HC 1605 Energy and Climate Change and Environmental Audit CommitteesWritten evidence submitted by the Local Government Association
1. Summary
1.1 The feed-in tariffs (FITs) are an essential financial tool for councils to allow them to support solar energy schemes for public buildings and for their lowest income communities, because they mean the council can cover their costs.
1.2 Any additional income raised by the FITs was to be reinvested into further local community initiatives, such as further energy efficiency programmes.
1.3 The handling of the consultation has had a significant impact on local government finances, and may end up costing local taxpayers money. Of the councils that have made representation to the LGA, the majority are axing their schemes.
1.4 Council-led schemes mean that our lowest income and vulnerable residents, who are paying for the FITs programme but are unable to benefit without intervention, could have some advantage from the scheme. Council-led schemes are also installing solar panels on public buildings, reducing the cost to the local taxpayer for energy and increasing the visibility of renewable energy sources, helping improve public awareness and acceptability, and providing an educational resource.
1.5 Where councils have borrowed in order to deliver local solar energy schemes that meet the outcomes set out above, the pace of the change has put councils at financial risk. Collectively this is in the order of hundreds of millions of pounds.
1.6 The LGA signed a Memorandum of Understanding with Department of Energy and Climate Change (DECC), which was intended to develop a partnership between central and local government on tackling climate change. This included a commitment from DECC to consider the impact to councils of any changes in policy. The LGA has received no materials relating to a consideration of the impact on councils from the proposed changes to the solar FITs.
1.7 The LGA recognises that the FITs rates for solar power needed to be reduced, but the manner in which this has been carried out that has damaged local confidence.
2. Introduction
2.1 The Local Government Association (LGA) is a voluntary membership organisation with 422 member authorities covering every part of England and Wales, and includes county and district councils, metropolitan and unitary councils, London boroughs, Welsh unitary councils, fire, police, national park and passenger transport authorities.
2.2 The LGA lobbies and campaigns for changes in policy, legislation and funding on behalf of our member councils and the people and communities they serve. Together they represent over 50 million people and spend around £113 billion a year on local services.
2.3 The LGA has had significant representation from councils on the consultation seeking to change the FITs for solar energy. In our response to the consultation we will be asking the Government to:
2.3.1
2.3.2
2.3.3
2.3.4
2.4 To reflect the representation that the LGA has had from councils across the country and across the political spectrum, this submission will include quotes and information gathered directly from our member authorities.
3. Impact of the Solar PV Feed-in Tariffs
3.1 Solar PV feed-in tariffs have brought the issue of climate change, renewable energy and energy efficiency up the agenda of the local government sector. Arguably more effective than performance target-setting, the FITs have made investment in solar energy on public buildings and for local low-income groups pay for itself and where possible raise finance for re-investment in the local community. It has engaged the decision-makers in local government on renewable energy and climate change.
3.2 The FITs were presented to councils as the “only good news story” at a time of reductions to council budgets. Councils were told that while their core finances were being restricted, the FITs would be a new innovative financing mechanism that would allow councils to help contribute to meeting the Government’s renewable and CO2 targets and also raise revenue.
3.3 In good faith, the LGA even undertook a joint press release with DECC, “town halls as powerhouses of the future”, encouraging councils to install renewable energy. This was picked up in many national newspapers.
3.4 Councils have been installing solar PV in ways that benefit the local community, including installations on sheltered housing, social housing, libraries, swimming pools, public buildings, schools, etc.
4. Factors to consider in setting the Feed-in Tariffs
4.1 Community benefit and re-investment
4.1.1 The LGA wants to see councils receiving either a higher FITs rate, or for councils to be exempt from the additional 20% reduction for multiple schemes, as part of the “demonstrable community benefit” being proposed.
4.1.2 Council-led schemes provide community benefit by:
4.1.2.1
4.1.2.2
4.1.2.3
4.1.2.4
4.1.2.5
4.1.2.6
4.1.3 We assert that the Government has not examined in enough detail the costs to council-led and social housing schemes to justify the reduction in FITs, and particularly not the additional 20% reduction.
4.1.4 There are several up-front and on-going costs that schemes on public buildings and social housing need to consider, in addition to the cost of the solar “kit”. These include:
4.1.4.1
4.1.4.2
4.1.4.3
4.1.4.4
4.1.4.5
4.1.4.6
4.1.5 We believe the Return on Investment (ROI) figures being heralded by Government are also not representative of council-led schemes. Whilst local schemes vary, their payback period for a scheme (without the use of borrowing) has been in the region of 6 – 12 years. The shorter timescales are usually for public buildings, where the council, and therefore local council taxpayers, benefit from the lower energy bills. The longer timescales are for social housing projects, where the tenants rightly claim the benefit of having lower energy bills. The latest estimates for payback periods are now in the region of 12 years for a scheme on a public building and 20 + years for social housing schemes, making most of these not financially viable.
4.1.6 The payback figures used here usually exclude cleaning, inverter replacement and the cost of borrowing. As a commercial proposition based on Public Works Loan Board (PWLB) rates the payback on many council buildings is still around or beyond the life of the asset.
4.1.7 Councils, such as Eastbourne Borough Council, have expressed to the LGA how concerned they are about how they communicate the change, and the possible cancellation of schemes, to their community.
4.1.8 The FITs should not be viewed in isolation from other Government-backed schemes. For example, Dover Council was using the FITs to support a local Community Energy Saving Programme (CESP) scheme. A pilot project to fit 250 social homes was supporting the CESP funding for private sector and social homes in the Lower Super Output Area of St Radigunds and £2.2 million of CESP funding. Unfortunately, the reduction in FITs will mean that this scheme will probably not proceed.
4.1.9 The FITs for solar were also providing councils with a springboard for more ambitious local environmental projects with community benefit. For example, Bristol City Council has been planning to set up a municipal energy services company with technical assistance of a total value of £2.5 million from the European Investment Bank, and has been developing proposals over the last year to deliver an investment programme of a total value of £300 million in Bristol and the surrounding area. As the case in many other European countries, the energy services company is designed to be owned by local residents and to develop, implement and finance several energy efficiency and renewable energy projects, using the stream of income from the energy savings and renewable energy to meet the financing and operating costs. The project is a good example for improving energy security and reducing fuel poverty in the city, creating new employment opportunities and reducing the city’s carbon emissions.
4.1.10 Banks are only willing to invest in large-scale investment programmes e.g. £70-100 million. The suggested review of the feed-in-tariff will probably result in Bristol not being able to reach this threshold and the necessary economies of scale. Bristol may have to abandon its locally-led plan for a large scale energy efficiency and renewable energy investment programme, which could also lead to a massive knock-on effect in terms of the implementation of the Green Deal and the wider energy agenda at the local level.
4.2 Additional behaviour change
4.2.1 Councils have reported that solar panels have enabled them to start the conversation with their local people about energy and climate change.
4.2.2 For example, Warrington Borough Council said that “in particular, our programme of social housing solar gave tenants the opportunity to have a solar PV system that would provide them with free power. We have only recently started rolling out this programme, however we are finding early indications that the PV was a sufficient incentive for them to start to engage with us on energy efficiency. Many of these tenants are very hard to reach and in many cases we have not been able to engage them on these issues previously.”
5. The Consultation and the Impact on Councils
5.1 The most significant impact that the consultation has had on councils is the announcement of the 12 December cut-off date. This timetable is totally unreasonable for local public sector organisations that have been diligently developing their schemes, to adapt to or change course. Many will have to scrap their schemes at a cost to local taxpayers.
5.2 The timetable is unreasonable because:
5.2.1
5.2.2
5.2.3
5.2.4
5.2.5
5.3 The actual reduction in FITs would not have as serious an impact if it were introduced in the new financial year. Councils were expecting an announcement on degression and had developed their local investment plans accordingly, but did not think the government would do this before the end of the financial year.
5.4 In particular, the additional 20% reduction for multiple schemes will make any social housing schemes very unlikely. As set out earlier, the Government has not considered the costs that councils take on to ensure their social housing tenants can benefit from solar energy. It is misguided to want the FITs to be for single installation owner-occupiers, when all householders are paying for it on their energy bills. Tenants on lower incomes will suffer the most from the proposed changes.
6. The Green Deal
6.1 The Green Deal is the Government’s flagship environmental programme, aimed at improving the energy efficiency of homes and businesses across the country. Councils were expressing significant interest in the Green Deal, and an enthusiasm to support this Government initiative. However, councils have said to the LGA that the conduct of DECC in this consultation has undermined their confidence and trust in the Green Deal and other DECC-led initiatives. Councils have been positioning themselves as partners to central government on the climate change agenda, leading on from the Memorandum of Understanding on Climate Change (section 9). The announcements on the FITs is destabilising this partnership approach.
7. Fuel Poverty
7.1 We accept that the FITs as currently developed places an additional cost onto the bills of householders, and that this needs to be managed responsibly. As such, we support the Government in its review of the feed-in tariffs, but the timescale, severity of reduction and the additional 20% for multiple schemes will mean that lower income groups, who are most likely to be experiencing fuel poverty, and who cannot afford the upfront capital, will now continue to pay for FITs on their bills but will be unable to benefit from the initiative.
7.2 Councils were viewing their solar programmes as fuel poverty initiatives because it lowered the electricity bills of their tenants, reducing the overall proportion of their income spent on their energy bill, and also because it was a “springboard” for energy efficiency programmes.
7.3 The budget cuts to councils have put pressure on local energy efficiency programmes that seek to support the Government’s wider goals on carbon reduction and fuel poverty. Councils were looking to their solar programmes to help financially support their fuel poverty and energy efficiency programmes, at a time when no other funding is being made available.
7.4 It is difficult to convince people to install energy efficiency measures. People are much more interested in solar energy, which can provide an opportunity to improve the whole property.
8. The Low Carbon Economy and Jobs
8.1 Councils are acutely aware about local unemployment and are seeking to support local job creation. They are extremely concerned about the effect of this change to, what was an emerging job creation market. Warrington has expressed its concern to the LGA for the businesses longevity of over 150 companies with solar MCS registration within 20 miles of Warrington.
8.2 The solar industry is an important growth market, and if it is able to continue, it will provide many good quality jobs in the UK and keep us at the forefront of technology development.
9. The Memorandum of Understanding (MoU)
9.1 On 16 March 2011, the Secretary of State for DECC signed a MoU with the Local Government Group (LGA), setting out a partnership agreement between the two organisations.
9.2 The LGA is disappointed that DECC has not publically made any recognition of the investment made by councils to develop local renewable energy programmes.
9.3 The way the consultation has been conducted has led to councils with contracts that cannot be viably delivered and programmes benefitting some of our most vulnerable residents that cannot now be completed.
9.4 Councils have said to the LGA that they no longer have confidence in initiatives that emerge from DECC, and that it will be very difficult to engage decision makers climate change programmes, and particularly difficult to persuade them to invest.
9.5 Much debate was had recently as the Energy Bill was taken through the parliamentary process about the role of councils on climate change and energy. Councils are being asked to act, but the tools to enable them to do so are being taken away with little warning, undermining their local strategies, investment and good will.
24 November 2011