Energy and Climate ChangeWritten evidence submitted by Geoffrey Wood

A. Executive Summary

Renewable electricity technologies represent a distinctly heterogeneous category of technologies and fuels with very different attributes that can be deployed at a wide range of scales (from the micro to the large, industrialised scale). One scale that has been relatively ignored until recently is the medium or meso-scale (5–50MW installed capacity). This can be seen by the lack of clarity regarding both the use of the terms and the definitions of what medium-sized or meso-scale developments actually are: is it simply a matter of scale? What level of community and local involvement should there be in the project decision-making process? What type of ownership model (partial/full/community and/or locally-owned only or third party (commercial, multinational) involvement?

Despite this, there is a growing body of research showing the benefits of development at this particular scale despite the evidence that it is more costly than larger-scale projects. Of particular importance to the on-going debate around meso-scale development, research has shown the positive influence of community and locally-owned energy projects at this scale. Although further research is required, particularly with regard to the different development models applicable to the meso-scale, this has a number of implications for the UK’s renewable and climate change objectives. In addition, there are lessons to be considered regarding the current financial-focused approach to renewable deployment.

B. About the Author and Submission

A final year PhD student based at the Centre for Energy Petroleum and Mineral Law and Policy (CEPMLP) within the University of Dundee, my research seeks to evaluate the barriers to meso and large-scale renewable electricity technology deployment in the UK from a systemic approach perspective. Although this submission is focused primarily on onshore wind within the context of local energy, the issues discussed are both relevant and applicable for a number of renewable electricity technologies including hydro, anaerobic digestion and solar PV at the meso-scale.

C. Inquiry Questions (only questions 1, 5, 9, 10 have been answered)

What contribution could medium-sized energy projects (5–50MW) make to the UK’s climate change, energy security and energy affordability objectives?

1 Renewable electricity technologies represent a distinctly heterogeneous category of technologies and fuels with very different attributes that can be deployed at a wide range of scales (from the pico or micro to the large, industrialised scale). In addition, lifecycle emission studies generally show that renewable electricity technologies emit less greenhouse gas emissions than non-renewable sources of power generation. One key exception is biomass.1 Therefore, all scales of renewable deployment can contribute towards the successful achievement of the UK’s renewable energy targets that is one of the key pillars in any attempt to meet both legally-binding domestic and international climate change targets. The deployment of new technologies with different attributes also increases both the diversity and security of energy supply, primarily by reducing dependency on fewer technologies particularly for electricity supply. Energy affordability objectives is a more contentious issue: although recent research has shown that increases in energy bills is driven largely by gas prices, as renewable deployment increases the cost-burden element of supporting these technologies will increase. This is particularly the case for smaller-scale projects that are typically more expensive (in part due to the inability to realise the benefits of economies of size) and when the cost of transmission and distribution and environmental mitigation is included. There are, however, other contributions to be gained from meso-scale deployment beyond purely financial considerations (see below).

2 This question rightly focuses on medium-sized energy projects (also called “meso-scale”) projects defined as between that of the end user (typically at the building level) and centralised provision (typically a larger-scale development above 50 MW of installed capacity). In contrast to sub-5 MW projects which can benefit from both the small-scale Feed-in Tariff and Renewables Obligation financial support (subsidy) mechanisms, the meso-scale category falls purely within the remit of the RO which is primarily a mechanism for large-scale installations and of particular technology types (see below).

3 However, it is important to attempt to clarify the terms and their definitions (if any) used in this debate. Medium-sized energy projects or meso-scale projects is clearly defined as consisting of developments with an installed capacity of between 5–50MW (although it should be pointed out that this is somewhat arbitrary: there is a significant difference in scale between 5MW and 50MW; also, what are the differences between a 45MW and 55–60MW onshore wind farm?). The term “local energy” can imply a number of meanings: energy generation occurs locally (but is the output used locally or fed into the national electricity grid?); developments at this scale can be termed ‘local’ with regard to the impacts particularly on the surrounding landscape and communities; that establishing a deployment locally results in social and economic benefits accruing to that community or communities. There is also the question of ownership. The majority of 5–50MW projects are owned and/or operated by non-local commercial companies and organisations (often multinationals). This is in contrast to community or locally-owned projects, including communities, co-operatives and smaller firms and organisations including charities, local authorities, housing associations and farmers (and smaller (energy) companies as opposed to multinationals and former utilities). This is a critical distinction.

4 However, there is currently no consensus in the extant literature on the definition of community renewables. Even the term community or locally-owned energy projects is difficult to clarify with certainty: such a project can be wholly or partially-owned with non-local companies and organisations out-with the community, including multinationals and utilities. This leads to the issue of community involvement (and to what extent local communities are involved in the project in question and in terms of public engagement and participation in the decision-making process (for example, where the development will be located; number of turbines; community benefits). Any discussion on this subject, therefore, needs to clarify and define what type of project is actually being examined.

5 The contribution of meso-scale renewable energy can be looked at in two main ways: (i) in terms of installed capacity; and (ii) additional deployment benefits.

(i) In terms of installed capacity:

Focusing on onshore wind, as of November 2012 over 11 GW have received planning consent across the UK overall, of which 57% (6,201MW) are 50MW installed capacity or below. Projects with planning consent can be disaggregated further with regard to the percentage <50MW: 57% of UK operational projects; 52% of UK projects under construction; 44% of UK projects awaiting construction; 58% of UK projects in the planning pipeline (awaiting a planning decision). At the sub-national level, England accounts for 22% (964MW) of UK operational capacity of which 80% are <50MW. Scotland accounts for 63% (2,720MW) of UK operational capacity of which approximately 50% are <50MW.2

5–50MW scale energy projects account for just over half of UK onshore wind deployment (current, anticipated and potential). However, the distinction between all 5–50MW projects on the one hand and community and locally-owned projects on the other hand needs to be kept in mind. Currently an up-to-date database of community and locally-owned energy projects in the UK does not exist.3 In Scotland, where such a database does exist, 5–50MW projects are combined with <5MW projects that fall under the small-scale Feed-in Tariff regime.

At the end of June 2012, community and locally-owned renewable energy capacity (electricity and thermal (heat) capacity) in Scotland accounted for 204MW, of which 88MW (or 233GWh output) was electrical capacity and 117MW (256 GWh output) thermal capacity. This is a 39% increase on June 2011. In addition, there are 647MW at different stages of development (under construction (68MW), awaiting construction (with planning consent) (266MW), application submitted but not determined (172MW) and in scoping (126MW). It is unclear how much of this falls within the <5MW and 5–50MW capacity thresholds. There is no similar database to this author’s knowledge for England or the UK.

Therefore, although <50MW currently and will continue to contribute significantly to onshore wind deployment in the UK, the proportion that is community or locally-owned is statistically insignificant in comparison. For example, the UK renewable electricity target will require around 40,000MW of renewable installed capacity whilst in Scotland the 100% equivalent target will require around 16,000MW. In terms of generation output, the UK requires 114 TWh (or 114,000 GWh) of generation from renewable electricity sources (RES-E) if the 2020 sectoral target is to be achieved.

(ii) Additional deployment benefits:

Additional deployment benefits of medium-scale energy projects that are community and locally-owned include: improving public participation and engagement can be used to more actively involve the public in the process and through their input not only potentially reduce conflict in decision making but also facilitate the appropriate siting of a renewable development. Local people may be ‘local’ experts, and this allows access to a detailed and contextualised knowledge of the local area and local resources into the planning and decision-making process that would otherwise likely be inaccessible to developers and planning authorities. Increasingly acknowledged and accepted, such advantages include other reduced environmental impacts (locally-sourced supplies, reduced transportation), development of local skills, the alleviation of fuel poverty, building supply chains, employment and industrial growth at the local level particularly in rural areas and grid issues with emphasis on off-grid applications again in rural or non-grid areas. The potential for reduction in conflicts is also advantageous for developers in terms of both time and costs.4 Members of the public also inherently deserve the right to actively participate in the planning system in order to improve accountability, transparency and local democracy. Community and locally-owned energy projects can increase local engagement, promote behavioural change (with regard to energy use, conservation and reduction), local communities benefiting from the location of a meso-scale energy project in their area (also by gaining direct access to the subsidised revenue streams on offer rather than through the significantly reduce financial revenue via “community benefits”, local leadership, greater accountability and/or control and increased ownership. These benefits can only improve issues of local democracy.

It is currently unclear if and to what level 5–50MW non-community and locally-owned projects provide such additional benefits (except with regard to the high-level objectives highlighted in the question) (see also below). It is clear that not all of these advantages can be allocated to >50MW (or larger industrialised projects): Typically, a high proportion of the equipment and expertise comes from these companies which are generally based abroad. This can impact on local supply chain growth and wider economic benefits and has implications particularly for onshore wind development in rural areas where economic development outcomes surrounding such deployment to date have been questionable.

Is there any evidence that medium-scale energy projects are more likely to be accepted by local communities?

6 As paragraph 3 sets out, the term medium-scale energy project is loaded with ambiguity, and can be confused with other terms and development models. Looking at medium-scale energy projects as purely comprising developments of 5–50MW installed capacity, analysing the REPD database provides interesting results on approval rates (in terms of installed capacity) for <50MW projects: during the period 2007–12, there is a decreasing trend overall during the period 2007 to 2012 at the UK level and for Scotland and England. Although Scotland shows a decline from 74% in 2007 to 52% in 2012, approval rates in England exhibit a more substantial decline from 72% to 29% over the same time period. At the UK level, approval rates dropped from 74% to 48%. In contrast, approval rates over the same period were higher for >50MW projects at the UK, England and Scotland level. Without looking at the individual planning applications, it is difficult to determine the reasons for the decline in approval rates over this period, although issues of community will feature strongly in the decisions made given that <50MW developments are determined at the local planning authority and not central government.5

7 No such analysis is possible when the term medium-sized energy project is broken down further into community and locally-owned renewable projects, or by different models of ownership (partial/full community or locally-owned projects; different partners). There is, however, limited research examining the influences of different development models on attitudes to wind farms, namely community based contra developer-based developments. Warren and McFadyen (2010: 209) showed that the promotion of a “more locally embedded approach to wind farms” (community-owned) can help reduce the incidence of damaging conflicts which affects onshore wind deployment in the UK and help facilitate the achievement of renewable energy targets:

“… community ownership is indeed associated with positive attitudes to wind farms, but support for wind power is not low in Kintyre [the developer based project in comparison to the community-based project at Gigha]… Arguably the most significant finding concerns the positive influence of ownership on the attitudes of communities towards wind energy projects, a finding which supports the long-held supposition that a change of development model could increase public support for windfarms in Scotland and other parts of the UK.”

8 This does leave a key question unanswered: to what extent does an increasing proportion of community or locally-owned energy projects increase the acceptance of non-community or locally-owned projects amongst the public in general? Perhaps an additional question to be considered here is the potential impact of such projects on planning decision-making. In other words, do such projects increase the chance of a project gaining planning consent? It would also be relevant to examine whether local acceptance equates to obtaining planning consent.

What are the barriers to medium-scale energy projects in the UK?

9 Despite operating a delivery programme for renewable electricity technologies since 1990 in the UK, deployment rates have consistently underperformed against set targets and policy objectives have not been achieved. Critically, there are a number of barriers or failures that act as constraints to renewable deployment in the UK. These include barriers due to the design of the financial (subsidy) mechanism used to promote renewable deployment. This includes the type of promotional mechanism and how it operates, for example, what impact does the mechanism have on financial/investment risk. Other variables included in this category are volume risk, mechanism operational lifetime (subsidy programme and/or subsidy duration) and mechanism complexity. In addition, there are those barriers out-with the direct control of the mechanism, including planning, electricity grid network, electricity market design, supply chain, access to investment, public participation/engagement and policy and regulatory risk.

10 The barriers to large-scale renewable deployment are well-documented. Typically, any evaluation of the impact of these barriers has focused on a gross and somewhat simplified categorisation by scale where the distinction is determined by the support mechanism: either <5MW projects (under the small-scale FIT mechanism) and >5MW projects (under the RO mechanism). Although the same categories of barriers listed above remain mostly relevant to all scales of deployment, differences on their relative impacts are sufficient to warrant separate research and evaluation (for example, subsidy level, economies of scale, planning, grid connection, access to finance and public participation and engagement). Meso-scale energy projects provide a more fine-grained resolution to any evaluation. It is also likely that there will be a sliding scale regarding the barriers to meso-scale energy projects in the UK due to the capacity differences involved: there is a significant difference in scale between 5MW and 50MW. This is an area that will require careful consideration.

11 Two of the major barriers to medium-scale energy projects in the UK are the Renewables Obligation (the financial (subsidy) support mechanism) and planning. One of the critical failures of the current subsidy mechanism is that by its design the Renewables Obligation has led to increased financial risk for RES-E generators. This is important because risk can be accorded a price. Under the RO, generators have two main sources of revenue: the sale of electricity and Renewable Obligation Certificates (ROCs), the latter capturing the ‘renewable’ (or environmental) value of the electricity.6 A central problem is the considerable uncertainty surrounding the value of these revenue streams as they are traded on the market and thus are dependent on supply and demand.7 The RO, then

“… (by design) passes regulatory risk to the private sector, which the private sector accordingly prices at a premium. This leads to leakage of the subsidy away from developers, as suppliers take a margin to deal with this risk and funding from financiers is therefore available on less favourable terms that it would otherwise be.” (L.E.K. Consulting and the Carbon Trust, 2006: 2).

12 The added cost of the risk premium is not inconsequential: it could increase capital costs by up to 30%. This is particularly significant given the currently expensive nature of renewable electricity and the high level of upfront capital costs required. ROC values are also volatile due to regulatory risk. This has been aggravated by the introduction of technology banding as the government can and has, albeit under specified circumstances changed the subsidy level offered to renewable electricity technologies and even resulted in subsidy mechanism replacement (the Non-Fossil Fuel Obligation/RO transition in 2002 and the proposed RO/Contracts for Difference Feed-in Tariff transition in 2017). By increasing the cost of finance through the addition of a risk premium on capital, the RO effectively militates against smaller (meso-scale), independent and community-based projects in favour of larger, typically multi-national energy utilities. The latter companies can reduce the risk through their ability to obtain cheaper finance due to their balance sheets or by managing the risks in-house (if they own both generating assets and supply companies).

13 Again, looking at onshore wind in particular, although the recent 10% reduction in subsidy for onshore wind is evidence-based (to reflect long term cost movements), the Government has set this band (0.9 ROCs/MWh) for only one year, until 2014, pending the outcome of yet another review into the technology. This will have a number of repercussions not just for the technology but for the sector in general: the uncertainty could increase the financial risk on developers and lead to increases in the cost of capital (the risk premium) in addition to investors/developers waiting on the outcome of the new consultation. The political risk from the uncertainty over banding changes for the technology will also disproportionately impact on projects brought forward by small-scale developers. This is because the subsidy reduction is based on the economics of larger-scale developments that are typically brought forward by larger companies such as the energy utilities in contrast to community or similar sized developers and the RO does not distinguish between the size of onshore wind projects with an installed capacity of 5 MW and above.8 This ignores the evidence that there are differences between meso and larger-scale onshore wind farm costs, with the former more expensive on average.9 There are also likely to be the costs of community-scale participation (including lack of familiarity with the technology, policy, regulation and legislation). Indeed, the UK Renewables Roadmap states that the wide range of costs for onshore wind reflect, in part, the issue of scale.

14 For smaller projects, in particular meso-scale or community-based (or of a similar size) the reduction in revenue in conjunction with increased regulatory risks including revenue uncertainty will make it more difficult and expensive to secure finance. In other words, subsidy reduction will fall disproportionately on community-based and meso-scale projects. A result of this is that a number of projects are likely to become unviable. This is despite the benefits that can accrue from this scale of deployment.

15 “Community schemes typically take longer to complete because securing the necessary funding and planning permission can take time. Many are run by volunteers and so they can take longer to organise.” (Energy and Climate Change and Environmental Audit Committee, 2011: 14). Community-scale projects also require a sufficient financial return in addition to transparency and stability in subsidy levels in order to borrow capital at rates not prohibitive to development. Yet community-scale projects will typically find it harder to access capital as cheaply as larger companies would.

16 The principle of public participation and engagement is widely recognised but members of the public face significant disadvantages when trying to engage with the planning system. Critically, as with the subsidy system (the RO), the planning system does not take into account meso-scale deployment: the capacity thresholds (whether set under the Planning Act 2008 in England and Wales or the Electricity Act 1989 in Scotland) are either below 50 MW or above 50 MW. There is no in-between, despite the difficulties inherent at this stage (see below). The planning system also does not take into account the difference between public consultation and public participation: the former is generally where members of the public are asked their opinion on carefully chosen questions in contrast to public participation, where members of the public are actively empowered to make decisions. A consequence of this disregard is the limited devolution of control to the public which in turn constrains the building of trust between developers and people. There is also an intrinsic imbalance between developers and the public in terms of expertise, time, awareness of the process, costs, transparency and access to information and lack of recognition of the value from public participation. Placing significant limitations on the ability of the public to participate properly in the planning system, such an imbalance will also disproportionately impact on poorer communities with the result of further feelings of disenfranchisement.

17 Additionally, this will be aggravated by the move towards pre-application consultation or front-loading of the planning process. It is correct to involve all the participants, particularly local communities, as early as possible. However, this will add further pressure on time, expertise, costs and access to information (including an awareness of events). There is also valid concern regarding the incorporation of pre-consultation as a key element in front-loading the system: it is the developers that will be the sole provider of a one way source of information provision concerning the proposed development to the public. Again this results in respondents being forced to reply to existing proposals and as such does not reflect true participation and engagement where communities actively become involved in decisions such as location, type of technology and number of turbines. In other words, there is no consensus-building. This approach also runs the risk of, introducing a strong element of bias with regard to the type and presentation of information; such pre-application consultation is unlikely to build trust between developers and the public and will also normally involve abstract discussions of future developments that are by no means certain to go ahead in reality. This raises the question of why communities should really get involved at that stage and whether they have the resources, given the intrinsic limitations mentioned above.

How effective are current Government policies in encouraging local and medium-sized energy projects? Could they be improved in any way?

18 Outside of academia, the issue of meso-scale renewables has largely been ignored until recently at the government level. Attention has focused on small-scale (sub-5MW) and large-scale (>5MW and above). Over the last year or so, however, consideration and action regarding medium-sized energy projects has progressed substantially particularly at the UK overall level. Importantly, devolution has resulted in the divergence of a number of approaches between the various UK administrations (England, Scotland, Wales and Northern Ireland) with regard to energy and renewable policy and this is true with respect to attempts in encouraging local and medium-sized energy projects.

19 The Scottish Executive has led the way with a number of initiatives: establishing in June 2011 a non-legally binding target of 500 MW of community and locally-owned renewable energy by 2020; the Community and Renewable Energy Loan Scheme (CARES) to support projects before they reach the planning stage (those projects considered too high risk for commercial loans). Individual projects can receive loans of up to £150,000 and free legal advice and support. CARES is open to community organisations, rural businesses and joint ventures between the two. The new consultation on Scottish Planning Policy (April 2013) is also seeking responses on whether the SPP can do more to secure community benefits from renewable energy developments than is currently the case (see below).

20 At the UK overall level, the Department of Energy and Climate Change (DECC) set out a consultation to explore the issue of community engagement and benefits for onshore wind in September 2012. In autumn 2012 the Chancellor announced a £15 million fund (the Rural Communities Renewable Energy Fund, run jointly by DECC and DEFRA) to meet the upfront cost of developing renewable projects. These funds are in addition to various documents and toolkits provided by various governments to support community renewable developments. In addition, DECC is currently preparing a Community Energy Strategy for publication in late autumn 2013.

21 Although commendable, when examined alongside the overall legally-binding UK target which requires around 40,000MW of renewable electricity capacity to meet the renewable electricity sectoral target of 30–35% of generation from renewable sources, the 500MW target is insignificant.10 This is also the case when the relatively smaller Scottish targets are examined. Financial and information support initiatives such as CARES and the RCREF will likely prove invaluable to encouraging the uptake of meso-scale projects in a similar way to the initiatives developed to encourage the immature wave and tidal stream projects (such as the Marine Renewables Proving Fund (MRPF) and WATES (Wave and Tidal Energy Support Scheme). The important lessons to be learned from these experiences is that such support needs to be streamlined, joined up, take into account the different characteristics and project capacity scales of the various renewable technologies and the plethora of different development models (ie who actually owns the project? Is it partially or fully owned?).

22 Two possible areas in particular where the current Government approach in encouraging local and medium-sized energy projects could be improved is the introduction of a new subsidy category in both the RO (and the successor mechanism, the so-called Contracts for Difference Feed-in Tariff, or CfD FIT) and to the current capacity thresholds (<50MW and >50MW of installed capacity) within the planning legislation for the various devolved administrations. Regarding the proposed changes to the RO and CfD FIT, higher support could be made available for meso-scale energy projects to counter the typically higher costs of this scale of renewable energy developments and the costs associated with the RO mechanism. Such support could also be further differentiated between the various development models or allocated to a particular model (eg for community or locally-owned projects). Northern Ireland already offers higher support for small-scale onshore wind under the Northern Ireland Renewables Obligation.

23 The proposed changes to planning are perhaps more difficult to realise in practice. There is always the danger that reducing the requirements of the planning regime for particular projects, in this case meso-scale energy projects (even if for only community or locally-owned projects rather than all medium-sized energy projects) could result in the inappropriate siting of such projects and/or damage to the environment/landscape disturbance and so on. What is clear, however, is that the more or less “one size fits all” for <50MW projects (and possibly for >50MW projects, when looking at a 55MW onshore wind farm contra a 150 or 200MW wind farm, for example) results in potentially unbearable costs to communities, farmers, local authorities, housing associations, etc in attempting to deliver the deployment of meso-scale projects through the planning system. There is also the issue of limited experience, expertise, awareness and understanding of the policy, legislative and regulatory requirements that can increase the costs of these types of project delivery. If Government is serious in its support of meso-scale deployment then these issues will have to be addressed at least to some extent, perhaps through the setting up of a body to provide the necessary expertise at a suitable cost to community and locally-owned energy projects).

Bibliography

Energy and Climate Change and Environmental Audit Committee, 2011. Solar Power Feed-in Tariffs: Ninth Report of Session 2010–12 of the Energy and Climate Change Committee and Tenth Report of Session 2012–12 of the Environmental Audit Committee: Volume I: Report, together with formal minutes, oral and written evidence—14 December 2011 [online] Available from http://www.publications.parliament.uk/pa/cm201012/cmselect/cmenvaud/1605/160502.htm

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Warren, C. and McFadyen, M. 2008. Does community ownership affect public attitudes to wind energy? A case study from south-west Scotland—ESRC/ISW Seminar: 4 November 2008 Queen’s University, Belfast [online] Available from http://iws.rgu.ac.uk/abs/research/page.cfm?pge=75708

May 2013