The Good and the Bad of Community Energy
In assisting the development of community owned energy projects, Robert Owen Community Banking is seeking to support community participation in the development of a localised renewable energy market, one that keeps the economic benefit arising from the production of renewable energy circulating in the local economy, whilst also making a contribution to climate change obligations to cut the amount of carbon we generate.
The last couple of months have seen good and bad developments on the Community Energy front. The good news is that community owned and operated energy schemes are now beginning to be installed. Both Ynni Anafon Energy, based in Abergwyngregyn, North Wales, and the Friends of Taff Bargoed Park in the south, have commenced construction and will have operational hydro-electric schemes up and running by the end of the year. The two schemes represent over £1.5m of combined investment. In the case Ynni Anafon, this includes nearly £0.5m raised in shares from supporters of renewable energy and the benefits that it can bring to the locality.
The sums on community energy projects are impressive. Ynni Anafon Energy will produce an estimated 956MWh of electricity per year (enough to power 200 homes), displacing 900 tonnes of carbon that would result from the generation of the same amount of electricity from the burning of fossil fuels. The initial investment will be recouped over 15 years and will generate £200,000 of income per year for the next 20years. In total, the community benefit from the scheme, excluding a share dividend to the individual investors who enabled the scheme to go ahead, will be £850,000. The National Trust, as one of the owners of the land over which the scheme runs, will also benefit from a ground rent.
We are proud to have been able to contribute to such a good news story through the provision of bridging finance that enabled construction of the scheme to commence back in May, for completion by the end of October. You can see more information on the building of Ynni Anafon’s hydro scheme here. You can keep up to date with progress on the Taff Bargoed scheme by following their Facebook page here.
So much for the good news. The bad news is that such schemes may well be the first, and last.
UK Central Government, in its wisdom, has decided that in order to keep consumer fuel bills low, it needs to cut the subsidy paid to renewable energy schemes. This subsidy, in the case of community scale renewable energy schemes, and other renewables such as the humble domestic pv panel, pays a guaranteed index linked price for electricity generated from renewable resources over a set period of years. It is called the Feed in Tariff (FIT).
The rationale for the FIT is to encourage investment in the installation of renewable energy technologies by basically offsetting the additional costs of such new technologies over more mainstream and longer developed fossil fuel burning ones. As more installations take place, so the theory goes, the less expensive technology will become and the less incentive will be required. The FIT therefore, has a built in mechanism, called ‘degression’, which lowers the guaranteed price at which the FIT pays out on each kW of electricity generated as and when a certain targets for renewable electricity (installed capacity) are reached. There are different rates of FIT for different technologies, that seek to reflect the differing costs involved in their installation; wind, solar, hydro, etc.
The FIT is funded through a levy on fuel bills, which the government estimates imposes a cost of £9 per year on consumers, based upon the average domestic fuel bill. In order to meet its manifesto commitment to reduce the cost of energy to households, the rate of degression is going to be speeded up and a cap introduced, limiting the amount of capacity that can be installed for each technology in any one year. In the first instance, the next degression will be huge, up to 87% off of the rate paid for solar pv, over 50% off of wind and 22% off of hydro.
In a further move, the government has ended the right of schemes to pre-accredit for the FIT. In the past, schemes that had gained planning permission and secured a connection to the National Grid were able to register for the FIT and be given a period of leeway in which to install there scheme, typically 18mths for a community scheme. Pre-accreditation recognised the fact that it was one thing to gain permission for a scheme, another to raise the funds necessary to be able to build it. Investment, like the £450,000 raised in shares by Ynni Anafon, requires the certainty that the scheme will add up – that it will generate enough power and enough income to meet the cost of installation and operation and pay back investors. Remove pre-accreditation and that certainty is lost.
Given that private sector investment in renewables over the last few years has contributed markedly to the growth in the UK economy, the current proposals under the FIT review are hard to explain. They appear to offer very little benefit to consumers (an estimated saving of £6 on the average energy bill by 2020), are likely to stop all community investment in renewables dead in its tracks, thereby depriving communities of the potential to invest in a sustainable future, and to seriously dent the ability of the UK to switch to a non-carbon future. Given the incentives that the government is offering to promote investment in fracking, not to mention the eye-watering subsidies being offered to nuclear power development in the UK, one can only conclude that the present administration has a blind spot when it comes to climate change.
The FIT review consultation is open until October 23rd. We will be submitting a response in support of maintaining the current FIT mechansim and we would encourage all readers to do the same. There are also numerous on line petitions against the proposed changes.
Whatever happens, we at Robert Owen Community Banking will be trying our best to find ways and means to support social enterprise to develop viable projects that generate and retain economic benefit for their local community.