Appendix: Government Response
The precise definition of the term 'local energy'
has fuelled much debate; however it is clear that there is general
agreement on its usefulness to help communicate the value of local
action. Local energy can make a significant contribution to the
Government's work to promote energy efficiency and improve competition
within the energy market, whilst also helping to reduce fuel poverty
and tackle carbon emissions.
We are very grateful to the Energy and Climate Change
Select Committee for producing its Report, 'Local Energy', which
was published on 6 August 2013. The Committee has made a number
of important and helpful recommendations which this memorandum
addresses, thus constituting the Government's response. In the
following sections we identify lines from the Committee's recommendations
or conclusions with their paragraph references in italics, followed
by Government's response. We respectfully ask the Committee to
note that, in some cases, we have provided our latest thinking
on issues and themes which will be formally, and more fully, addressed
in the Government's 'Community Energy Strategy' - due to be published
towards the end of this year.
Local energy in the UK
Recommendation 1 - DECC should do more to promote
joint ventures between community groups, private and public sectors.
We recommend that the option for a local ownership share
in new energy projects should be added to the industry's Community
Benefit Protocol. (Paragraph 21)
We recognise the Committee's point that joint ventures
between community groups and the private and public sectors can
be a useful model for bringing together experience and investment
with local interests and engaged communities; and would like to
take this opportunity to highlight some recent examples of work
DECC has undertaken to facilitate progress here:
- Onshore wind - DECC is currently
working with community organisations and the onshore wind industry
to draw up best practice guidance on community benefits, which
will underpin the industry's revised community benefit protocol.
This will set out a range of ways in which local communities can
benefit from onshore wind developments, using case-studies to
highlight some of the existing models, which may include examples
where developers and local communities have worked together to
deliver an element of community ownership.
- The Government recently welcomed a package of
community benefits that was brought forward by the shale gas industry
in response to discussions with DECC officials and experts. Companies
have pledged to engage with communities early (prior to any application
for planning permission), and to provide community benefits in
areas where shale is commercially extracted. These will include
£100,000 for communities situated near each exploratory (hydraulically
fracked) well, and 1% of revenues from every production site.
Whilst the Government does not currently have plans
to specifically encourage joint ventures between local communities
and the oil and gas industries, we will continue to study the
range of community benefit models current in place, and share
best practice within and between industries.
Recommendation 2 - We recommend that DECC
carries out an assessment of the potential that 5-50MW projects
of all types could play in the UK's energy mix. (Paragraph
22)
We agree with the Committee's points that there are
a range of different ownership models for medium scale projects;
and that there is a lack, in general, of research to identify
what the combined contribution of these different projects could
be.
Whilst DECC will be carrying out further assessments
in this field in future, we would like to highlight recent and
planned work in this area:
- The UK's updated renewable
energy roadmap (published December 2012) set out our action plan
for driving deployment, including an analysis of the potential
deployment of different renewable technologies under a range of
scenarios.[1] This will
be made up of installations at a range of scales, which offers
the opportunity for more specific assessments of the contribution
of various-sized projects to the energy mix.
- DECC's heat-policy paper, 'The future of heating:
meeting the challenge', published in March 2013, set out our plans
to promote low carbon heat networks, looked at support mechanisms
for Combined Heat and Power (CHP) and recovering waste heat, as
well as other elements that can add to an overall distributed
energy system.[2]
- The Community Energy Strategy, due to be published
later this year, will include a high-level assessment of the potential
contribution of community-owned and community-led energy projects
to the UK's energy mix under different scenarios. This assessment
will not be specific to any particular scale of project, and will
also include wholly community-run projects of all sizes, as well
as projects which are jointly owned by communities and other partners,
such as commercial developers, local authorities and others.
- Through the Cabinet Office's Contestable Policy
Fund, DECC will examine the set of issues around combined, and
often area-based, approaches to shifts and reductions in demand
for energy, and also distributed energy (what is currently known
as the 'D3 agenda'). Building on a recent internal review of
the modelling being undertaken by ESME, National Grid and UKERC
in this field, DECC's work will consider whether and how we might
best develop the evidence base, and its modelling capacity, to
enable us to more fully capture the costs and benefits of D3.
Benefits of local energy
Recommendation 3 - We recommend that DECC
broadens its outlook and assesses the role that medium-sized projects
with different models of ownership could play in the energy mix
as well as what sources of finance might be available.
(Paragraph 27)
As has been publicly stated, the Government remains
committed to broadening the UK's energy mix - most notably demonstrated
through its encouragement of various types of generation, and
policies that offer support to generators which may need extra
help to, for example, finance new projects and enter the market.
DECC is aware that community-led and community-owned
energy projects can yield benefits over and above those offered
by more traditional types of energy projects. These benefits may
include improving public engagement with energy and climate change
issues, boosting local economic growth and jobs, and building
stronger communities. Consequently in June this year, a Call for
Evidence was launched on community energy, to gather more detail
on the benefits of and barriers to community energy projects.
Projects can range in size from small (kW) to large (MW). Over
three hundred responses were received to the Call for Evidence
- from a range of stakeholders and interested parties - and these
are informing the Government's 'Community Energy Strategy', which
will be published later this year.
The Department has already been looking into the
financial, and other, issues that small-to-medium-sized projects
face. Last year, DECC issued a Call for Evidence on barriers to
independent renewable electricity generators accessing the electricity
market. As a result of the evidence received, the Government
included powers in the Energy Bill to enable the Secretary of
State to take further action to support independent renewable
generators if necessary[3].
DECC has subsequently amended the Energy Bill to
enable the Government to implement an offtaker of last resort
scheme, which will give banks greater confidence to lend to independent
developers. This will help to support a wider range of participants
in the market, thereby improving competition.
Recommendation 4 - We note that while the scope
and nature of the impact of local energy projects on consumer
costs remains uncertain, the advantages of local energy projects
in terms of increased diversity and flexibility of supply are
apparent. Local energy projects also have the potential to broaden
public understanding of energy issues, encouraging energy-conscious
behaviour and greater engagement in carbon reduction initiatives
at community level. (Paragraph 31)
We agree with the Committee's point that local energy
projects have the potential to increase diversity and flexibility
of supply. Government laid the foundations for further work in
this area earlier in the year when the Prime Minister launched
the 'Energy Efficiency Mission' in February. In addition to the
forthcoming publication of the Community Energy Strategy, DECC
will explore the potential as part of the 'D3 agenda' outlined
above.
We also agree that where local people are involved
in energy projects, there is potential to gain broader benefits
- as outlined by the Committee in its Report and also in our response
above. However, we consider that these benefits do not necessarily
apply to all 'local energy' projects since, in some cases, the
local community members themselves may not be involved in ownership
or management of such projects. The Community Energy Strategy
will consider how to maximise the scope for local involvement
in such projects.
Overcoming barriers to local energy
projects
Recommendation 5 - National level planning
guidance on key technical issues would help to improve consistency
between different local authorities and would help to ensure that
only genuinely local issues were addressed through the local consenting
process. We recommend that Government incorporates such guidance
as part of its planned reform of the existing guidance suite.
(Paragraph 37)
To support the implementation of the National Planning
Policy Framework, DECC published an up-to-date 'planning practice'
guidance document on renewable and low carbon energy on 29 July
this year. It will be integrated into the web-based resource
in due course.
Additionally, as promised in the Government Response
to the Call for Evidence on Onshore Wind, the Planning Advisory
Service have produced case studies to assist local planning
authorities in identifying suitable areas for renewable energy
development. These have been compiled into a report which is available
on the Planning Advisory Service website.
Recommendation 6 - We recommend that Government
considers how support might be extended to other organisations
that are interested in local energy projects. The Scottish Government's
Community and Renewable Energy Loan Scheme provides a useful model
that could be emulated either by DECC or by the Green Investment
Bank. DECC is aware that the PPA market currently poses
difficulties for independent generators and this situation is
only likely to get worse with the move from the Renewables Obligation
to Contracts for Difference. We raised this issue a year ago in
our report on the draft Energy Bill. It is therefore disappointing
that the Government has not come forward with an adequate solution.
If Government is serious about increasing competition in electricity
generation it must come forward with a credible solution urgently.
(Paragraph 50)
We note the Committee's recommendation to consider
how support might be extended to other organisations that are
interested in local energy projects and the due consideration
they have given to the Government's Rural Community Energy Fund
(RCEF), which was launched in June this year to support growth
of community energy in rural areas. We are grateful for the citation
of the Scottish Government's Community and Renewable Energy Loan
Scheme as a useful model to emulate. As we look into this, we
would ask the Committee to note that the Green Investment Bank
has not received State Aid approval to provide finance in certain
key areas of renewable generation, including onshore wind and
solar PV
We agree with the Committee's point that there are
difficulties in the current market for the Power Purchase Agreements
(PPAs) used by independent renewable generators. However, these
difficulties are present under the Renewables Obligation and we
believe the market will improve under Contracts for Difference
(CfDs).
A CfD removes long-term price risk from the generator
since, under it, there would no longer be a requirement for price
floors or fixed prices in a PPA to satisfy financiers that there
will be a minimum price received for electricity generated. Removing
this risk will make PPAs simpler and less costly for offtakers
to provide, and should lead to greater competition in the PPA
market. Competition in the market for PPAs will also be improved
by removing the need to value and market the Renewables Obligation
Certificates, which can currently only be done by holders of a
supply licence.
However, we are aware that there is a risk that independent
developers may still find it hard to find satisfactory routes
to market. We have, therefore, amended the Energy Bill to grant
powers to enable the Secretary of State to implement an 'offtaker
of last resort' scheme that will provide generators with a backstop
route to the market at a specified price. This arrangement will
offer investors and lenders more certainty that a project can
access the market at a competitive price. We expect this to enable
generators to use a wider range of possible offtakers, shorter
term PPAs and, potentially, other trading arrangements.
Government, in conjunction with the Centre for Sustainable
Energy, has recently held a roundtable discussion on finance for
the community energy sector, and is considering options on how
to work with stakeholders to improve access to finance for community
energy projects.
Recommendation 7 - We recommend that Ofgem
requires DNOs to publish maps detailing where there is connection
capacity. Once the scale of the issue is known, Government should
assess the options for facilitating grid connections for small
and medium-sized renewable developments, in order to ensure that
local energy renewables have "priority access" to the
grid wherever possible. Government should also provide advice
on grid connection as part of the advice service suggested in
paragraph 63 under 'Advice and Support Services'. We also recommend
that Government reviews the arrangements between suppliers and
District Network Operators so that connections can be better facilitated.
We agree with Community Energy Scotland and recommend that DECC
review the current RIIO TD-1 business plan for National Grid,
and the proposed RIIO ED-1 business plans for DNOs.
(Paragraph 55)
We agree with the Committee's view that new generation
and low carbon technologies must be able to connect to the Grid
within a reasonable timeframe and at a reasonable cost - network
connections must not be a barrier to the development of local
energy projects. We also agree that improvements in the level
of service provided by Distribution Network Operators (DNOs) are
needed and note there are already a number of measures and proposals
being taken forward by industry that should deliver tangible improvements
in the near future.
However, it is not for Government to play an active
role in regulating network operators, either through incentives
or by directing them to take particular steps. As regulated monopolies,
it is for Ofgem, the independent network regulator, to ensure
that the regulatory environment ensures DNOs deliver what customers
need and supports Government's overarching objectives.
We welcome the proposed improvements to connection
times and customer service, as set out by all DNOs within their
RIIO-ED1 price control Business Plans, which were submitted to
Ofgem in July this year. The Government also welcomes the new
incentives - in particular on 'time to connect' and 'connection
engagement' - that Ofgem has placed upon DNOs to ensure the needs
of customers are taken into account. Whilst the Government takes
a keen interest in RIIO business plans, we recognise that it is
for the independent regulator, Ofgem, to scrutinise those plans,
ensuring proposals support Government's energy and low carbon
objectives and deliver value for money for the consumer. When
implemented, we understand that these should deliver swift improvements.
Ofgem have made encouraging efforts to strengthen
dialogue between the network operators and distribution generators,
through forums such as the Distributed Generation Forum. These
discussions have already prompted DNOs to improve the service
and information provided to customers though the development of
"open surgeries" to listen to customers' views and,
importantly, share information on local network capacity, through
for example network maps. The needs of customers and the response
by DNOs will vary by region. We therefore believe that the existing,
community-based, approach better responds to the local situation
and provides a more expedient, effective and relevant solution
to ensuring customers have the information they need.
Recommendation 8 - We recommend that Government
brings forward an alternative proposal to support projects within
the 10-50MW range to incentivise the development of medium-sized
projects which cannot access either Contracts for Difference or
Feed in Tariffs. (Paragraph 61)
As outlined above, CfDs are available for small and
medium-sized projects and we expect the CfD support mechanism
to improve conditions for generators of all sizes given that it
removes key commercial risks and should improve access to markets
for developers.
However, we recognise that it may take some time
for the market to adjust to the CfD, and that, in general, smaller
market participants have less resource available to understand
and adjust to new mechanisms. Therefore, to facilitate this process,
DECC has established working groups, comprised of a range of industry
representatives, to develop sample PPAs and a set of best
practice guidelines for PPA providers and generators. These
products will help to prepare the market for the introduction
of the CfD and reduce administrative and legal costs for smaller
developers.
We would also add that the 'offtaker of last resort'
proposals (described earlier), currently being developed by DECC,
should provide further support to such project by enabling them
to make use of a greater variety of routes to market, thereby
achieving better prices for their power.
Recommendation 9 - (re: definition of 'community
organisation' under the Feed in Tariff Order 2012) We recommend
that DECC amend the definition to ensure that these projects are
eligible. We also recommend that DECC consider introducing a minimum
level of local ownership or membership within the definition of
"community organisation". (Paragraph 62)
We note the Committee's recommendations here. However,
DECC has just completed a two and a half year period of review
of the FITs scheme and we have no plans to make any further changes
at this time.
Following Royal Assent of the Energy Bill, though,
we intend to consult on the secondary legislation required to
deliver our ambition of increasing the maximum capacity of the
FITs scheme. The definition of 'community' will be included in
this exercise.
Recommendation 10 - The Government should
introduce an advice service that can provide support to community
groups on issues such as how to finance a project, ownership structure,
the planning process, energy technologies, the energy market and
the various support mechanisms that are available. Community Energy
Scotland could provide a useful model for how such a service might
operate…..Government should introduce guidance and support
for authorities, which sets out the pros and cons of investing
in energy projects, in addition to national planning guidance
as recommended in paragraph 37. It should also develop "best
practice" guidance for those that would like to go down this
route. (Paragraph 68)
The Government's forthcoming Community Energy Strategy
will set out a package of measures to help community groups address
and overcome some commonly identified barriers - such as those
that the Committee point out here.
As outlined above, up-to-date National Planning Policy
Framework guidance on supporting community-led renewable energy
developments was published by DECC on 29 July this year, and DECC
is also currently working with the Cabinet Office, the Department
for Communities and Local Government (DCLG) and other partners
to identify what more can be done to provide further support to
less experienced authorities and communities who are seeking to
undertake energy-related projects.
Recommendation 11 - We have recommended ways in
which Government could help to improve access to finance (paragraph
50), develop appropriate support mechanisms (paragraphs 61 and
62), reduce risk in the planning process (paragraph 37) and improve
access to support and guidance (paragraph 68). If the Government
is serious about supporting community-owned energy projects, it
needs to develop a package of measures that will help to address
all of these barriers simultaneously. Addressing only one or two
will not be sufficient. The Government should also set out its
expectations in terms of what such a package of measures could
deliver in the form of an indicative target. (Paragraph
70)
As outlined above, the Government's Community Energy
Strategy, to be published later this year, will set out a package
of measures to help community groups address and overcome commonly-identified
barriers.
Whilst the focus of this Strategy will be on community
energy projects - as outlined in the relevant Call for Evidence
- we consider that many of the measures could also aid and benefit
the 'local energy' projects as defined by the Committee.
Public acceptance of energy infrastructure
Recommendation 12 - (re: DECC's
proposals in conjunction with DCLG to introduce best practice
guidance on community engagement and compulsory pre-application
consultation for larger wind farms) DECC should consider extending
thes guidelines to cover other local energy projects in addition
to wind. (Paragraph 74)
As announced in the Government Response to the Onshore
Wind Call for Evidence, DECC is now working with stakeholders
from community organisations and the onshore wind industry to
produce best-practice guidance on engagement with local communities
for developers and communities.
DECC is also working with DCLG who, in the autumn,
will be introducing compulsory-pre application consultation with
local communities for more significant onshore wind development.
This will ensure that community engagement takes place at an earlier
stage in more cases, and may assist in improving the quality of
proposed onshore wind development.
Although this mandatory requirement would apply
only to certain onshore wind development, we will keep
under review whether there is a case for using the powers introduced
by the Localism Act for other types of development. We agree
that early community engagement is important for all forms of
renewable energy development, and are pleased to note that the
solar industry has produced good practice guidance. In addition,
a new DECC/Industry task force on land use for Solar PV will consider
whether to produce further best-practice guidance for community
engagement with solar developments.
And, as part of the Community Energy Strategy, DECC
is working with Community Energy organisations and a range of
regulatory organisations to explore the barriers that community
groups experience.
Recommendation 13 - If the evidence shows
that local ownership does indeed improve acceptability [of energy
infrastructure projects], we recommend that the Government encourages
the industry to offer a stake to local residents for all new developments
(perhaps by revising industry guidelines such as the Community
Benefit Protocol). If the industry does not respond, the Government
should consider the option of making a community ownership offer
mandatory for all new developments. (Paragraph 78)
For the Government's Community Energy Strategy, DECC
is exploring whether and how local ownership might help to increase
support for renewable energy projects, and deliver greater community
involvement and benefits than current arrangements allow. This
point will be addressed in the Strategy.
Recommendation 14 - We encourage the Government
to monitor the various initiatives that are emerging in this vein
so that it can assess which approaches are most successful. This
includes discounted tariffs, discounted bills and any projects
going forward with a 'Licence Lite' derogation. DECC should also
investigate whether the Licence Lite route is accessible to community-owned
projects and, if it is not, should consider exercising the powers
that have been proposed in the Energy Bill to amend electricity
licence conditions. (Paragraph 84)
We agree that community benefits for those communities
living near energy infrastructure are important, and this is behind
the community benefits packages that are currently in place around
the renewable energy sector. The Scottish Government has established
a community benefits register, and the UK Government is proposing
to put in place a similar register soon. Part of the rationale
is to allow communities to learn from each other what benefits
are yielded and how any received income can be, or is being, utilised.
The first public sector application for Licence
Lite has been received from the Greater London Authority (GLA)
on behalf of the Mayor of London. Ofgem and DECC will closely
monitor the GLA's work to establish a 'Licence Lite' operation,
including evaluating any need to provide further guidance in the
future.
The Government is supportive of the Licence Lite
initiative, and welcomes recent developments. However, the powers
in section 44 of the Energy Bill can be utilised only for the
purpose of facilitating investment in electricity generation by
means of a PPA scheme. Consequently, the powers currently proposed
in the Energy Bill - that cover to access to markets for independent
developers - will not be suitable for promoting the availability
of Licence Lite.
Conclusion 15 - Medium-scale energy projects could
contribute a significant amount to UK energy supply, but because
DECC policy has focused either on very large or very small (<5MW)
schemes, the evidence to quantify this is not available. We think
there is room for medium-scale projects to contribute to the UK's
energy mix. (Paragraph 85)
Conclusion 16 - While the Government has been
explicit about its support for community energy projects, it has
neglected some other options, including projects owned by local
authorities and projects owned by private sector (commercial)
organisations. This means potential for new capacity and new sources
of finance is being missed. (Paragraph 86)
As described within this memorandum of Response,
the Government is demonstrably committed to broadening the UK's
energy mix through a variety of projects and schemes of all sizes.
The Committee has provided helpful advice and recommendations
through their Report which are being duly considered and, in some
instances, are already being acted upon.
Conclusion 17 - There is a need for a comprehensive
package of measures addressing planning, grid access, support
mechanisms, finance and advice. Addressing only one or two of
these issues will not be enough to create the right conditions
for local energy projects to flourish. (Paragraph 87)
We note and agree with the Committee's conclusions
here, and refer to our Response to Recommendations 10 and 11 earlier
in this memorandum, which highlight the steps that are being taken
to address these points.
Conclusion 18 - Joint ventures are beneficial:
community groups benefit by accessing expertise and finance from
commercial partners, and commercial partners benefit from increased
local support. Government should do more to promote this approach
and to provide more central guidance. It is notable that the new
Office of Unconventional Gas and Oil is examining community benefits
from shale gas as a priority, and perhaps such an approach could
be adopted for medium-scale energy projects. (Paragraph 88)
We note and agree with the Committee's conclusions
here, and refer to our Response to Recommendation 1 earlier in
this memorandum which highlights the steps that have been, or
are already being, taken to address these points.
Conclusion 19 - The Government must do more to
encourage medium-sized projects, particularly in the 10-50 MW
range, if we are to realise the full benefits and potential of
local energy. (Paragraph 89)
The Government recognises the importance of medium-sized
local energy projects and CfDs, which will be open to them, are
designed to be suitable for their needs.
Additionally, as outlined in this response, DECC
is developing measures to support independent developers of medium-sized
projects. Through its ongoing work with industry, DECC is looking
to help create products that will promote and encourage these
project developers to gain access to CfDs - with reduced administrative
and financial costs. Furthermore, our proposals for the offtaker
of last resort scheme will free generators from the need to agree
long-term PPAs, stimulating innovation and helping new entrants
enter the offtaker market.
1 https://www.gov.uk/government/uploads/system/uploads/attachment_data/file/80246/11-02-13_UK_Renewable_Energy_Roadmap_Update_FINAL_DRAFT.pdf
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2
https://www.gov.uk/government/uploads/system/uploads/attachment_data/file/190149/16_04-DECC-The_Future_of_Heating_Accessible-10.pdf
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3
'A call for evidence on barriers to securing long-term contracts
for independent renewable generation investment', DECC, June 2012. Back
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