cially) on-shore wind. Almost all such sup- ables the differences are noticeable with plier development related to construction technologies such as wind and solar sup- phases, with modest operational require- porting little economic activity in the ments being met in-house or rolled into region once installed. This pattern is also warrantied support obtained from non- evident in newer evolving technologies. local turbine manufacturers. For example, tidal stream and wave tech- There was very little opportunity with nologies capital costs during development mature technologies such as gas and wind and construction were estimated between power for regional input into any innova- £4.2 and £5.0 m per installed MW of capac- tive product or technological development, ity and with operational costs of between with these occurring outside the region (and £165,000 and 175,000 per annum per MW usually outside the UK) either inside or out- installed (see Regeneris and Cardiff side relevant firms. Would-be developers of University, 2013b). Local purchasing pro- more novel technologies emphasised the pensities of energy projects in Wales tend potential for regional partnerships, to be higher during operational phases although this was couched largely in terms (excluding any repowering) but then the of research partnerships with higher educa- sums of money involved are far smaller. tion, or joint lobbying for infrastructure The conclusions above might be different improvements (e.g. access to the electricity in emerging technologies around smaller grid). scale development such as micro-hydro In summary then, whilst a number of schemes where there is a greater propensity shared input suppliers were evident, these to source items such as turbines locally (see relationships were restricted to time- Bere et al., 2017). limited development, rather than operation- The overarching production reality al phases. The development of a regional means that whilst Wales features a ‘supply side’ would then occur largely out- number of shared suppliers and input sour- side the identified energy industry and reli- ces these were typically outside the energy ant on an ongoing stream of new projects. industry per se, relating to specialised pro- Labour market effects – In debates fessional services in planning, environmen- around the advantages of Smart tal surveys, law and lobbying; in haulage Specialisation, the existence of explicit and and in construction services. The region is also more subtle labour market effects are significantly lacking in large ‘Tier 1’ con- important. In the case explored in this struction contractors, and a number of paper labour market effects are moderated such companies serviced a number of by the relatively small numbers of people energy developments. Interestingly several directly involved in the electricity supply developers, across private and third sectors, sector during operations. For example, the claimed to prioritise local suppliers over Business Register and Employment Survey sometimes-cheaper non-regional alterna- from the ONS revealed that employment tives, and with an explicit local economic in the whole electricity production, distribu- development rationale. Such behaviours tion and transmission sector in Wales was were less evident among larger and multi- around 4500–5000 people in the period national developers, although in all cases 2016–2018, with the numbers in electricity developers emphasised their desire to production varying between an estimated 556 Local Economy 35(6)

1000–1500. Then in considering the labour manufacturing inputs; the extent to which market context the following points are manufacturing, construction and assembly relevant. occurs on- or off-site (and typically with First over the life cycle of electricity gen- high value components produced off-site); eration projects in Wales, much of the the nature of procurement processes, employment effect occurs during develop- including the origin of the managing con- ment and construction. Gas generation pro- tractors and key sub-contractors (and these vides a good example. It is estimated that are often external). Sitting alongside around 2000 person-years of Welsh demand are supply side factors including: employment were connected to the develop- the character of the local economy of the ment of a 500 MW installed capacity gas- development site; the associated labour fired power station in Wales; this compared market; how far developers and managing to 0.3 full time equivalents (FTEs) per contractors, and then operators, local agen- annum per installed MW during the opera- cies and colleges seek to engage with the tional phase (around 150 Welsh jobs per local supply chain and local workforce. annum – see Cardiff University and The above demand and supply side fac- Regeneris, 2013). Indeed for seven different tors noted, the more subtle labour market electricity generation technologies (exclud- effects (and new skills development and ing coal and biomass) Welsh employment educational provision) are heavily shaped supported per MW installed during opera- by the size, duration, location and owner- tional phases varied between an estimated ship of the scheme. Larger schemes (e.g. the 0.3 FTEs per annum per MW installed (gas) construction of the RWEnpower gas-fired to an expected 0.9 FTEs per MW installed power station in Pembrokeshire in 2012) in connection with emerging tidal stream require more labour input on or close to technologies. the construction site. Likewise, in practice Second, regional skills spillovers during it is typical in the Welsh case for much of development and construction (i.e. in some the on-site employment during construction areas of planning and development, and in to be filled by workers from other parts of civil engineering) are limited because con- the UK or Europe. The origin of the con- struction is led by transient managing con- tractors and the nature of the work mean tractors and labour forces, and specialist that there can be limited opportunities to teams with no enduring regional base. recruit locally, even if the skills are available New electricity generating capacity poten- locally. Whilst Wales undoubtedly has tially creates new demands for particular strength in some aspects of the supply skill sets at a local level and this has certain- chain, these firms are often not located geo- ly been one of the desires of Welsh graphically close to new developments. Government in terms of renewables devel- There are commonalities between factors opment. However, the scale and nature of influencing the ability to source workers this demand, and how these needs are met and skills locally during development and by local workers, are not straightforward. construction and then in the operations Factors that influence the need for and maintenance phases of electricity gen- labour and skills in development and con- eration projects. In Wales, there has been struction phases and the scope to source interest in developing employment in the these from the local labour market include electricity generation sector and with this on the demand side: the scale, nature and partly linked to its general high skill con- duration of the development, including how tent, and then relatively high earnings. For specialist are the construction and example, Cardiff University and Regeneris Jones and Munday 557

(2013) found that average remuneration arms). This interesting sector division was across 12 power stations in Wales varied somewhat related to the evolving subsidy between £42,000 and £63,000 in 2012, well contexts, but much more related to the above regional average pay at that time. It (moral) value systems of non-commercial also confirmed that the power industry stakeholders, and the support of the region- employs relatively more professional, asso- al government that was strongly focussed ciate professionals, skilled trades and sales on renewables development to address cli- and customer service occupations, and that mate targets (Welsh Government, 2012, around 27% of all energy and utilities jobs 2018). in Wales are occupied by workers with This shared lobbying and network devel- NVQ 4þ qualifications (i.e. degree level or opment – social rather than technological higher). innovation perhaps – appears by far the There have been some developments in most notable cross-organisation activity. Wales to improve the supply of skills to The region was host to a very narrow power station operators. For example, in range of ‘resource-seeking’ activity and, the case of onshore wind, North Wales’ for most multinational actors, limited ’s marine and built envi- organisational scope. There were few clear ronment centre has a new wind turbine instances of technology transfer, shared training centre. The college has also collab- learning or cluster-type developments with orated with RWE npower and Vattenfall (a the sector characterised by the application wind developer) to design apprenticeship of well understood technology, largely by programmes linked to wind energy and non-regionally located developers with lim- ISOFab, a mechanical engineering contrac- ited embeddedness. Indeed, there is a tor, and Vattenfall delivered a 3-year common practice by some developers of apprenticeship scheme training four furthering projects solely to obtain planning apprentices as wind turbine technicians for permission and/or a guaranteed long-term Pen y Cymoedd wind farm near Neath. In generation subsidy before selling the facility Wales, EU Skills (working with to financial funds as a portfolio investment, RenewableUK) also developed a bespoke with clear and negative implications for the Modern Apprenticeship in Wind Turbine kinds of relationships developed within the Operations and Maintenance. region. Innovative knowledge transfer – The An exception was that of small and espe- above-noted focus on the planning and con- cially community-owned in-stream hydro- struction phase of energy developments was power, where a number of developers, influential in the type, strengths and dura- operators and supporting companies join tion of relationships developed within the with communities across a range of projects region by energy companies and energy- to improve success rates and to exchange interested communities. Energy industry learning. As well as the purposeful develop- stakeholders in Wales have been shown to ment of within region supply chains, this have a strong interest, and often shared sub-sector reveals instances of cross subsi- involvement, in developing a more positive disation between different actors to address ‘institutional context’ for renewables in par- cash flow and investment bottlenecks, ticular, i.e. in government lobbying and including the provision of soft loans joint conferences. Such activities typically between organisations. For not-for-profits, excluded fossil and nuclear developers technology mattered less – as long as it was (multinationals with cross-technology inter- renewable – with lessons learned by (e.g.) ests were represented by their renewables Solar PV installation applicable and 558 Local Economy 35(6) communicated to hydro and wind develop- regional position, economically and politi- ers and vice versa. Not for profit energy cally, is still a largely ‘passive’ one. development was very small in scale howev- The above elements suggest that whilst er (certainly less than 1% of commercial geographic proximity has some benefits in renewables in terms of MW installed) and the energy sector in Wales, that these are involving only a few dozens of people and limited by both the ownership of key devel- organisations: it is not clear whether such opers and operators, and by the investment behaviours are ‘scalable’ or would emerge and political context within which UK in a fully commercial context. energy operates. While energy is a very par- Extra-regional relationships and commer- ticular economic sector in its investment cial drivers – Debates around the regional activity, it shares several characteristics economic development benefits of inward and outcomes with other within-region util- investment are cognizant of the national ity, manufacturing and service activities. and international supply and competitive Such elements could have strong implica- contexts within which firms operate. The evi- tions for the effectiveness of Smart dence from the energy sector in Wales is that Specialisation and ‘allied’ policies in extra-regional relationships are dominant in poorer, peripheral regions elsewhere. driving firms’ behaviours, and that this has consequences for the importance and devel- Discussion opment of local relationships and opportu- nities. Most large energy developers are not Studies seek to establish the existence and regionally (or even UK owned – see also nature of geographic externalities for firms Table 2) and place few higher order occupa- under different banners. This study of one tions within the region, whilst devolving a industry, taking many forms in one region, low level of autonomy to Wales). suggests such externalities exist, but may be Also importantly, enabling price support strongly mediated by forces and structures for electricity has been a non-devolved (i.e. that have attracted limited attention. These UK Government) responsibility. This factors are important in policy design at means UK Government was the sole arbiter regional level. of the viability of renewable developments, First the case reveals that the location of and the incentive to engage with the region- ownership as an important factor in firm al public sector was lessened (for small and innovative behaviour. Multinational energy community, as well as large commercial companies (whether UK or overseas based) developers) – although planning issues concentrate innovative and R&D behav- required ongoing and often fraught dia- iours in select locations often unconnected logue and negotiation. The dominance of to where their capital is actually employed, national aspects was clear across the and access (and purchase) enabling technol- energy supply landscape. For example, ogy at a continental scale. This may severely decisions on new nuclear development (at limit the innovative ‘space’ in regions, pop- Wylfa on Anglesey, and with this currently ulations or networks where multinationals on hold) were made wholly outside the are important economic actors. Ownership region – in terms of investment and financ- has other implications. Here this included a ing, enabling electrical grid upgrades and functionally and temporally limited interest planning permissions. This is not to say of in the case region, with negative implications course that the support of local communi- for network development; a (related) lack of ties is not important, or that local supply autonomy enjoyed by local commercial enti- chain opportunities will not arise, but the ties; the prospect of rapid and even frequent Jones and Munday 559 changes of ownership; and as a result less- energy developments will require many ened contact between owners and suppliers, employees or factor inputs in the operation- local government and affected communities. al phase. Once operational, capital in our Non-local ownership might then impact the case was technologically ‘fixed’ for decades location where the benefits of innovation by the cost ineffectiveness of renewal before occur. The assumption, explicit or otherwise, the grandfathered, guaranteed subsidy in some Smart Specialisation studies is that period is over (usually 20–25 years). In the benefits from geographical proximity trans- case of other technologies this is potentially mit to the locality through increased wages, much longer (e.g. contract for difference or more competitive and innovative ‘local’ negotiations for electricity generated by firms. The potential for there to be a differ- nuclear). Therefore agglomeration or inno- ential outcome, with non-local firms captur- vative benefits, which do not happen at the ing the benefit of innovative network start, are unlikely to happen at all. behaviour, or in the form of increased Fourth, comparative geographic advan- returns to capital, and then repatriating tage may bring limited economic advantage these to the firm’s ‘home’ region or share- – as well as types of industry, one must con- holders, should not be discounted. sider types of places. Commentators have Building upon the above it is suggested, already noted the potentially limited appli- second, that the scale and nature of any ben- cation of Smart Specialisation to weaker efits from industry geographical proximity regions. Wales has, quite rightly from a will be strongly dependent on where key deci- Smart Specialisation perspective, identified sion making centres lay. Firms with scarce energy and environmental services as a resources cannot apply equal interest and sector of interest, based on a strong geo- staff time to relationship management, lobby- graphic resource advantage. This approach ing and supply chain development in Mid- ignores the weaknesses in the regional econ- Wales, Cardiff Bay, London and Brussels omy that means investment from outside for example. In this case (and in common per- will reinforce Wales’ position as a resource haps with other energy intense industries) the periphery, with products and value expropri- local context suffers because key regulatory ated via inward investments (including rest- and subsidy conditions are set nationally. of-UK) for the gain of richer core regions. Similarly, where key labour and other The implication here is that the identification inputs can be sourced nationally or interna- of regional specialisms should be tempered tionally and, in both development and oper- (if not driven) by a consideration of key ational phases, supplied peripatetically, the regional cross-industry (and indeed perhaps role of both the labour and intermediate cross-society) competencies and weaknesses, product markets in communicating knowl- which will critically affect the development edge and innovation across the locality at impact of key sectors. least must be questioned, as must the often- The case then points to a number of fac- implied framing in studies which assume that tors that fundamentally shape the nature of workers live and spend where they work. economic relationships at the regional scale. Third, the type of industry and type of Despite Wales’ longstanding and immov- product may matter greatly – a key driver in able comparative advantage in energy, we firm behaviour in the regional energy case find not a dynamic ‘melt’ of interactive and was the certain and extended life of engaged firms and labour, but a functional- employed capital, as well as its low mainte- ly narrow, low value and, outside of some nance requirements. With the exception of third sector players, economically uninter- biomass (and nuclear, somewhat), few new esting landscape. This finding has 560 Local Economy 35(6) implications for the study of the economic levels of local sourcing in electricity produc- benefits of industry proximity. tion projects, and indeed how far local In part selected of the problems identified authorities and Welsh Government take can be connected to emerging policy changes more of a role as direct investors in projects in Wales with explicit targets now set for which would provide them with more lever- local ownership in new energy projects (see age to promote regional development out- Energy Generation in Wales, 2018: 12–13). comes from energy investments. Moreover, in more recent post Brexit plan- ning in Wales for a new regional investment Conclusions framework, the need for an element of local ownership in new energy projects from 2020 To conclude, there is a continuing focus in has also been highlighted, such that projects policy on the potential for geographic prox- create local economic opportunity in addi- imity to bring economic and competitive tion to meeting renewable energy targets. benefits to firms and places. Such concepts This type of policy development is welcome, are important in developing EU regional but we would argue that more still needs to development policies that focus on Smart be done in the region to engage communities Specialisation. This builds on past and with opportunities from renewable electricity existing approaches that conflate the suc- generation that move beyond simple com- cess of firms with the success of places, munity benefit packages around projects, and, by implication at least, suggest that and move towards local communities shar- proximity brings important economic divi- ing the risks and rewards from shared own- dends either directly – for cities and larger ership in larger projects. This is important urban areas, growth poles or employment because our (and other) evidence shows sites – or indirectly – for example hinterland that where local ownership and control of and rural regions that benefit from urban renewables infrastructure is a feature – in demand for rural labour, along supply this case, mostly in-stream hydropower – chains or through other ‘spread’ effects. wider behavioural changes required for cli- This policy focus is despite continuing aca- mate transition (in energy use and efficiency, demic debate and uncertainty about the transport etc.) can be driven by both the origin, scale and nature of such proximity development of bespoke local infrastructure benefits, and a limited debate on how such and education funded by renewables benefits might be mediated by contextual income, and by the very fact of communities factors hitherto considered unimportant. becoming climate-aware via deep engage- In the case a strong argument was made ment in the renewables development process that potential proximity benefits will be sig- (Bere et al., 2017). nificantly reduced by a number of factors Answers to the wider problems elucidat- either rarely considered, or difficult to ed in the case are difficult. We have revealed account for, within place-development pol- that external ownership comes with limita- icies. Specifically, firm and capital owner- tions, but then for a small region if capital is ship is a key factor. There is much not derived from inward investment where evidence that inward investors are produc- is it to come from? Wales as a nation tively and behaviourally different to local remains very reliant on inward investment firms; often more productive and more from both overseas firms and rest of UK innovative. What works, in terms of firms. Other important issues here are then inward investment interactions and technol- how far organisations such as the Welsh ogy transfer, to increase levels of value Government can work to encourage high added and income in more prosperous Jones and Munday 561 regions may not work in poorer regions, Funding especially within a context of oligopolistic The author(s) received no financial support for and geographically specialised firms in a the research, authorship, and/or publication of context of inter-regionally mobile labour this article. and internationally mobile capital (in terms of both stock and dividend flow). ORCID iD Innovation opportunities, in both techno- Max Munday https://orcid.org/0000-0001- logical and ‘social’ senses are lumpy, and 9067-2481 very product or capital dependent, and the need for a firm focus on product evolution References and lifecycles in agglomeration studies is Asheim B (2013) Smart specialisation – Old wine reinforced. 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RenewableUK, Cymru. January. Available TidalLagoon/Cardiff_Business_School_ at: https://www.renewableuk-cymru.com/wp- Report.pdf. content/uploads/Wales-Onshore-economic- Welsh Government (2012) Energy Wales: A Low benefit.pdf (accessed October 2020). Carbon Transition. Available at: http://wales. Regeneris and Cardiff University (2013b) gov.uk/docs/desh/publications/120314energy Economic opportunities for Wales from walesen.pdf. marine renewables. Report for Welsh Welsh Government (2013) Innovation Wales. Government, May 2013. See https://www. Cardiff: Welsh Government. Available at: marineenergywales.co.uk/wp-content/ https://gov.wales/sites/default/files/publica uploads/2016/01/economic-impact-of-devel tions/2019-04/innovation-wales-strategy.pdf oping-marine-energy-en.pdf (accessed (accessed October 2020). October 2020). Welsh Government (2018) Energy Generation in Regeneris, Cardiff University and AMEC (2015) Wales 2018. Cardiff Welsh Government. Socio-economic Impact of Unconventional Gas Available at: https://gov.wales/sites/default/ in Wales. Report for Welsh Government, files/publications/2019-10/energy-generation- Cardiff. See https://gov.wales/sites/default/ in-wales-2018.pdf. files/consultations/2018-06/180703-final- Xu C, Jones C and Munday M (2019) Tourism report-socio-economic-impact-of-unconven inward investment and regional economic tional-gas-in-wales.pdf (accessed October development effects: Perspectives from tour- 2020). ism satellite accounts. Regional Studies 54(9): RWE Generation UK (2015) The Economic 1226–1237. Impact of the Pembroke Power Station. Report for RWE Generation UK by Welsh Economy Research Unit, Cardiff Business School, June. Appendix 1. Research studies Todtling€ F and Trippl M (2005) One size fits all? informing the analysis. Towards a differentiated regional innovation Information used in the paper derived from policy approach. Research Policy 34: eight studies undertaken over the period 1203–1219. Welsh Economy Research Unit (2013) Turning 2012–2016/7 as part of wider research into Tide: The Economic Significance of the Tidal better understanding the economic effects Lagoon Swansea Bay. Available at: http:// associated with energy development in the tidallagoon.opendebate.co.uk/files/ regional economy.

Study Outline of research Data and method

Regeneris and Cardiff University Estimation of regional economic Onshore wind cost estimates (2013a) Economic opportunities effects of both existing and derived from a 2012 survey of for Wales from Onshore Wind proposed wind energy develop- developers and operators of Development, Report for ments on the Welsh economy. onshore wind farms in Wales. Renewable UK, Cymru. January. The achieved response covered 66% of all existing and proposed capacity in Wales. Regeneris and Cardiff University, Estimation of regional economic For marine and tidal energy focus (2013b) Economic opportunities effects of proposed marine was on device/project develop- for Wales from marine renew- energy developments in Wales. ers. Consultations took the ables. Report for Welsh form of structured interviews as Government, May 2013. well as the use of a proforma to gather data on costs and sourcing. (continued) 564 Local Economy 35(6)

Continued. Study Outline of research Data and method

Cardiff University and Regeneris Examined wind, marine, nuclear, Research included a series of (2013) Employment effects asso- coal, gas, unconventional gas, consultations with developers/ ciated with regional electricity solar and bio-energy with focus operators to gain information generation. Report for Office for on regional employment crea- on spending patterns and Regulated Markets, Welsh tion during development and employment. Government, June. operations. Welsh Economy Research Unit Reviewed expected economic Used data provided by Tidal (2013) Turning Tide: the economic consequences linked to the Lagoon Swansea Bay Limited on significance of the Tidal Lagoon proposal to develop a Tidal costs and local sourcing poten- Swansea Bay. Lagoon in Swansea Bay. tials to estimate direct and indirect effects of development on the region. RWE Generation UK (2015): The Economic analysis of the economic Used data provided by RWE on economic impact of the Pembroke activity supported in Wales by purchases in an input-output Power Station, Report for RWE the annual spending of modelling framework to exam- Generation UK by Cardiff Pembroke Power Station. ine indirect and induced effects Business School, 1st June 2015. of this spending. Regeneris, Cardiff University and Evaluation of the current areas of Literature review, supply chain and AMEC (2015) Socio-economic capability in oil and gas devel- skills analysis informed by con- impact of unconventional gas in opment in Wales and assess the sultations. Economic modelling Wales. Report for Welsh economic and socio-economic around unconventional gas Government impacts in planning/exploration development scenarios in and commercial extraction. Wales. Evaluation of skills required in the jobs created, from the planning stage to decommis- sioning, and their associated skills, qualifications and wage levels. Centre for Regeneration Analysis of regional employment Economic analysis based on tech- Excellence Wales (2014) The and gross value added impacts nical and financial information Economic and Social Impact of of ‘characteristic’ small hydro from 16 for profit and not-for- Small and Community Hydro in scheme, and examine impacts profit small hydropower Wales. Report for: Hydropower that arise within defined local schemes. Stakeholder Group. communities. Natural Resources Wales (2016) To examine the main economic Literature review Energy Options on the Forestry benefits and costs associated Estate. Report by Cardiff with different types of energy Business School, March. development which could take place on the NRW estate, and to consider changes in subsidy regimes for renewables and link this to the economic potential for NRW to develop future energy developments, and expected levels of rental income. (continued) Jones and Munday 565

Continued. Study Outline of research Data and method

Community Energy Wales (2016) Reviewed state of community Fieldwork with community energy The Community Energy Sector in energy projects, in terms of projects and focus groups. Wales: Facing the Challenges. numbers, scale and scope of Consultations with a sample of Report by Cardiff Business scheme, including energy output community energy projects in School and spatial area. Examined bar- Wales (mix of face-to-face con- riers to exploitation linked to sultations and some telephone planning, development and suc- interviews: focus on community cessful operation. representatives from different types of renewables develop- ment; technical development officers on existing support programmes; Natural Resources Wales and Planning Officers.