Energy and Climate ChangeWritten evidence submitted by Regen SW

Summary

1. Medium-sized projects account for a third of installed renewable energy capacity in the south west and will be essential for delivering the 15% target for renewables by 2020. Although nearly all the medium-sized projects in operation are owned by commercial developers, we have seen a growing interest in community and local authority owned projects at this scale and are aware of a number of projects in the pipeline.

2. The key barriers to medium-sized projects include difficulties in obtaining a grid connection; a lack of resource and expertise in some local planning authorities; access to finance for project development; and lack of capacity and resource in both community groups and local authorities.

3. Regen SW recommends that government extends the FiT beyond 5 MW to facilitate the growth in medium-sized projects, provides additional support to community owned projects and requires distributed network operators (DNOs) to provide better information and greater investment in grid capacity.

Regen SW

4. Regen SW is an independent, not-for-profit centre of expertise on sustainable energy with frontline experience of working in the renewable energy sector in the south west. We are a membership organisation with over 250 business and local authority members. We have sought the views of our members on this call for evidence, and are responding with these in mind.

5. Regen SW has established a programme of activity to increase engagement and build capacity on community energy. As part of this work, a network of community energy groups has been established to share learning and create a stronger voice for community energy.

Medium-sized Energy Projects in the South West

6. Regen SW carries out an annual survey of renewable energy installations in the south west. We are currently in the middle of this process, so the following figures come with a caveat that they may be incomplete.

7. There are currently 47 medium-sized renewable electricity projects in operation. Although they only make up 0.07% of the total number of renewable electricity projects, they produce a third of the renewable electricity generated. The number of projects and the existing capacity is broken down by technology in the figures below.

Figure 1

NUMBER OF MEDIUM-SIZED PROJECTS BY TECHNOLOGY

Figure 2

EXISTING CAPACITY OF MEDIUM-SIZED PROJECTS BY TECHNOLOGY (MW)

8. The majority of the medium-sized renewable electricity projects in the south west are around 5 MW, with the largest at just 12 MW, as shown in figure 3 below.

Figure 3

CAPACITY DISTRIBUTION OF MEDIUM-SIZED RENEWABLE ELECTRICITY PROJECTS

9. The data collected in our annual survey does not always specify whether the stated capacity is the operating capacity or that which is applied for in planning. Therefore, it is unknown whether the “5 MW” projects actually operate below the threshold in order to claim the FiT. This may explain the peak at 5 MW in the graph above.

10. There is currently only one medium-sized renewable heat project in operation in the south west. This is a 10 MW biomass boiler in an industrial plant in Cornwall. As of April 2012, there were over 5000 renewable heat projects in the south west with a combined capacity of 119 MW1. Therefore the single medium-sized project provides over 8% of the total renewable heat capacity.

11. Although we have seen strong growth in renewable energy in the south west, we are currently not on track to meet the 2020 target. On current trends, we are projected to fall 37% short of the target2. We are unlikely to see any more large-scale onshore projects coming forward in the south west due to the availability of land and resources. For example, our 2009 wind resource assessment showed that the majority of potential sites could only accommodate 10–20 MW projects, as shown in the figure below.

Figure 4

SOUTH WEST ENGLAND WIND RESOURCE CONFIGURATION

12. Therefore, we are reliant on the medium-sized projects to deliver the majority of the 15% target. This would require a doubling of the number of existing medium-sized projects in the next seven years.

Ownership Models for Medium-sized Energy Projects

13. All of the medium-sized projects that have been commissioned to date are owned by commercial developers. However, there is one local authority owned solar farm in operation, which falls just below the threshold at 4.9 MW. We are aware of other local authority owned schemes of a similar or larger size coming forward in the near future (see below). At present, there are no community-owned schemes of this scale in the pipeline, but several community energy groups have expressed an interest in larger projects.

Community ownership

14. Over the last three years Regen SW has seen a significant increase in the number of active community energy groups, which is having an important and positive impact on the renewable energy sector locally; from enabling more proactive engagement with developers and local authorities, through to driving forward community led projects.

15. The drivers for community energy projects tend to come from a motivation to reduce the local carbon footprint; to retain profits from energy generation locally; to reduce spend on energy; and to reinvest any surplus in energy efficiency measures.

16. The community led projects that have been commissioned in the south west to date are all under 5 MW. The FiT is therefore proving to be a real incentive for community groups to invest in renewables, along with LEAF funding and government funded support programmes, such as the Heat Project.3

17. Community projects are slowly increasing in size. For example, the Totnes Renewable Energy Society’s (TRESOC) has put in an application for two 2.3 MW wind turbines, and the Wadebridge Renewable Energy Network (WREN) is currently investigating 5+ MW projects.

18. Community ownership models vary from shared risk partnership projects to wholly owned community projects.

19. Partnerships between commercial developers and communities can provide a good mix of knowledge, skills, access to finance and local contacts to enable developments to go ahead. Part ownership enables greater community involvement and benefit than a community fund allows. An example is the TRESOC partnership with Infinergy to build two wind turbines just outside Totnes in Devon.

20. Social enterprises tend to be community initiated. A small project may be managed and owned directly by the community (with expert support as required). A larger project is likely to be managed and owned by a specialist social enterprise company for the benefit of the community. The majority of the project profit is retained locally, as the core business model of the company is to create local benefit.

21. Many communities have undertaken share issues to finance their projects, either themselves or through supporting organisations. This can be particularly successful for individual local low risk projects or for bigger portfolios of projects. For example:

South Brent Community Energy Society raised over £439k and is now constructing its wind turbine.

Bath and West Community Energy raised over £721k in its first share offer and has completed solar PV installations amounting to 612 kW across eleven sites.

TRESOC has over 500 members and raised over £108k in its first share offer.

22. The appetite for local investment in community energy is clearly strong and all of the local share issues we are aware of have raised their target amounts.

23. The advantage offered by the changes in policy for tax relief under the Enterprise Investment Scheme (EIS), means this is now uniquely available to community projects. Safeguarding this opportunity is vital to the success of community energy projects, and the government’s definition of “community projects” is essential for enabling this to continue to happen. It would also be helpful to widen the exemptions for financial promotion legislation and remove other regulatory barriers to facilitate fund raising for CIC and coop schemes.

Local authority ownership

24. Approximately half of the local authorities in the south west have installed renewable energy technologies on their council buildings, schools, care homes, social housing or land. We are aware of over 400 small-scale local authority owned installations in the region. A breakdown of these projects by technology is shown in the table below, over half of which are roof mounted solar PV on schools and council buildings.

Technology	Per cent
Solar PV	51.5%
Biomass	16.3%
Heat pump	12.8%
Solar thermal	9.7%
Wind	8.7%
Hydro	0.2%
AD	0.2%

The local authority owned projects amount to about 28.5 MW of capacity at present. All of the projects are below 1 MW, with the exception of a 4.9 MW solar array at Newquay Airport owned by Cornwall Council (see the case study below).

Case study 1: Cornwall Council solar park

Cornwall Council is thought to be the first local authority in the UK to develop its own solar farm in the UK. The council has constructed a 4.9 MW solar park near Newquay Airport. It is expected that the solar park will generate an income of around £70,000, as well as make a significant contribution to reducing the council’s carbon footprint4.

26. However, there is an appetite among local authorities in the south west to develop larger projects, for example, Bristol City Council will be installing two 2.5 MW wind turbines this year (see the case study below). We also expect to see proposals coming forward from councils for solar farms, wind turbines and potentially a geothermal plant in the near future.

Case study 2: Bristol City Council wind turbines

Bristol City Council will be the first local authority in the UK to fully own and develop a 5 MW wind energy project. The two turbines will be located on a former Shell oil tank site in Avonmouth and will produce approximately 20% of the Council’s current annual electricity use, including street lighting5.

Bristol City Council has a unique business model. It has set up a self-funded energy unit that generates its own income from renewable energy projects and from selling its expertise to external clients. Having control over its own budget has enabled the council to develop internal expertise and to make timely investment decisions.

27. The change in government policy that enabled local authorities to sell renewable electricity and benefit from the FiT resulted in many more local authorities being able to invest in renewables. Access to prudential borrowing has also enabled many projects to go forward. However, several local authorities have commented that the rates are no longer as preferential as they used to be.

Barriers to Medium-sized Energy Projects in the South West

Grid connection

28. Many developers have raised concerns about the ability of the grid to cope with distributed generation in the south west. The cost of connection has in some cases prevented projects from being built. This is especially the case in Cornwall and north Devon where the network is relatively sparse and there is already some generation connected.

29. Regen partnered with Western Power Distribution to investigate the level of demand they could expect between 2015 and 2023. Large parts of the network in the south west are now at capacity and our survey and forecast concluded that there was likely to be significant amounts of new renewable electricity generation wishing to connect to WPD’s network. Developers stressed that unless part of the reinforcement costs for proposed schemes were allocated to general system costs, or “socialised”, then many schemes would not be financially viable and the forecast generation capacity may not be achieved.

Obtaining planning permission

30. Feedback from developers has highlighted two barriers in relation to planning:

Some local authorities have a lack of resources and expertise to deal with applications swiftly and consistently. This means that planning can be costly and time consuming for developers.

Perceived public opposition can influence planning committee members and result in officer recommendations being overruled by councillors.

31. The lack of resources and expertise, along with perceived public opposition can lead to suitable projects being refused and resources wasted on appeals. RenewableUK’s state of the wind industry report found that 58% of wind turbine applications in England were approved by local planning authorities in 2012, and 56% of those that went to appeal were approved6.

32. A better understanding of the positive benefits of renewable energy projects, such as the economic and job opportunities could help councillors make a more balanced judgement of projects. Additionally, where local authorities have taken a positive approach to planning for renewables, they are more likely to encourage suitable applications to come forward and to have a better understanding of what should and shouldn’t be approved. Examples of positive approaches in the south west include:

Cornwall Council’s renewable energy planning guidance notes for each technology.

Bournemouth, Dorset and Poole’s Renewable Energy Strategy to 2020.

Access to finance

33. There are two key challenges that all projects face in getting finance, regardless of whether they are commercial, local authority or community owned. They are:

Difficulty obtaining “at risk” finance to cover project development. Developers generally have to find the money from their own resources, as banks rarely lend for this work. Developers suggested that government could play more of a role in ensuring that funding is more readily available.

Changes in policy and the impact this has on risk and the ability to borrow funds. For example, many developers have concerns that the proposed EMR is likely to cause an investment hiatus in the medium term.

Barriers to community ownership

34. Regen SW’s community energy group network has raised a number of barriers to community ownership of renewable energy projects, which are outlined below:

35. Local capacity both in the community and the local authority. Community projects require a significant amount of volunteers’ time. They also require people with a number of different skill sets, including financial skills and experience. In addition to community capacity, many local authorities lack the knowledge and resources to support community groups through the planning process.

36. Finance for projects is often hard to secure, particularly for the early stages of the development process. Community energy projects are at a disadvantage when compared to commercial developers, which often have a portfolio of risk investment.

The fixed rate of the FiT has helped community groups obtain finance for smaller scale projects. However, for projects over 5 MW, there is concern that the proposed CfD will be too complex, that community groups will not have surplus funds to guarantee payments to the CfD counterparty, and EMR will not guarantee a market for medium scale, independent generators.

37. Time it takes to build consensus and to obtain finance and expertise can put community energy projects at a disadvantage. For example, the South Brent Community Energy Society took three years from the date they got permission to starting the build and came close to losing their planning permission.

The pre-planning process also takes time and requires significant resources. Most local planning authorities do not provide pre-planning advice or support to community energy groups, and there tends to be a low level of understanding of the benefits of community owned renewables.

38. Negative perception of wind and solar farms, which has been fuelled by the media, presents a challenge to community energy groups. Time and resource has to be spent on changing mindsets and addressing misinformation rather than developing projects.

Barriers to local authority ownership

39. The key barriers to local authorities investing in medium-sized renewable energy are political buy-in and internal expertise.

40. The rural authorities find it particularly difficult to convince councillors of the benefits of investing in renewables. In a survey of our local authority members7, one rural district council officer stated that “the very vocal and sometimes well organised opposition leads local Councillors to believe that opposition to renewables is widespread, despite evidence to the contrary.” They are, therefore, unwilling to support investment in renewables projects.

41. Internal expertise is also essential for getting projects off the ground. The small, district councils do not often have the resources or expertise to investigate the potential for renewables on their own estate. A strong and well researched business case is essential to convince the councillors of the benefits, and in some cases this can be enough to overcome the political barriers.

Recommendations to Government

Subsidies

42. Extend the FiT beyond 5 MW to facilitate the growth in medium-sized projects.

Support for community projects

43. Safeguard the EIS and SEIS eligibility for community energy projects and maintain the Treasury’s definition of “community energy”. Also widen the exemptions for financial promotion legislation and other regulatory barriers to facilitate fundraising for CIC and coop schemes.

44. Allow pre-accreditation for all community owned renewable energy projects and introduce slower FiT degression rates to allow for the time lag experienced by community projects.

Grid connection

45. Require DNOs to provide better information to developers on grid capacity and encourage greater investment in the network through the next stage of DNO business planning.

April 2013