A ground-breaking report has provided a unique insight into efforts to roll-out community energy schemes across Scotland.
The study reveals the huge advantages and benefits of community installations after analysing more than 300 organisations involved in renewable energy projects.
But the research also highlights the obstacles that are still hindering the development of schemes across the country, which leaves it lagging well behind other countries such as Denmark and Germany.
The unique report is the first of two emerging from a project, supported by the Edinburgh Centre for Carbon Innovation (ECCI) and the UK Energy Research Centre (UKERC), entitled SCENE Connect.
The aim of SCENE Connect is to increase transparency of renewable energy development throughout the UK and continental Europe and to facilitate information access and informed choice for local communities.
From December to March 2012, SCENE, in association with the UKERC-funded project, EnGAGE Scotland, undertook a Scotland-wide survey of over 300 community organisations involved in renewable energy projects.
In addition to desk-based research, the team conducted an on-line and telephone survey to analyse in more detail information on 97 projects in the total sample.
The operational community-owned capacity of the total sample was 20.2 MW, closely matching recent estimates by the Energy Saving Trust, suggesting the sample broadly reflects the total community renewable energy sector in Scotland today.
The study confirms that community ownership is gaining ground, with an estimated 180 MW currently at various stages of the planning process. Researchers estimate that, since 2004, about £35m has been invested into Scottish community-owned renewables, including £7m by communities themselves in the form of either community shares or capital reserves.
Community renewables deployment continues to be centred in northwest Scotland, and is still dominated by wind and hydro-electric installations.
Integrated installations are dominated by solar photovoltaic, ground source heat pump, or micro-wind installations in combination with solar thermal panels in community ‘facility’ projects (9 projects).
Less common integrated installations included wind-hydrogen fuel cell systems (1 project) and integrated grid systems such as the island grid developed by Eigg Electric.
The researchers found a wide diversity of Scottish communities own or are looking to own renewable energy generation infrastructure, and a variety of business and ownership models are used to achieve this goal.
Organisations varied in size, ranging from 0 to 1500 members. 26% of community organisations engaging in renewable energy projects do not have any full or part-time staff, relying fully on volunteers, while 33% of projects rely on temporary programme-funded staff. The remaining 40% have at least one or more part- or full-time permanent staff.
One third of organisations do not carry out regular financial risk assessments and reports finances to members, and 65% did not have a policy for accumulating appropriate levels of reserves on the balance sheet. However, most organisations reported having adequate facilities to meet and organize activities (81%). 53% stated that they had effective monitoring and evaluation systems in place for reviewing and improving performance in relation to organization objectives.
The major areas of expertise lacking in community organisations were legal expertise (absent in 74% of projects) and project management experience (absent in 33% of projects).
On a more positive note, only 26% of respondents stated that their organisation lacked individuals with professional experience in accounting, financial planning, and/or managing cash-flows. 72% of organisations had access to members, volunteers or staff who were engineers, electricians or other technical experts.
The study included 21 projects that had been discontinued. Of the stalled projects in the sample, the most common reason for discontinuation was a lack of capital and/or lack of project financial viability (6 projects), followed closely by planning rejection (5 projects).
For at least one project, financial non-viability was attributed to planning restrictions and grid connection costs. Three projects were discontinued as a result of being turned down for grant funding. Remaining reasons for discontinuation included lack of time/human resource capacity, land site issues and delays, downgrading of project importance, disputes/lack of consensus within the community, lack of natural resource availability, as well as the dismantling of implementing organisations.
Across a sub-sample of 97 projects, 34% of organizations reported to have had difficulties, disputes or delays in negotiating the land lease. Projects overwhelmingly received local support, with two thirds of projects facing ‘no objections from within their communities’.
Initial estimates of unit costs (total cost per kW) suggest community-led wind costs on average £4609/kW as compared to £2466/kW for joint ventures. The report says this disparity is likely to reflect economies of scale, as well as factors such as the increased cost of debt finance and lengthier periods of project development faced by community organisations.
The time-scale from conception to completion of community-led ventures exceeding 50 kW ranged from 1 to 8 years, averaging at just slightly over 4 years.
As expected, projects that are currently operational have been heavily dependent on grant funding, which has contributed an average of 33% of total project costs. However, there is a prominent shift away from charitable funding, with projects currently at early feasibility stages turning to CARES loans and/or community shares to source seed capital. This follows a reduction in the availability of grant funding and new regulations on the incompatibility of FiTs and public funding of capital costs.
Commercial loans were provided by the Co-operative Bank, Triodos Bank, the Royal Bank of Scotland, Social Investment Scotland, and commercial wind developers themselves. Commercial loans average £760,000. At least two wind and three hydro projects were identified as being on hold after securing planning consent due to the inability to secure commercial loans, the latter awaiting release of Feed-in Tariff reviews. The potential for asset-based loans was variable; the stated value of assets owned by respondent organisations ranged from £0 to £54m, where 58% of respondent organisations stated they did not own any assets. However, a large proportion of organizations own land which they may not be willing to put up as collateral for debt finance.
There is little doubt that community energy has made significant progress in recent years, in part as a result of the investment and priorities of government. However, the extent of community energy in Scotland pales in comparison to some other European countries with similar ambitions for a transition to renewable energy.
The situation is starkly illustrated for on- and offshore wind-energy. In Denmark and Germany, about 86% and 50% of wind energy generation is locally owned, respectively. In Scotland, which has better renewable resources than either of these countries, that figure is just over 3%.
The report explains that the reasons for this stark disparity with the Scottish and wider UK situation are manifold, and worth highlighting in general terms. Danish and German communities have had access to a stable and profitable wind market for a substantially longer period, buttressed by the benefits of Feed-In-Tariffs since 1996 and 2000, respectively. Danish geographic ownership restrictions, meanwhile, have been a key driver for local ownership, which has been declining since their elimination in May 2000.
Local ownership in Germany and Denmark has also benefitted from the presence of a wind manufacturing industry. Danish turbine manufacturers, in particular, have helped to instigate wind partnerships and cooperatives, not least by providing resource assessments, financial projections and other support services.
Community-owned projects in Germany and Denmark also benefit from a wide and varied range of tax advantages, in the form of tax-free generation, refunds of energy or CO2 taxes, and favourable depreciation rules.
The results suggest that despite often daunting complexity of medium scale renewable energy projects, Scottish community renewable energy action is impressive and continuing to grow. However, the largest proportion of projects has yet to be completed (62%), and 36% of projects are at very early feasibility stages.
When viewed from a broader international perspective, most Scottish communities are still missing out on the full benefits that renewable energy has to offer. A tremendous opportunity still exists, however. In terms of the onshore wind resource alone, about 4.5 GW remains undeveloped – or roughly 1 kW per Scottish inhabitant.
The report says the allocation of this world-class resource is deeply uncertain, and will be the decisive factor in determining the future of Scottish community renewables. Like the 180 MW of community projects currently awaiting financing and planning permission – roughly enough to power Aberdeen- , there are two scenarios.
In one scenario, Scottish communities and businesses receive the space and support they need to work together effectively, with benefits flowing to both. In the other, Scottish communities and businesses continue to forego the opportunity for local and regional revenue generation – with growing opposition to renewables development.
There is also the question of who the ultimate beneficiaries stand to be. Although the Scottish Government’s modest target of 500 MW of locally owned renewable energy generation by 2020 is likely to be realised, it remains to be seen whether most of this ‘local ownership’ (and benefits flowing there from) will fall to communities, or to private interests.
The report identifies five main benefits that community-led renewables can deliver:
* Dispersal = Resilience. By their very nature, renewable resources tend to be dispersed and remote. Furthermore, many renewable technologies suffer from so-called ‘intermittency’ problems. Putting energy production into the hands of local communities helps to circumvent these challenges, creating islands of security during grid outages and contributing to voltage stability - thereby boosting the resilience of our future energy supply
* Financial and other benefits. Community renewable energy projects provide economic, environmental and social opportunities
* Heightened energy efficiency and consciousness. Ownership over renewable energy generation helps to promote greater energy efficiency and awareness of energy use6;
* Ownership = Support. Local community project ownership helps overcome public opposition facing renewable energy development such as wind-farms, thus advancing its uptake7´4;
* Market access and sectoral synergy. Communities present an important potential source of investment, and revenue from community-led renewables projects is often recycled back into the renewables sector.
The full report can be found by clicking here.