Infrastructure Bill [HL]

5. In addition, and in parallel to the development of a voluntary approach, and as also set out in the 2014 Community Energy Strategy, the Government also stated that, should progress in implementing this voluntary framework for the shared ownership of onshore renewable projects be limited, it would ‘consider requiring all developers to offer the opportunity of a shared ownership element to communities’ through the development of backstop legislative powers, as put forward under the CER.

The Community Electricity Right

6. The CER contains provisions for the Secretary of State to place requirements on developers of new renewable energy projects to offer communities the opportunity to buy a stake in these projects, should the voluntary framework established by the Shared Ownership Taskforce prove unsuccessful.

7. Key elements of these provisions include:

· CER could apply to both onshore and offshore renewables, but not to other forms of power generation

· The stake offered to communities would be of up to 5%

· CER obligations could be enforceable as generation licence conditions with fines for breaches.

8. Schedule 5 allows for significant detail on the implementation of a CER to be set out in secondary legislation, with regulations requiring the Secretary of State, should the CER be implemented, to:

· Specify the types of renewable generation facilities to which the CER shall apply

· Set prices for the stakes that are to be offered, doing so with regard to a measure of fair value

· Set out the kinds of stakes that may be offered under the CER and provide developers with a choice of at least two different types of possible offer

· Establish a purchase procedure by which individuals and groups can apply for stakes in a project, with the application period occurring after a project has been granted planning consent.

9. RenewableUK has welcomed the Government’s amendment, passed at Report Stage in the House of Lords, to delay commencement of these provisions until 1 June 2016. This will provide greater confidence that the recommendations of the Shared Ownership Taskforce report, and the objectives set out in the Community Energy Strategy, will be given some time to bed-in before Government considers the scale of progress made under the voluntary framework and therefore, before the Government decides whether to invoke these backstop powers.

Primacy of Voluntary Process and the Merits of a Flexible Approach

10. A voluntary, flexible approach to shared ownership is the preference of not only the industry, but also of community groups and the Government. As outlined in the Taskforce Report, there are many different ways in which local people can invest in projects and renewable energy developers will work with communities to explore what type of shared ownership may best suit them. Possible forms of shared ownership, as set out within the Taskforce Report, include joint ventures, split ownership or shared revenue approaches and other methods of acquiring a stake, for example through the purchase of bonds or debentures in a project. Individuals and communities might also choose alternative approaches, for example to be offered the opportunity to receive a share in a project through reduced energy bills, rather than to directly invest in a project.

11. In order for shared ownership arrangements to be successfully introduced across the country, there will be a need for flexibility in approach. The size of communities and the ability of communities to raise finds will vary from place to place, as will the scale and arrangement of the renewable energy projects. In order for the voluntary framework to succeed, it will also need to be given good time to demonstrate progress, with many renewable energy projects taking many years to progress from the planning stage to full operation.

12. Given the benefits of a flexible approach, and the time required to consent and build out many renewable energy projects, we believe that further clarity is needed on the face of the Bill to confirm that the existing, voluntary approach to shared ownership should be given primacy and that due consideration will be given to the progress made under the voluntary framework, including a clear and consultative review process, before Government may take a decision on the implementation of the CER.

Cost Competitiveness

13. We are concerned that the Government has not sufficiently explained why the CER is intended to be applied only to renewable technologies. At a time when the overriding priority for industry and consumers is cost reduction, any additional regulatory burden risks adding further cost to renewables and disadvantaging their cost-competitiveness relative to other technologies. All sectors of the energy market are conscious of the need to minimise costs to the consumer. It is therefore important that any CER scheme is conducted in a cost neutral manner in order to ensure that renewable energy developments do not incur additional costs as a result of this requirement, and that these developments are not put at a competitive disadvantage compared with other forms of generation.

Application of CER

14. The Bill should be clear that the CER powers cannot be applied retrospectively to projects that have already applied for planning permission prior to regulations coming into force. Currently, clause 34(5) only states that regulations may specify ‘a stage of advancement’ after which a facility cannot be subject to CER regulations.

15. As renewable developers are required to conduct significant consultation prior to submitting a planning application or a development consent order, this would be the most appropriate stage at which to also consult on community shared ownership. Requiring developers to conduct additional consultations after submitting a planning application would impose undue additional cost and delay on developments - particularly for those applications close to decision at the time CER regulations come into force.

16. We therefore recommend that application of the CER should be limited to projects that have not yet applied for planning permission or submitted a development consent order, so as to limit costs to developments and, ultimately, consumers.

Exemptions

17. The schedule also refers to ‘excepted facilities’ to which the CER right to buy would not be exercisable. There will be a number of scenarios in which it would be appropriate for a project to be exempted; such as if a project is community-led (as opposed to being developer-led) or already offering a community stake on a voluntary basis or if consultation has made clear that there is an insufficient local population and / or interest to support a community share offer. We also consider it appropriate to exempt offshore wind test sites as they provide a public good by helping to drive innovation and are open to substantially more commercial and technical risk than commercial schemes. The risk profile of such schemes make them unsuitable vehicles for investment from communities and individuals, however, these test sites would currently fall within the scope of the Bill.

18. We therefore consider it important that any CER regulations must clearly state the circumstances in which projects can be exempted from CER and seek clarity in the Bill that the CER powers could not apply to offshore wind test sites.

Offshore Renewables

19. The voluntary shared ownership framework developed by the Shared Ownership Taskforce at the request of the Secretary of State for DECC relates solely to onshore renewables, and the Government has yet to engage developers in discussion about how communities might be better engaged with offshore developments and the potential scope for community stakes.

20. Whilst the Government has stated elsewhere that the decision on extending the CER to offshore projects would be taken over a longer time horizon and that this decision would be subject to formal consultation, such caveats are not included in the Bill itself. The Government has also stated that any application of the CER to offshore renewables would seek to learn lessons from the experience of onshore renewables. However, offshore wind projects require a scale of investment of a different order to even the largest onshore renewable projects and are physically detached from communities.

21. Applying learning and adapting models from the experience of onshore projects will therefore be of limited value in developing potential models for the offering of community stakes in offshore renewables. Prior to taking a decision on policy towards offshore wind, or extending the CER to these technologies, detailed engagement with the offshore renewable energy sector, and an evaluation of the economic and social benefits of such a proposal would need to be conducted. Further clarity within the Bill regarding any future application to offshore renewables would be welcomed.

Scotland

22. Further clarification is necessary on what discussions the UK Government has held, and intends to hold, on the implications of this policy with Scottish Government, who are developing their own policy towards community benefits, shared ownership stakes and the treatment of different technologies.

23. We would be pleased to discuss or amplify any of the points raised in our response.

January 2015