A Fair Share for Shetland

This response summarises principles developed by Shetland Islands Council and other local partners in relation to community benefit, which have previously been expressed in numerous forums, including in response to the Scottish Government’s consultation on good practice principles.

Value of Community Benefit

The following is drawn from ‘Analysis of Community Benefits in Shetland’, which was developed from work commissioned by Shetland Islands Council and endorsed by the Council in 2025:

For onshore wind, the report recommends targeting 5% of project revenue and a guaranteed minimum income payment of £7.3k/MW/year (in 2024 prices, index linked from this year for the duration of the project). Given the quality of Shetland’s wind resource, most or all onshore wind projects should be able to bear a 5% gross revenue share. £7.3k/MW/year is what the industry standard benchmark of £5.0k/MW/year would be worth now, had it been index-linked to when this benchmark was first established in 2010, rather than to project first power as has more commonly been the case. This minimum guaranteed price should be index linked going forward so future projects are offering the same relative value as 2024 pricing (£7.3k/MW/year). 

For hydrogen, PtX and CCS projects, sales revenue is linked not only to electrical energy, but also to other inputs and processes that add value. For these projects, the report recommends that the Council’s existing policy of aiming for 2.5% of gross project revenues is an appropriate and viable level and we recommend that project-specific guaranteed minimum income payments be agreed to minimise production risk being carried by the recipient of the community benefit payments. This may be based on agreed production targets and minimum hydrogen values, e.g. minimum production = 75,000kg H2 per MW per annum. Minimum hydrogen sale value = £5 per KG. Project specific conditions should be agreed in each case. While the Good Practice Principles may recommend nationally agreed standards and benchmarking, it is vital to recognise that individual areas may have characteristics which mean that determining a proportionate value and fair share of community benefit should be set locally. Shetland’s high capacity factors (the measure of wind generation potential) means that the additional generation revenues from wind turbines can more than counteract the higher transmission charges and curtailment levels - this means that revenues for wind energy projects may be significantly higher than elsewhere in the UK and thus what is deemed a proportionate share of community benefit will differ in Shetland.

Decision-making for community benefits

The report ‘Analysis of Community Benefits in Shetland’ promotes as best practice the principle that community benefit funds should be held and managed by local democratically accountable organisations, further aligning with the “fundamental principle” asserted by the Just Transition Commission in their report on Shetland, that “these funds belong to local people and therefore it is for local people to decide how those resources are allocated." As the local authority, Shetland Islands Council is the representative, democratic and accountable body for the area of Shetland. In rural and island areas, the role of the local authority not only as the administrator of local government and deliverer of public services, but as the key influencer of community development, is much more pronounced and visible within local areas. The Council further possesses experience and capabilities in terms of managing funds to demonstrate best value, in ensuring the highest standards of accountability and transparency are maintained, and that the needs and objectives of the local community are taken into account when determining priorities for investment. Investments made by the Council, whether in smaller community-level programmes or in wider strategic projects, are made with the common good in mind and with full consideration of community needs. When considering where the most impactful change for individuals and communities can arise, these are virtually always in areas where the local authority is the key driver – housing, transport connectivity, community planning, future education needs, economic development. It is therefore imperative that the local authority be considered the key strategic player and decision-maker in delivering community benefits from energy projects.

Shetland Islands Council has numerous existing routes where the needs and wishes of communities are sought and acted upon to improve the lives of local residents and the social and economic fabric of our communities. The experience of island local authorities in engaging with communities on a regular basis and developing plans and strategies which are attuned to the needs of local areas mean that they are uniquely placed to invest community benefit funds in a strategic way that delivers positive, long lasting and impactful change for residents and communities.

The local authority follows public sector principles of best value, transparency and accountability, and ensures that funding schemes and investment decisions are properly informed through community engagement and strategic planning. The Council is therefore well placed to ensure good governance of any funding received via community benefit payments.

Enforcement

Shetland Islands Council also remains concerned that the continuing voluntary status of community benefit agreements mean that there is no real enforcement mechanism and thus little or no effective action to address non-compliance. A significant aspect of what ‘good’ looks like is ensuring that local communities have recourse where a developer either does not engage in, or does not honour the terms of, a benefit agreement. This would best be addressed through legislation which protects the interests of communities, but in that absence we would suggest that, in the case of offshore wind, Crown Estate Scotland should take a role and ensure that leasing agreements with offshore developers include binding community benefit agreements which support local community wealth building plans, and which clearly meet with good practice guidelines and locally developed principles established by the host community, with clear penalties for non-compliance. This model would be scaleable to onshore developments where the landlord is a government agency or body.

Usage of community benefit funds

Instead of dispersing funds in small, short-term grants, large-scale projects can create lasting infrastructure and economic resilience.

For example:

• Investing in affordable, sustainable housing could reduce depopulation, support local workers, and attract investment.

• Funding for maritime infrastructure, energy hubs, and green STEM skills could make Shetland a global leader in green energy.

• Funds could be used to support development in transport connectivity, particularly high cost improvements to inter-island transport infrastructure

• Addressing the high cost of local energy through a discount scheme could reduce bills for every Shetland household.

Such projects could strengthen Shetland’s economy in the long term, while supporting local supply chains and workforce development. These would also ensure that funding is invested in a way that delivers long term positive change to areas of island life where significant capital investments are required. A balanced approach to distribution of funds, incorporating a number of different funding routes, could ensure that a portion of funds go to major, long-term projects (housing, infrastructure), while portion is retained to support smaller, flexible community grants for grassroots initiatives. The strategic investment of community benefit payments could have positive benefits across the community in terms of providing investment for facilities and services which are used by a range of service users, e.g. supporting vital improvements in transport connectivity which benefit island areas.

Islands Act (Scotland) 2018

It is essential that any national code of practice fully recognises the impacts on island areas, as codified in the Islands Act (Scotland) 2018. This Act places a duty on relevant authorities to consider the differential impacts on islands from national policy, strategy and schemes through Islands Communities Impact Assessments, and we expect that this will be taken into account in the refresh of the Good Practice Principles. Island areas have a number of factors which mean that impacts from wind developments will be different and more pronounced.

Technologies in scope

Any and all onshore renewable technologies should potentially be in scope for community benefit Good Practice Principles. While certain technologies (e.g. wind) have long been identified as having the most pronounced community and environmental interactions, and have established mechanisms for local benefit sharing, other onshore renewable technologies could be relevant in specific local contexts. However, these would generally be considered on a case-by-case basis. The key is to apply the principles where the scale of the project or its cumulative impact justifies a formal framework for community benefits, environmental standards, and local participation. It may be the case for certain non-generating technologies (e.g. transmission) that separate principles should be established to distinguish these from those principles designed to capture electricity generation infrastructure.

Shetland Islands Council’s response to the challenge opened by the Scottish Government is that the Good Practice Principles still do not go far enough in ensuring a fair and meaningful community benefit contribution and share of revenues from onshore wind, and do not recognise regional variations which make some areas more productive sites for wind energy than others. Further, the principles should recognise the role of local authorities, most especially in island areas, of delivering community support and transformational projects, and allow for a more central role in decision-making for resultant funds.