The Norwegian sovereign wealth fund; the envy of governments the world over.
A $1.2 trillion (£998 billion) pot of gold designed to “shield the economy” from fluctuations in the oil price and ease the impact of downturns on the country.
It also leaves a legacy for future generations, ensuring the profits of Norway’s prosperous North Sea industry are felt for centuries to come.
Overseen by independent trustees – needed to ensure the government doesn’t go on a spending spree – Norway’s sovereign wealth fund, has become a model for managing finances, and has been replicated by other countries rich in oil.
‘Why didn’t the UK do something similar?’ is a question that often crops up, particularly during times of hardship.
With households battling a severe cost-of-living crisis, driven largely by spiralling energy prices, it is hardly surprising it has come to the fore once more.
“It’s important to look at this in the context of the time. In the 1960s and 1970s, when the oil industry developed, the economic situation in the UK wasn’t good. Revenue from the North Sea was needed for other things, like building infrastructure,” explained Professor Paul de Leeuw, director of Robert Gordon University’s Energy Transition Institute.
“Choices were made about the priorities at that time, and the Treasury allocated money accordingly.”
Thankfully, the dawn of a new energy system has handed the UK, and Scotland specifically, a second chance at creating a sovereign wealth fund.
As part of the recent ScotWind leasing round, in which 17 licenses were secured by offshore wind developers, almost £700 million was handed to Holyrood.
It is a figure that pales in comparison to the amount Norway has in the bank, but, as the proverb goes, mighty oaks from little acorns grow.
Professor de Leeuw said: “It is not often that you have a large amount of money and a choice about what you can do with it. Of course, you need to have a lot of money to make a sovereign wealth fund material, but you have to start somewhere. If you get it right, it can be hugely powerful.”
Should the Scottish Government opt to go down the wealth fund route, adding more cash to the pot will be an obvious priority.
But with the development of renewables only set to increase, that may not prove much of a problem.
“ScotWind is only the first licensing round. More licenses will be awarded, there will be more fees, there will be annual licenses you can pile in there. Carbon capture and storage licenses could also yield money. There is a lot you can add to it,” said Professor de Leeuw.
© Supplied by RMIMoreover, by investing cash from renewables in a shrewd manner, there is scope for huge growth, as has been demonstrated across the North Sea.
He added: “Norway has done well because they have invested around the world, and the average return is between 4% and 6% a year. £700m doesn’t make a sovereign wealth fund, but if you take that and get the same returns as in Norway, in around six years you will have £1bn. It will grow and in decades to come, you will end up with a substantial fund.
“But it is a strategic decision; do you want to create a legacy? Alternatively, do you want to build hospitals or roads? There are choices to be made.”
A final destination for the ScotWind millions has yet to be announced, though Michael Matheson, Scotland’s net zero and energy secretary, revealed earlier this year that a wealth fund is one of the options on the table.
In a recent statement, a Scottish Government spokesperson hailed ScotWind as a “once in a generation opportunity”, one that “has to be realised, has to be maximised and has to deliver the environmental and economic benefits for all the people of Scotland”.
They added: “In addition to delivering around £700m in revenues to the public purse for these initial awards alone, the ScotWind projects will deliver investment of around £25 billion across the Scottish supply chain across the 17 wind projects and help create thousands of good green jobs, transform local economies as well as the national economy, and accelerate our journey to net zero.
“Offshore wind is rapidly becoming one of the cheapest forms of electricity and Scotland has some of the most extensive renewable generation capabilities in Europe with which to accelerate our just transition to net zero. We are clear that communities can and must be at the heart of this transition and we are committed to ensuring that they continue to benefit from offshore renewables deployment. We will review and update our existing Good Practice Principles for Community Benefits from Offshore Renewable Energy Developments this year, with a view to ensuring guidance remains relevant and valid for current and future operating conditions.”
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