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A cluster of islands off Scotland’s north coast is the testbed for renewable energy technologies and new human behaviours that could be key to tackling climate change.
We visited Orkney to learn more in June. We saw first-hand how experiments there provide a path to sustainable resilience, but we also discovered regulatory roadblocks.
All of which will now feed into our decarbonisation-related investment thinking.
Heat pump and battery
Claire* lives in a weathered 18th-century house not far from the ruins of the prehistoric village Skara Brae on Orkney’s largest island, Mainland. It’s not the kind of place you would expect to glimpse the future. But look closely, and you’ll find it is piloting a host of eco-friendly innovations.
Back in 2019, as part of an award-winning trial, Claire added an integrated heat pump and battery system to the property. These allow her to maximise energy efficiency and tackle high gas and electricity costs in one of the coldest and windiest corners of the UK.
Her utility room houses a ‘phase change material’ battery. It works by drawing on heat captured by the pump to charge its contents, turning them from a solid to liquid state. It then stores the energy until needed, at which point heat is released as the process reverses. There’s virtually no energy loss or battery degradation. All of which means Claire can radically reduce her use of grid electricity.
Bearing in mind about 80 per cent of UK domestic energy use goes towards heating homes, the implications are huge if such a system can be rolled out.
Another part of the trial involves digitally linking Claire’s home to a system that uses software to adjust for changes in the wider supply and demand of locally generated renewable energy. It uses the electricity produced by Orkney’s large number of wind turbines to recharge home battery storage systems when energy generation is at its peak to avoid wasted capacity. This cuts costs and increases the islands’ resilience and independence.
Missed potential
As delighted as Claire is with her set-up, she is frustrated that efforts still fall short of their full potential. She can’t yet draw on her electric car’s battery to power her property when its own reserves are depleted, nor can she feed electricity back into the grid when others’ demand is high. Looking island-wide, without a fully smart system and the regulation to support it, Orkney’s experiments with deep electrification and efficiency risk stalling.
There’s no lack of renewable generation here. The islands have had the potential to produce more electricity than they need from their wind turbines since 2013. But up to 40 per cent of the time, the community- and commercially-owned capacity is ‘curtailed’, which involves shutting down some or all the turbines to prevent the system from overloading.
Local demand is not yet electrified or flexible enough, and there’s insufficient capacity to export all the excess power to the rest of Scotland. Not only does this limit the financial return to renewable energy developers, but it’s a wasted resource that could be heating more homes, powering more cars, and, just possibly, underpinning new energy-hungry businesses in the UK periphery.
The continued restrictions reflect the original fossil-based electricity system’s structure: highly centralised around large thermal power stations and focused on keeping the lights on in the UK’s big cities.
That can be different now. Renewable generation from wind, solar, tide and wave can come from more diverse locations. The system needs cables connecting these new points of surplus to the centres of demand. And it needs more flexibility and a pricing rethink to create local grids for decentralised power generation.
Orkney is one of those places that can go from being energy-short to energy-rich in the renewable world – and it’s banging on the central regulator’s door to get on with it!
University partnerships
Orkney’s green energy credentials are built on its fossil fuel past.
In the 1970s, a large oil terminal was constructed on the southern island of Flotta that processed as much as 400,000 barrels of crude from the North Sea a day. That was roughly enough to cover a fifth of the UK’s total need.
It encouraged Edinburgh’s Heriot-Watt University to set up a specialist campus in Orkney’s historic port of Stromness. This extended the reach of its School of Energy, Geoscience, Infrastructure and Society into renewable energy development.
In addition to pioneering research at a global level, those involved provide the local authorities with support and expertise. This can be invaluable when negotiating with the energy regulator Ofgem, the UK government and commercial developers to help ensure the islands promote and benefit from innovation.
The university is also part of a growing local ecosystem of commercial research centres, consultancies and local businesses.
One is Aquatera, a global environmental consultancy supporting on- and offshore renewable developments. It also champions local projects, including a push to encourage electric vehicle adoption.
Another is the European Marine Energy Centre (EMEC). It runs world-renowned testing sites for those developing tidal and wave power.
We visited its tidal testing site off the northern island of Eday. Though still less commercial than wind-based efforts to date, there is still significant potential in favourable sites around the world for this very predictable form of generation.
In addition to the offshore devices, this island ‘mini-grid’ has:
- An onshore wind turbine
- Electric vehicles – we were driven around in the school’s electric mini-van
- A large battery system
- A hydrogen electrolyser
It was a great opportunity to see these devices off-plan and in the field, allowing us to quiz the operators on the practicalities of installation and reliability.
Hydrogen-powered transport
Eday’s hydrogen is currently used to provide auxiliary power for some of the docked ferries at the nearby port of Kirkwall. Orkney is a major attraction for European cruise liners that bring tourists to see everything from bird life to Neolithic temples. So the next job is to get these giants off ‘bunker fuel’ – a name for the oil used by marine vessels – and onto hydrogen while in port.
Longer term, that transition could also replace fuel used for long-distance trips. Hydrogen is one of the most likely substitutes in the hard-to-decarbonise sectors of shipping, trucking and perhaps even aviation.
Here again, we found Orkney to be a testbed: the local airport has played host to both hydrogen- and battery-powered light aircraft experiments.
Eday is also where EMEC is trialling a new type of energy storage. The 1.8MWh vanadium flow battery involved can hold enough power to supply about 3,600 homes.
Vanadium is a hard silvery-grey metal that is even more abundant in the Earth’s crust than lithium but tends to be more expensive to extract. Batteries that use it are larger and more cumbersome than lithium-ion equivalents. But they benefit from much longer lifetimes and minimal fire risk, potentially making them a better choice for stationary tasks such as balancing intermittent power generated by renewables.
Geographic advantages
Orkney benefits from a favourable collision of geographical forces:
- It is one of the windiest places in Europe, onshore and offshore
- It has one of the world’s fastest tidal flows
- The islands shelter the harbour of Scapa Flow
Scapa Flow’s calm waters cover 120 sq miles. That’s six times the area of New York’s Manhattan Island, making it one of the world’s largest natural harbours. The local council and Crown Estate Scotland are planning a deep-water quay in the area to act as a hub for wind turbine assembly and maintenance. This will begin to meet the needs of one of the UK’s most exciting new industries: offshore wind.
With huge potential in its North Sea backyard and decades of experience in offshore installation and maintenance (albeit in the oil and gas sector), the UK has made marine wind generation central to its net zero strategy.
At the end of 2021, the UK was second only to China in terms of installed offshore wind capacity. And plans to quintuple the UK’s offshore power generation capacity by 2030 to 50 gigawatts, with perhaps another 100-150GW to meet the full 2050 zero carbon objective, could keep it among the leaders.
The waters off Scotland are the best place for these additions, and Orkney could be one of the critical points of assembly.
The new generation of giant turbines reach over 150 metres in height. Their various components will be shipped from all over the world and need quiet waters to be put together and then towed out to position. Scapa Flow’s new quay could be just the beginning, and there are plans for a much larger floating port.
The oil terminal at Flotta began a new chapter for Orkney in the 1970s. An offshore wind mega-hub could be the next.
Just like our visit to Eday, our on-the-ground discussions with those involved in the logistics provided a valuable reality check. We found a mix of vast potential transformation and opportunity but also challenges, whether they be the nuts-and-bolts of building stuff or addressing the justifiable concerns of stakeholders about how this activity might impact tourism, seabirds, fishing boats and more.
Historic and cultural advantages
Another factor favouring Orkney is that it only has about 22,000 residents. This makes it easier to scale experiments rapidly.
The rollout of domestic-scale wind turbines in the mid-2000s is a case in point. Residents leapt on the opportunity after being told the equipment would pay off its cost within seven years and then earn them money. At one point, the islands had 20 per cent of the UK’s small turbines despite hosting just 0.2 per cent of the population.
Thousands of years of trade and migration have also led to an openness to new ideas and integration into global supply chains. Local businesses work on projects as far afield as Indonesia and regularly collaborate with overseas counterparts involved in renewables. Even Microsoft became involved, sinking its Project Natick data centre off Orkney’s coast in 2018 as part of an experiment in hosting computer servers underwater to save on cooling costs.
There are challenges, of course. Island economies are often precarious and fragile, disproportionately reliant on a small number of industries such as tourism and oil and gas. Despite ‘headline’ full employment, underemployment is a persistent issue. It is not unusual for one person to hold multiple jobs to earn a liveable salary.
The islands also suffer harsh winters, and the generally aged-housing stock is poorly insulated. That leads to disproportionate energy demand for heating and high fuel poverty.
In Orkney, however, these challenges seem to redouble the appetite for positive change, especially when the innovations add to local resilience.
Among the wide variety of projects we saw, the main barriers frustrating further success were the ‘soft stuff’ of regulatory frameworks and approvals. While slightly depressing today, the important message is that regulatory regimes can flip overnight to enable a data-enabled world of smarter, more efficient local energy use.
Investment opportunities
So how does this affect our thinking as asset managers?
The scale of growth in wind energy in Orkney has clear implications for companies such as the turbine manufacturer Vestas and renewable power company Ørsted. And the need for infrastructure to store the energy generated could benefit Neoen – it already provides one of Australia’s largest battery storage facilities.
Other equipment makers that could gain from the trends we witnessed include:
- Power cable manufacturers, including Nexans
- Battery makers, such as CATL, Samsung SDI and LG Energy
- Electrolyser manufacturers, including ITM Power and Nel, whose kit converts renewable energy into ‘green hydrogen’
Beyond investments in individual companies, we support the UK government’s efforts to encourage pension schemes to invest in long-term green infrastructure projects of the kinds being pioneered on the Orkney Islands. We are also doing our own work on this topic in conjunction with the Chatham House think tank.
Orkney’s difficulties in balancing energy generation with usage and export are a microcosm of challenges seen worldwide as renewable energy rises as a proportion of the energy balance. And the combination of storage, regulatory changes, and decentralised energy generation that locals seem to be moving towards may indicate how others will choose to solve this problem.
Perhaps even more exciting is to look further down the track and imagine the potential for innovation and new industry that could emerge in regions freed from reliance on imported fossil fuels and replete in their own generation.
So there’s doubtless more to learn by continuing to engage with Heriot-Watt University and other organisations involved in the islands’ projects.
Ultimately, Orkney is a living laboratory.
We can all help contribute to its success by spreading the word, sharing ideas and connections, partnering, and finding opportunities for direct investment.
*Name changed to respect ‘Claire's’ personal privacy
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