What Shetland teaches us about a just energy transition

The Shetland Islands are strategically placed in the North Sea, surrounded by natural resources, whether it be energy or marine food sources. Once oil was discovered in the 1960s, Shetland became an ideal location for what was a relatively new industry. 

BP and other major players heavily invested in Sullom Voe, which became the largest oil and gas terminal in Europe at its peak. The facility employed a significant portion of Shetland’s population, bringing economic growth, job opportunities, and new skills to the isles.

Several key oilfields were developed during this era, including the Brent field, which became—and remains—a global price benchmark for Atlantic Basin crude oils. Although Brent ceased production in recent years, "Brent crude" still sets the price for two-thirds of the world's internationally traded crude oil. 

At the same time these developments were planned, the UK Parliament passed the Zetland County Council Act 1974, which gave Shetland Islands Council extraordinary powers over the seas around Shetland. 

They are powers which, over the whole of the UK, remain largely unique to Shetland, granting purchase powers over Sullom Voe and the territorial sea around Shetland, and powers to participate in business. 

These powers laid the groundwork for successful negotiations with oil companies, ultimately leading to the creation of the Shetland Charitable Trust, which continues to fund community projects today.

Opportunities for Shetland’s energy future

Looking forward, Veri Energy and Shetland Islands Council are looking to repurpose the terminal and connected offshore infrastructure and are actively exploring:

• Carbon storage
• Green hydrogen
• Use of bio-fuels
• Electrification of offshore oil and gas infrastructure.

While much of this is a new and developing area, there are opportunities for technological advances and retraining for those currently employed in the traditional oil and gas industries. This should ensure the lifespan of a very valuable Shetland asset. 

It is not just Sullom Voe that is transforming. Shetland is an area rich in renewable sources – including onshore wind and tidal energy. Being an island in the middle of the North Sea, wind speeds in Shetland are exceptionally high, with its turbines some of the most productive in the world. The longest-standing Shetland windfarm, commissioned in 2000 and 2003, achieved an average capacity factor of 53% over a five-year period, compared to the UK’s onshore wind average of 27% and offshore wind average of 39%.

Challenges with enacting a just energy transition

After many years in the planning stage, and following some controversy, the Viking Energy windfarm, completed in September 2024, promises to power 500,000 homes from 103 wind turbines with 443MW.

Although the Shetland HVDC (high-voltage direct current) link is bi-directional electricity transmission, the majority of this electricity is expected to flow from Shetland to the mainland, so it is anticipated that none of the homes in Shetland will directly benefit from its output.

In 2022, the Shetland Islands Council expected 96% of Shetland households to be in fuel poverty. No wonder many are advocating for zonal energy pricing.

Additionally, on breezy days, the turbines remain still due to grid constraints. By January 2025, the Viking Energy windfarm had received £9.8m in constraint payments, highlighting a growing issue with grid capacity. This is one of several windfarms facing similar challenges, prompting government action to reduce these payments.

Plans are advancing to create battery storage capacity that will help capture excess and constrained energy. This initiative will support the UK’s net-zero strategy and assist with new renewable energy projects across Shetland.

In addition to funding from the Shetland Charitable Trust, the Viking Energy windfarm contributes £2.2m per year to the local community benefit fund. Over its 25-year lifespan, this fund will help support innovative projects across Shetland and provide opportunities for youth development through its apprenticeship programs.

While Shetland has not yet achieved energy security or independence, it will hope to follow in the footsteps of nations like Iceland, which sources 100% of its electricity from renewable sources.

The need for policy to support local communities

A just transition is not merely about replacing one energy source with another, it’s about ensuring that the economic, social, and environmental benefits of this transition are distributed fairly across communities. For Shetland, this means leveraging its rich renewable energy potential not only to meet national and global energy needs but also to deliver tangible, lasting benefits to the local population.

To achieve this, policies must be in place that prioritise community ownership and local reinvestment in the renewable energy sector. It’s about creating an ecosystem that supports local businesses, ensures job retraining for those transitioning from oil and gas industries, and empowers young people through education and apprenticeships. Without clear policies, the risk remains that Shetland’s vast energy resources could be exploited for the benefit of others while local residents see little direct benefit.

The vision set forth by MP Jo Grimond and others involved in the Zetland County Council Act 1974 was rooted in the belief that Shetland’s unique location and community should have a share in the profits generated from its natural resources. This vision continues to shape Shetland’s energy landscape, now extending to renewable energy projects. The hope is that, one day, this will translate into lower energy costs for Shetland’s residents.

How we can help your energy and natural resources business

We support all sectors of the renewable energy industry, as well as organisations that receive and benefit from community benefit payments.

Our services include:

• Commercial structuring, including joint venture arrangements
• Cost modelling and business case development
• Risk management and governance – both essential to strategic development
• Direct and indirect tax advice.

We look forward to supporting Shetland as it advances its next steps in energy transformation.

If you would like to discuss the impact for your energy and natural resources business, please contact Sheena McGuinness, or David Hough.