Energy and Climate ChangeWritten evidence submitted by Alan Simpson
1. Introduction
1.1 It is hard to believe that one of the few visionary commitments, set in stone in the Coalition Agreement, could have been reduced to near emptiness before this parliament was half-way through. The undertaking could not have been clearer. The Coalition government pledged it would––
“encourage community-owned renewable energy schemes where local people benefit from the power produced”.
1.2 Instead, almost the opposite has happened. Britain currently has just over 40 community cooperatives. Germany has over 600. Theirs is a thriving and expanding community energy sector. Ours struggles to survive. During a recent talk in the House of Commons, Rainer Baacke, former permanent secretary in the German Environment Ministry, commented that Britain’s slow progress into the era of renewable energy had more to do with the lack of a clear vision than anything else. This is why DECC has struggled to come up with a meaningful framework for promoting community energy.
1.3 This submission tries to outline the framework that would deliver a dynamic and vibrant community energy sector in the UK, along with the obstacles that need to be removed in doing so. What the Select Committee needs to grasp is that none of this can be done without disrupting the cosy relationship between DECC and the big energy companies; a relationship that has reduced DECC to little more than a pizza delivery service of enduring public subsidies to a closed energy cartel.
1.4 Community-owned, renewable energy initiatives have the power to turn today’s energy oligarchy into an energy democracy, with a diminishing reliance on public funding and a stronger a focus on consuming less rather than producing more. The following Executive Summary sets out the framework of UK thinking that is now needed. The rest of the submission elaborates on these elements.
2. Executive Summary.
There are seven key elements required to promote a dynamic, community energy sector––
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3. The Current Obstacles
3.1 Comparisons between the UK and either Germany, Denmark or parts of the USA, reveal a fundamentally different set of priorities that define the legal, regulatory and social contexts in which community energy is being developed. In Denmark and Germany, community energy is central to their transformation of the energy market and to the wider public engagement with energy security and climate change issues. Such engagement also brings in some €30bn of annual household/community investment in German renewable energy schemes.
3.2 Planning processes. In Denmark, the Netherlands and Germany, applications for community renewable energy generation are often processed within a three month period. The reasons behind this are that the ground rules are clearer, (varying) levels of community ownership are built in as preconditions, and direct community benefits (lower energy costs) come as part of the total package. In Germany, local authorities also gain from a slice of the tax revenues from businesses setting up in their areas.
3.3 In Denmark, local authorities have to identify suitable sites from which they will be able to meet their share of nationally defined, renewable energy/carbon reduction targets. Community ownership of land-based wind turbines has been a strong element in their successful deployment. Recent opposition to larger turbines, with lower degrees of community ownership, only emphasises the extent to which “community ownership” is the key to the acceptability (or not) of such proposals.
3.4 In the UK, land-based wind turbine proposals have become costly, protracted and contentious. To a large extent, this is down to a weakened planning framework that easily polarises the debate between “predators” and “NIMBYs”. It is a debate guaranteed to produce a logjam. Without the right to own the scheme, or have first use of the energy they generate, communities invariably get drawn into fending off “land grabs” rather than becoming providers of their own energy security. “At a stroke”, the debate changes as soon as community ownership becomes a precondition of development.
4. Ambition and Finance
4.1 Only 13% of Germany’s 60GW of renewable energy is owned by energy companies. The rest is owned by households, communities, development trusts and farmers. This comes directly out of their use of Feed-in-Tariffs (FITs) as the way of financing the process. Energy companies challenged this as a breach of State Aid rules, but the European Court ruled the challenge invalid. Their FITs mechanism does not count against public expenditure levels.
4.2 The use of this approach has allowed deployment at scale, rapidly falling technology costs (particularly for solar, whose unit electricity costs have fallen by 50% in two years) and delivered huge boosts to innovation, employment and growth.
4.3 The UK has turned its scheme into a fixed-budget, low-ambition programme that will deliver very little. DECC’s own projections make this clear –
4.4 The degression rates of tariffs currently paid to renewable energy sources, are determined largely on the basis of remaining within a Treasury fixed-budget. Such an approach is not taken to the way the government meets the costs of nuclear waste disposal, the proposed Capacity Mechanism, or the control of “new investment instruments” set out in the Energy Bill. Nor is it consistent with deployment at a scale that drives down peak demand (and peak prices) within the energy sector. It is an arrangement that accrues all the costs, and few of the benefits, enjoyed elsewhere in Europe.
4.5 The effect of this approach, along with the additional reduction in tariff rates in “aggregated” schemes, has been to pull the rug from under the growth of UK community energy cooperatives. The major banks that are committed to promoting community-owned renewable energy—the Co-op and Triodos—have put most of their new schemes on hold. This is because the finances no longer stack up. Every existing community co-op is now struggling to make ends meet.
4.6 DECC’s projections (above) make no allowance for any contribution that community-owned renewable energy might make in tomorrow’s energy market. But if the “falling off a cliff” deployment curve is held to, then community renewable energy generation will have to displace household deployment rather than add to it. It is the Treasury mindset that makes this a zero-sum game. Robbing Peter to pay Paul is an embarrassment not a strategy. The FITs framework for community-owned renewable energy generation needs to be a self-financing mechanism within the energy sector accounts, not a fixed budget scheme controlled by the Treasury.
4.7 Moreover, there is no UK equivalent of the role assigned to the KfW bank in Germany, which regularly buys up half of the “risk” element in community energy schemes, and lends them money at 2% interest rates. This is a role that could be assigned to the Green Investment Bank, but hasn’t been.
4.8 The UK lacks any central financial unit to underwrite community-owned renewable energy schemes and any co-ordinated approach to an integrated delivery mechanisms. By regulation and by legislation, Germany and Denmark have ensured that their energy market is open to a larger number of players, and where “community ownership” brings a tangible advantage rather than a set of headaches. The UK is without any such integrated strategy.
5. The Question of Scale.
5.1 When FITs were introduced, in the Energy Act 2008, the initial 5MW threshold was a compromise between an ambitious Secretary of State and a reluctant Department. It was not budget constrained, and was only ever seen as a starting point. At the time, all the Opposition parties denounced its lack of ambition, and wanted at least 10MW as the starting threshold.
5.2 The current tariff structure is designed largely to deter larger scale thinking, and to confine installations (particularly solar) to within the 50kW ceiling that the major power companies had originally lobbied for. DECC has also constructed its own mythology that community energy schemes do not exceed 5MW, so any lifting of the threshold is unnecessary.
5.3 Such claims do not bear close scrutiny, even in the UK. Uist now has a 6.9MW wind turbine scheme in Scotland; the Westmill Solar Cooperative, in Oxfordshire, will produce enough electricity from its 5MW scheme to power 1,400 homes; and Wymeswold (Leics) has just completed a 34MW installation of 130,000 panels. Local authorities in the UK—including Stoke on Trent, Peterborough, Sheffield, Nottingham, Bristol, the Isle of Wight, and a number of London boroughs have all been looking at ways of extending their local (renewable) energy generation, at levels way beyond the current 5MW threshold. This is the norm in other parts of Europe, and should be so in the UK.
5.4 As a point of comparison, the Committee may wish to note that the Middelgrunden co-operative in Denmark operates 50MW of renewable energy generation. In Germany, cities such as Munich, Frankfurt and Berlin aim to obtain 100% of their electricity from renewable sources by 2025. This follows on from similar initiatives in smaller scale towns and villages such as Freiburg, Schonau and Feldheim.
5.6 The point that Europe seems to grasp, and the UK doesn’t, is that community ownership (and community first use of the energy generated) are central to a culture change, in which communities take increasing responsibility for their own energy security and carbon emissions. This is the way in which the UK can most easily change the debate about the deployment of different renewable energy technologies and open up a genuine growth sector in tomorrow’s (sustainable) economics.
6. Community Benefit and the Right to First Use.
6.1 In the UK, the notion of “community benefit” has rarely got beyond the “bag of sweets” mentality. This has seen power companies (and developers) offering token payments to a local area as part of a planning/building agreement. It struggles to get beyond the sense of buying planning permission. What it does not do is change the nature of the energy market, turn communities into providers as well as consumers, or deliver direct benefits to people in the energy costs they face.
6.2 An easy point of comparison is with the village of Feldheim, just outside Berlin. Villagers have the right to buy the electricity from the wind turbines at the edge of the village, and at wholesale rather than retail prices. Electricity prices in Feldheim are €0.13 cents/kWh. In Berlin, just 20km away, electricity prices are €0.23 cents/kWh.
6.3 The UK is currently considering a similar proposal from the Mayor of London, for a “London Lite” scheme in which energy generated within the Capital can be sold to London residents, at discounted prices. This is the first move to bring the UK into line with decentralised generation provisions that are already commonplace in the USA as well as in Europe.
7. “It’s the Network, Stupid.”
7.1 The London-Lite proposals take the community energy debate into the space that tomorrow’s energy systems will revolve around. Telecommunications companies, rather than power station providers, are becoming the partners of choice in the development of smarter, more interactive, energy management systems. Communities are becoming centre-stage in this discourse.
7.2 Having the right of first use to locally generated energy is just the first step in a much more exciting direction. Such communities then move easily into discussions about energy management and demand reduction. What begins as a right to supply yourselves with lower cost energy, easily moves into measures that reduce or avoid overall consumption.
7.3 Some 40% of rural energy cooperatives in the USA have demand management agreements, allowing for reduction in voltage in defined circumstances. Other areas are exploring the inclusion of energy efficiency measures as (cheaper) alternatives to new generation. This may have obvious attractions to households and communities interested in reducing their energy bills, but it is anathema to energy companies dependant on selling increased consumption to support expansion/dividend strategies.
7.4 In the debate about cost avoidance, the Committee might want to consider the question of grid access charges and community renewable energy. DECC is currently considering the question of apportionment of grid balancing charges and renewable/community energy. It is the sort of stupid discussion that could only take place in the UK. Elsewhere in Europe, countries have applied the EU’s Renewable Energy Directive to guarantee priority grid access to renewables. As such, the entirety of balancing responsibilities become the responsibility of non-renewable energy sources. The UK should do the same.
7.5 There is, however, a question of initial grid access and connection charges. Existing power stations benefit from the “dowry” of the national grid, which was constructed largely on the basis of public taxation (and as a strategic asset in the UK energy system). Unlike commercial developments, community-owned renewable energy is a resource designed to strengthen local resilience far more than enhanced profit/dividend levels. Parliament should give a lead in defining the grid access and distribution charges that community-owned renewable energy schemes should be exempt from, if this is to become a strategic part of Britain’s energy future.
7.6 The UK may not be able to immediately go down the path of decentralised ownership of distribution networks. European towns and cities currently doing so already have a right to buy back the local grid and/or regulate the terms on which it operates. Tying local generation into local distribution has maximised the benefits of community energy generation.
7.7 As a first step, the UK should introduce the legal right of localities to set performance standards (including demand reduction, carbon reduction and renewable generation) on existing DNOs. These should include measures to give priority access to community generated renewable energy. If the “London-Lite” model offers an easy access route into this, it should be extended to all localities across the UK.
7.8 Community first-use may also provide the “benefits” bridge that links the different models of community ownership (outlined below) that form legitimate parts of the UK community energy debate.
8. The Meaning of “Community Ownership”.
8.1 The Committee may not want to spend time on precise definitions of “community” in its current deliberations. It may be helpful, however, to acknowledge that there are at least three variations that currently have an active place in the UK “community energy” debate—
“share issue” based co-ops (especially where there is an upper -10%- limit on shareholding, to prevent predatory takeovers),
“community interest” co-ops, such as the National Trust, where benefits are shared between members, and
“locality based” co-ops, where ownership is restricted to those living within a specific geographical boundary.
8.2 The one unifying interest that would link all 3 groups is the right of community first use. At an international level, the ability to connect community renewable energy generation to a direct reduction in household energy costs is the biggest game-changing element in their respective energy debates.
9. Costs and Benefits
9.1 One argument regularly thrown into the UK debate is the notion that renewable energy (let alone community-owned renewable energy) is unaffordable in the current crisis. Exactly the opposite is true.
9.2 The Committee might like to give some thought to the following graph –
9.3 There are defects in the way Germany has apportioned the costs and benefits of its Energy Transformation programme. They are in the process of correcting these, and Britain could easily avoid making the same mistakes. It does appear foolish, though, to hear DECC Ministers taking an opening position that blandly proclaims “we don’t want to go down the German path”. It is as useful as proclaiming “we don’t want to believe in climate change”.
9.4 More useful points of reflection would include—
In February this year, Benchmark (year-ahead) wholesale power prices were “51 percent higher in Britain than Germany. German baseload 2014 prices were 42.5 euros ($56.8) per megawatt hour ... and British equivalent prices 55.65 pounds ($85.9)”. (Reuters, 20 Feb 2013).
German wholesale electricity prices have dropped by over 20% in the four years to 2012.
In less than three years, the German “Energy Transformation” programme has turned an energy market with only four main power suppliers, into one with almost two million suppliers today. An increasing proportion of these are in the burgeoning (600+) community-energy/co-operative sector.
10. A footnote.
In the various visits and discussions I have had with communities across Germany about their perspectives on energy transformation, the most powerful and lasting impression is about the nature of the debate. Every community I have visited sees themselves as active participants in tomorrow’s energy solutions. They are direct beneficiaries of the solutions, as well as owners of the current problems. There are active debates about the best/most relevant local combination of solutions, but NIMBYism is largely absent from the debate.
Community ownership of renewable energy generation is central to this empowerment of citizens. It was specifically spelt out as a cornerstone of the Coalition Agreement. Delivering on the promise would be genuinely transformational.
Perhaps this is why so little has been done.
April 2013