Energy and Climate Change Committe - Minutes of EvidenceHC 180

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Oral Evidence

Taken before the Energy and Climate Change Committee

on Monday 10 June 2013

Members present:

Dr Alan Whitehead (Chair)

Barry Gardiner

Dr Phillip Lee


Examination of Witnesses

Witnesses: Mark Stokes, Managing Director, Utilyx Asset Management, Ed Gill, Head of External Affairs, Good Energy, Richard Tarboton, Director of Energy and Carbon, BT, Colin Baines, Campaigns Manager, Co-operative Group, Councillor Colin Hall, Deputy Leader, London Borough of Sutton, and Anthony Weight, Sustainable Development Co-ordinator, Cornwall Council, gave evidence.

Q45 Chair: Good afternoon, gentlemen. Thank you very much for coming to the second session of our local energy inquiry. As I think you are aware, this is a sub-committee inquiry but the report will go to the main Committee for final consideration. There are rather fewer members present this afternoon than there might be were this a sitting of the main Committee and hence we have to be very careful about our quorum. As I think you are already aware, we are going to have to suspend proceedings for half an hour this afternoon. That will affect this particular panel’s evidence session, but I hope we will have time to get everything in and you will have the opportunity to say what you want to say during the course of the proceedings, suspension notwithstanding. I am very grateful to you for coming before us this afternoon.

Could you all introduce yourselves briefly for the record? Perhaps we could start with Mr Stokes.

Mark Stokes: Mark Stokes. I am the Managing Director of Utilyx Asset Management, which was formerly MITIE Asset Management.

Ed Gill: Edward Gill, Head of External Affairs at Good Energy.

Richard Tarboton: Richard Tarboton, the Director of Energy and Carbon at BT.

Colin Baines: Colin Baines, Campaigns Manager at the Co-operative Group.

Councillor Hall: Good afternoon, everybody. I am Colin Hall, Deputy Leader of Sutton Council.

Anthony Weight: Anthony Weight, Sustainable Development Co-ordinator with Cornwall Council, a unitary council.

Q46 Chair: We have an impressive and wide-ranging array of expertise before us this afternoon. I will start off with Mr Tarboton and Mr Baines. Both of you, that is BT and the Co-operative Group, decided to generate your own electricity with, interestingly, slightly different results. What initially was the motivation behind your decision to do that at community generation level?

Colin Baines: Part of our onsite generation is community. It is all part of our commitment to combating climate change at the end of the day, something that our members and customers have identified as a priority. As a co-operative, we are controlled by our members and we take into consideration those types of things. It is part of our ethical operating plan, which is renewed each year. Our current target is 25% of our own energy use from our own sources by 2017. We are currently at 5%, which is the equivalent of about 48 gigawatt hours. There is a variety of different means of generation: we have our own wind farms on Co-operative farmland; we have the UK’s tallest solar array on one of our head offices in Manchester; and our new Angel Square building has combined heat and power set up to run on liquid biofuels that are grown on our own farms. We also have some power purchase agreements with community energy groups such as Torrs Hydro in Derbyshire. We have a private wire to our local store so that electricity goes straight to that store in New Mills, Derbyshire. That is also about supporting community as well as doing our bit for the environment.

Q47 Chair: That is a general philosophical approach that you take throughout the Co-operative Group?

Colin Baines: Yes.

Q48 Chair: In describing that motivation, to what extent have you found that the ability of the group overall to co-operate in getting these renewable energy arrangements underway has been a plus or a minus?

Colin Baines: It is all a plus. It is very popular with customers, members, and it is what we are about. But there have been barriers, I suppose, and not least-this is probably shared by everybody else-is the uncertainty around policy and regulation. I guess everyone experiences this, such as in the past unscheduled FIT reviews and right now uncertainty over ROCs and contracts for difference because it has to have a business case at the end of the day. Those issues are vital.

Q49 Chair: Mr Tarboton, do you also do this?

Richard Tarboton: Yes. We have set out a long-term vision on energy and sustainability. This goes back to 1996 when we started to measure our carbon footprint. Our plan is to reduce our carbon emissions by 80% in the UK by 2016 and globally our carbon intensity by 80% reduction by 2020. Doing renewable energy projects has very much been part of that strategy. It has also been important to see this as part of our energy purchasing strategy. We purchase about 0.7% of all the electricity in the UK across our 6,000 sites to run all the data centres and all the networks for broadband. We use quite a substantial amount of energy, and therefore creating a long-term strategy whereby we can source that energy from low carbon renewable sources and at a predictable price has been key to the strategy.

However, similar to the comments shared by Colin earlier, the uncertainty of the incentive schemes and of the policies means that it is not giving us that level of business case certainty that we need to continue to invest directly in delivering renewable energy ourselves. We are doing it a lot more now through partners. We have just signed up to be supplied with 100% renewable energy from our supplier npower and we are working with them to provide that to us through a certified source of generation accreditation scheme so we can be sure where it is coming from and make sure it is renewable.

Q50 Chair: It just proved unfeasible in the end to do it entirely yourselves?

Richard Tarboton: To do it ourselves, yes. As a developer, we do not feel we are big enough in the developing market for renewable energy to be able to handle all the uncertainty.

Q51 Chair: I would welcome thoughts from the panel generally about this. Do you think that that is the main reason why there are not that many commercial organisations investing in onsite generation or associated generation? Co-op and BT-albeit BT having decided it was unfeasible-I think are the quite substantial exceptions to the more general scheme of things.

Richard Tarboton: I think uncertainty is one key reason, and another is difficulty in getting the planning permission through different local councils. That takes a long time and there are a number of difficulties in achieving the objectives at a local level. A third issue is accounting rules, and specifically I am referring to IAS 17 and IFRIC 4, which require us to represent on our balance sheet any investment we make, even if it has been an investment with another company or with another financing body. The paybacks on those investments are sometimes quite long term and sometimes uncertain, which is where we would look for external investment to come in and help underwrite that, but the problem is that those accounting standards require us to represent all of that investment as if we have made it. That is an unhelpful accounting rule that we feel is holding back the partnership approach to investment in this area.

The final point is the uncertainty around the carbon rules. The carbon reporting guidelines, as laid out by Defra, currently stipulate that if the energy is not generated directly on your own site, so if it was at a grid-connected wind farm site-for example, some of the wind farm sites that we have been developing-then it would be deemed to be grid average energy in carbon content as if it was coming from a power station as the normal type energy with that level of carbon content. We think that disincentivises us to invest or push ahead with these kinds of projects.

Ed Gill: I would add to those comments that we source power from around 500 small and medium-sized generators. In our experience, the lack of straightforwardness and complexity in policy or just the policy supporting generation and the way it interplays with all those different things, creates more uncertainty at the end of the day. Looking at the way policy should be supporting local energy, from our point of view the simpler the better, to put it bluntly, because of all the existing obstacles that need to be overcome. If policy starts getting complex, then that clearly adds fuel to the fire, if you like.

Q52 Chair: You have mentioned several barriers. Do you think the resolution of some of those barriers could encourage a lot more commercial organisations to consider developing their own energy, or are there wider issues? What do you think Government could do to encourage a much greater take-up among commercial organisations developing their own electricity generation?

Colin Baines: I think on mid-scale-sized projects raising the FIT level would help because it is something people have experience of. It is relatively straightforward compared with what could be quite a complicated contracts for difference regime. It is about keeping things simple and anything that helps the business case, and uncertainty and complexity certainly does not.

Mark Stokes: What we ask for as a developer working on energy savings contracts with large organisations is parity with central generation. I am particularly mindful of decentralised energy. If we look at the volume and support of incentive, which creates a false market in effect but a buoyancy in our decarbonisation targets, one of the advantages we see with decentralised energy is that we have the ability to take the heat offtake, it is high efficiency, very low carbon and even carbon neutral, but with the incentive mechanisms you are getting a pound for pound benefit over, in effect, a private wire PPA. You are bypassing the centralised network, and that is a point I would pick up from what Richard said. You do not get your transmission and distribution losses and then the incentive mechanisms do not take account of that. We would ask for greater clarity in the benefits of decentralised energy as opposed to centralised energy.

Q53 Dr Lee: Moving on to local authority investment in energy projects, the first question is directed specifically to Councillor Hall and Mr Weight. You are both involved in projects relating to local energy. What was your motivation for undertaking these projects and what do you hope to achieve?

Councillor Hall: From my point of view, I think there were probably three things. We have adopted a notion of One Planet Living, with which you may or may not be familiar. It is the principle that we only have one planet, therefore if we live beyond our share of it that is unreasonable. How can we get our usage, our share, down? In doing that, we have to look at all different sorts of things such as our use of water, our production of waste, our use of energy, and many other things like food as well. In looking at that, we felt we had to do something about energy. We then have the major issue of fuel poverty that people are experiencing in a very serious way now, and we have energy security concerns.

We had an opportunity in Sutton in that five years ago we were looking at whether we should invest in an energy recovery plant-what most people call an incinerator. I insist on calling them energy recovery plants because our one really does recover energy, whereas many do not. They have the promise of doing it, but it has never actually been a match of supply and demand. In our case, we have developed an energy recovery plant and we will take the heat from that to our decentralised energy network locally, which fits with our objective to address One Planet Living, fuel poverty and energy security. We have not built it yet, but we have the contracts in place between the energy supplier, which is a company called Viridor, and the users, which is a developer, but what is quite different about what we are going to do is that we are going to wholly own the energy company. It is not going to be community owned, it is not going to be owned by a business, it will be owned by the London Borough of Sutton. Like in the old days when councils were utilities in a way, we are going back to that a little bit. Our reason for doing that is that we intend to take a profit from selling the energy but at a lower level than that set under a commercial arrangement, which I think is often about 15% as a profit margin. We are going to take a lower margin of about 6% to 10% but we will plough that back into growing the network. Over 15 to 20 years we will go from growing just 1,000 properties to having a borough-wide scheme.

Anthony Weight: Cornwall Council’s efforts in this area go back to the mid-2000s before we became a unitary authority. There was a lot of high pressure will to take action on climate change and to reduce our energy consumption. We knew our carbon footprint by the late 2000s, and by the time we became a unitary authority it became a big thing that we wanted to invest in. We have 14.6 megawatts of PV on council buildings and we are also just finishing off a 5 megawatt solar farm, but this is on council land for the council’s own purpose. We have also set aside another £16 million for further renewable energy investment.

We have a lot of communities that are very active in this area who are very keen to develop their own renewable energy. We are keen to see this sort of thing take off, but it is frustrating for the council to sit back and see these communities struggle. It is a great thing in principle but in practical terms the skills and effort that are needed to get a project up and running and the finance to get it to planning stage make it very difficult. Our planners have been very proactive in this area. I think being a unitary authority helps with planning in that we can take a view from councillors drawn from across Cornwall rather than acting as six district councils, which we were before. They are more able to see the bigger picture.

We have carried out training for councillors. We have undertaken resource assessments for wind, solar, hydro and nine different technologies. We have set up a dedicated natural resources team to make sure we can deal with these things properly. To make sure that developers get it right the first time and to ease the process, we have entered into planning performance agreements so that we can help developers find the best sites early on rather than just get a succession of refusals before they finally get the right one. We have even done things like run a renewable energy show, which the planners instigated, so that developers could show the public the technologies, heat pumps and so on, for their own homes. Referring again to the planners, we have launched renewable energy awards and a guide to wind farms, because, contrary to popular perception, a lot of people are interested in wind farms, and in fact in 2004 a survey carried out suggested the majority of the public felt that the presence of wind farms enhanced their enjoyment of the countryside and three-quarters of people felt they either enhanced it or made no difference. That is going back a long while and things may have changed a little bit, but to help meet the interest, we published a guide. We have been quite successful in getting things through.

Q54 Dr Lee: My postbag does not reflect such enthusiasm for wind farms, but anyway. We have heard that attitudes towards risk might be a factor when a local authority decides whether or not to invest in a local energy project. Can you explain what the risks are-and this is open to all the panel-for local authorities in this area?

Councillor Hall: Can I say something first? We have had to take a conscious decision to spend the public’s money to do this. We are going to spend money that is in our reserves to build our energy network, to start it off, because we were not certain about where all the funding is going to come from. We will certainly take up other opportunities as well. We will be using the community infrastructure levy as a way of sourcing some money, but that is not going to produce lots of the cash that we need to build this network. We will use section 106 that comes from planning opportunities-again that will not source a lot of the money that we need for the network-and we will go to the Public Works Loan Board probably.

Q55 Dr Lee: But what are the risks for local authorities?

Mark Stokes: We see quite a number of smaller schemes foundering because of the high transaction costs, a distinct lack of working capital and also a lack of recognition of the sustainability metrics. We applaud the work the Green Investment Bank are doing to try to stimulate investment and avoid market failure and their ability to drive part of their criteria, their double bottom line approach, on clear, sustainable metrics.

Q56 Dr Lee: We have heard that a risk/reward toolkit for energy projects similar to those that you get for transport infrastructure projects might be useful. Is this something you think would be a good idea to introduce for councils?

Councillor Hall: I do not know the answer to that.

Anthony Weight: We take a quite simple view really. The feed-in tariff made PV very viable and through prudential borrowing we got the money and we have invested it and we are making a darn good return on it. We have also, in conjunction with other measures, reduced our energy bill by £1.2 million a year as well as got an income of £600,000. The issue is where we go beyond that with communities, I think.

Mark Stokes: Another risk that I think is relevant, particularly on CHP and biomass schemes, is the debt market’s view and the overall investment market’s view of risk. They have a complete aversion to risk. We have had recent evidence on some of our schemes where should an investor require a 10 to 15 year outlook of fixed price fuel risk, let us say on the waste wood market, we would be looking at £45 to £50 a tonne, whereas on a six-month to one-year spot market you are looking at attracting a gate fee of £10 to £15. You have a swing of £65 a tonne, which can significantly affect the economics and be the difference between the deal moving ahead or not.

Q57 Dr Lee: We have also heard some suggestions that statutory drivers such as targets to deliver renewable energy would ensure that more local authorities took action to support the development of renewable energy in their areas. What are your views on this idea?

Anthony Weight: Without doubt, in my opinion, it was a pity when National Indicator 186 was taken away, because it forced you to look across all your services-housing, planning, economic development-to see what you could do to make sure your measures were deliverable. A lot of our joined-up work came out of the effort that was made on National Indicator 186.

Councillor Hall: I agree. We have seen neighbouring boroughs stop some of their programmes because there are not any requirements on them to do things in a world where there is less money for all of us to do anything. I think it is because it is one of our political priorities that we are doing it, whereas I have neighbours who have consciously stopped doing it. I think it would be helpful for us to have some imperative from statute.

Q58 Dr Lee: Finally, a question directly to Mr Weight. Cornwall Council said that there was potential for councils to set up arm’s length development companies to develop sites. Could you explain what this would mean in practice and why you think more councils have not recognised the opportunity?

Anthony Weight: Well, we are sitting here, we want communities to develop their own renewable energy projects. Unfortunately, we are seeing altruistic, well-intentioned individuals being run into the ground almost with the sheer scale of effort involved in keeping the public onside and trying to combat the steady drip-drip of misinformation in the press about climate change and renewable energy. I had to give a talk recently at a public meeting and it was just a simple talk on climate change and renewable energy. I was shocked at the level of misunderstanding about the subject. It is a lot for these people to take on. It requires a lot of different skills-raising the money, keeping the public onside, dealing with the planning.

The question then comes, are we as an authority happy to sit back and watch them struggle? It is a difficult one. Or should we intervene and say, "Do they have a site that could be a goer? Should we invest in that site, get it through planning, retain a stake in it so it is cost neutral to us, and then let the public buy in?" We think public ownership can make a big difference. That is one consideration.

The issue following that is we are sitting staring at maps that show a resource in Cornwall of 400 megawatts of, say, wind and we have under 200 at the moment. If we are going to help the communities, are we going to sit back and watch companies from outside Cornwall, outside the UK, people from outside Cornwall come in, build the sites and then move out, or should we as an authority act as a developer, take on people, provide local jobs? The scale of opportunity probably represents £100 million in revenue a year, which could be used to reduce council taxes, improves services and tackle fuel poverty. I think the public would accept a local authority doing this sort of work much more easily than they would accept developers coming in.

I am not saying we have any position on this, but it would be wrong not to ask the question of ourselves. At the moment, there is no driver to take the risk in terms of the public reputation and such like.

Chair: Thank you very much. We now have to suspend our inquiry until 3.00pm, we hope. We will resume at that point with questions from Barry Gardiner on the current PPA market, so you have half an hour to prepare yourselves for interesting answers on that subject. Thank you for your attendance so far.

Sitting suspended.

On resuming-

Q59 Chair: We are ready to resume. Thank you for your patience.

Barry Gardiner: Mr Weight, you have suggested that the PPA market is not working terribly well at the moment and that the changes set out in the Energy Bill might make it a little bit worse in Cornwall, haven’t you?

Anthony Weight: Sorry, what is PPA?

Barry Gardiner: The power purchase agreement.

Anthony Weight: Right, yes. One of the issues is that we do have a logjam in Cornwall as far as the grid is concerned in that there are certain areas where the grid is at capacity. The first developer that comes along that wants to develop a site will have to pay for the entire upgrade and somebody else could come along after that and capitalise on the initial investment. There is an issue about that and perhaps we need to mandate the suppliers to look at making sure the grid is viable by recouping the money from all the developers rather than just the first person that comes along. Sorry, is that answering your question? I am not sure it is.

Q60 Barry Gardiner: Not really, and maybe I will broaden it out. I think it was Cornwall Energy who put this in their written submission, but I assumed that you might be familiar with the argument that they had been making.

Colin Baines: That report by Cornwall Energy was commissioned by Co-operatives UK and the Co-operative Group and we see serious problems for PPAs under the Energy Bill as it stands, primarily because of the end of the Renewables Obligation. Energy companies obviously won’t have that obligation, so they won’t have that incentive to purchase renewable energy from community generators, who will be hit particularly hard by this, we think. In our book, this highlights the need for a green power auction market.

Q61 Barry Gardiner: Are the big generators playing the system here by giving less favourable deals on their PPAs?

Ed Gill: We would say there is less incentive for them to buy power in the types of sizes that local energy projects generate because they are dealing naturally with larger customer bases. If you are talking about clip sizes going down the scale, I think there is less of an interest to buy power in the first place and, secondly, to deal with the transactional costs. We are kind of the reverse because we are a small supplier, so we come at it from the opposite direction.

Q62 Barry Gardiner: How would you solve the problem? What is going to resolve it?

Colin Baines: We have been campaigning actively for a green power auction market. That would give communities somewhere to go where they can sell their energy and get the market rate, get a fair price for that energy. We feel this, along with raising the fixed FIT cap, would introduce a clear, simple, bankable model for community generators and this would assist in both safeguarding the community energy sector and encouraging more projects to come on stream.

Q63 Barry Gardiner: Mr Gill, I think Good Energy said you wanted to extend the feed-in tariff?

Ed Gill: Yes. We think a simple feed-in tariff is the best mechanism for supporting local energy projects. You could do that through extending the existing feed-in tariff or indeed you could introduce a more targeted mechanism for schemes say between 5 and 50 megawatts and have a definition on there if it is connected to-

Q64 Barry Gardiner: What about community-owned projects, rather than just doing it on size, doing it on the nature of the project? Would that work?

Ed Gill: If you did it purely on community energy projects then you risk obviously not including private businesses, organisations who want to enter the market and bring a wider load of benefits as independent generators to the market. The key point around this is the different relationship with local energy projects, with the marketplace that, say, a large sectionalised plant operates. If you are connected through the local distribution network and you are reliant on an electricity export meter then you have to have a supplier to manage your relationship with the market. A large centralised plant, let us say offshore wind, has a direct relationship with the market and, therefore, the day-ahead reference price.

If you are reliant on an intermediary to participate in the market, which you are, and the current market arrangements are flexible enough to allow you to strike a deal through a fixed price power purchase agreement that allows that intermediary to worry about the physical imbalance and not worry about the varying price on the day-ahead basis, and then you change that so you do have to worry about the price on the day-ahead basis as well, you are talking about introducing new discounts that generator will see kicked back to them and therefore they will not achieve the full market price. That is another concern as well as the concern about the ROC route to market point.

Mark Stokes: I think we need a more accurate definition of what "local" means. A lot of our decentralised schemes are right at the point of use so they do not hit the grid network whatsoever. They are on a private wire PPA and the RO mechanism is very clear for us and we have clear reference points from investment and development criteria. What we do not have yet is that clarity through CFD or how CFD is going to take on the ability for us to continue.

Richard Tarboton: For us as BT we are looking into PPAs and looking to secure a number of PPAs at the moment. We are finding it incredibly difficult to understand how future policies around the whole complexity of the EMR will impact PPAs. We feel we need a lot more simplicity. What we want to do, effectively, is just buy directly from low carbon generators and there should be a simpler and clearer framework in place to do that and there should be a simpler and clearer way for us to report on what we have done. This is where we are coming in with our proposal to Government to have an A to G label on all energy bills that shows where the energy has come from and what its carbon content is, because as an organisation we feel there are basically two things that we should commit to doing. We should commit to reducing how much we use and we should commit to using energy from low carbon sources and those two should have very simple measurements. How much you use can be measured in either carbon from a grid average gross perspective or from a megawatt hours perspective, and then reducing the carbon content of what you purchase should be on an A to G colour-coded label on everyone’s bill, simply stated where your energy has come from.

Q65 Barry Gardiner: Thanks very much. Mr Gill, do you want to add a point?

Ed Gill: To build on Mark’s point, we absolutely support there being more substantive work done by Government to define what local energy is or what distributed generation is. That definition, from our point of view and based on experience, is necessary because of the different relationship they have with the marketplace, which is ultimately designed around very different technologies that are not as open and accessible and, therefore, should be used in a distributed fashion like new technology should be or can be.

Q66 Barry Gardiner: You said there has been a failure to incorporate community interests into the development of new projects. Who is to blame? Developers? Government? Who?

Ed Gill: Certainly up until the announcement that we saw last Thursday in particular on onshore wind, we have been quite open in saying the Government should take more of a leadership role in saying, "We are responsible for encouraging the deployment of these technologies and therefore we need to be looking at ways to ensure that those closest to the communities and individuals are able to benefit from that investment". On that note, we welcomed last Thursday’s announcement. There is always more that can be done by industry in that respect as well. We have strived as a developer, as well as an electricity supplier, which is seeking to develop 110 megawatts of wind and solar over the next three years, to say you can do renewables development in a certain way that ticks all those boxes.

Q67 Barry Gardiner: Which do you think is likely to be more effective, community ownership or offering cheaper tariffs to people in the locale?

Ed Gill: We would say both, based on our conversations, because different people want different things and that is where the consultation process is really important to a site-by-site process.

Q68 Barry Gardiner: You offer cheaper tariffs to customers living near-is it Delabole?

Ed Gill: That is right.

Barry Gardiner: But we have heard that, unlike Good Energy, most generators do not hold supply licences and so can’t emulate that approach. What steps could be taken to make it easier for small generators to sell power directly to customers?

Ed Gill: At the risk of promoting other schemes outside of our area, there is another scheme that I believe is in operation. The model that we have pursued we believe is replicable. Other suppliers could do it quite easily. It is a straightforward 20% off our standard tariff.

Q69 Dr Lee: Moving on to finance, we have heard that access to finance is a barrier for councils who would like to invest in local energy projects. What impact, if any, have spending cuts had on your own local energy projects? There does not have to be any, so you can say "none".

Councillor Hall: We have had to be very careful about where we spent our money, or where we spent other people’s money. As a consequence of that, we have decided that we will invest in a decentralised energy network but have to be very careful about how much we will put into it. What we have in front of us in Sutton is a very commercially attractive offer. We could put that to someone else and they could run it for us very successfully and make the profit. We have chosen to make that profit to reinvest it back into the system ourselves. If it was not such a commercially attractive model I think we may not have invested in it because the money is now so tight, so it would have an effect for us. As I think I said earlier, some of my neighbouring boroughs have stopped doing many of the things they did that were about sustainability or green projects or energy. They just do not have the money to do it any more. It just happens to be one of our priorities that has made it important for us to do something about it, but I know that as the cash is getting tighter, these sorts of things are being stopped.

Anthony Weight: As far as Cornwall is concerned, we take the view that tackling energy saves the council money and can provide an income, and it has saved us a lot of money and it is providing a decent income. As far as the community is concerned, it can provide jobs and economic development. Also, there is a big issue of fuel poverty in Cornwall that is getting worse and we want to tackle that as well. Those are the three things that we talk about that are really important. Losing the NI 186 is a bit of a loss, and I have heard of other local authorities losing their co-ordinators on this and it becomes invisible if you do that. You think, "Well, somebody is paying the bills. Don’t worry about that. Get on with something else", but these things do need to be brought together and focused on in one place.

Q70 Dr Lee: It is a question of priorities and decisions. You have not made any decision to cut on the basis of fuel funding. Is that right?

Anthony Weight: No, we haven’t.

Councillor Hall: It is absolutely what you said. It is about the priorities that we have set and some neighbours are not setting the same ones.

Q71 Dr Lee: The UK Energy Research Centre suggested that prudential borrowing from the Public Works Loan Board could provide an alternative source of capital for councils. Is this something that local authorities are likely to consider and, if not, why not?

Councillor Hall: We are looking at two frontrunners for the way in which we are going to fund our scheme. One is the Public Works Loan Board and the offer around 15 years is an attractive one and we can be certain about the interest rates on it. The other is LEAF funding, which is run by Amber Industries for the Mayor of London but the money really comes out of a European fund called JESSICA. That has very similar rates that we would be charged for the loans but the hoops we have to jump through are smaller, or maybe bigger because it is not so difficult to do it. We are probably going to use LEAF as the funding scheme mainly for our schemes, but we would have a backstop of going to the Public Works Loan Board. That will not stop us using other local things as well, such as, as I said earlier, CIL, section 106 and so on.

Q72 Dr Lee: We have also heard that there is a problem with up-front funding to pay for putting business cases and that this can be a barrier to local authorities. Do you have any suggestions for how this type of funding might be provided?

Mark Stokes: We have encountered this exact problem. We have been a bidder on a scheme in Scotland for two years that is an energy generating scheme and a district heating network off the back of that. That has suffered from a strong lack of working capital and a route to funding. We have had to skip through hoops and are now looking at working with the European Energy Efficiency Fund for a technical advisory grant at the front end to support the local authority to the tune of £500,000, so that is a significant amount of investment to unlock the potential benefits there. We are looking at bringing in types of funding that recognise the strong sustainability metrics as well, which hopefully, through the United Nations Principles for Responsible Investment and SRI, will help to reduce the cost of capital for ethical and sustainable schemes.

Colin Baines: I would just add that community ownership unlocks new sources of investment. Things like community share offers have been proving that they can bring in considerable amounts of money and that community ownership brings myriad benefits beyond that. Once the money is in place, schemes enjoy greater levels of public support. We have done research that found that. We asked the public, "Would you support a wind turbine within two kilometres of your home?" We got 48% in favour and 22% against, but whenever they were told that the wind turbine would be owned by the community and benefiting the community the opposition plummeted to 7%, support increased to 68%, so it is 10 to one in favour. Two out of three people opposed to wind turbines near their homes changed their minds. So beyond the finance there are myriad benefits for the community ownership side of things.

Anthony Weight: We have put up £1 million available for communities to borrow as well so that if their scheme gets planning permission and is a goer they can take some of that money to finance it and use a share offer to raise the rest, but the challenge is getting the scheme to the stage where it gets planning permission. The sheer volume of work skills needed to get it to that stage is very difficult for them and unfortunately there is a well organised opposition nowadays that is blocking the way a lot of the time or making things very difficult for the individuals.

Q73 Chair: Could you very briefly touch on the recent planning reforms that were published last week? Ed Gill, you have mentioned that you think those changes might be beneficial, but what does the panel generally think of the proposals to give greater weight to landscape, visual impact and, of course, to require greater community consultation before a medium to small-sized scheme progresses?

Colin Baines: We think it was a missed opportunity to support community and co-operative ownership more generally. Again, we found that engagement is greater from the community when they have a stake in a development, rather than just getting a cut. This has been proven in other countries. Community benefit payments are quite rare in the likes of Germany and Denmark because the community benefit is intrinsic to the community ownership. They are going to see a wealth of benefits coming back to them and they do not need that payment.

Anthony Weight: It almost presupposes that there is a vast majority against and they need sweetening. We have not analysed this officially but the evidence seems to suggest that where there is an application, the same people object with the same letter from all over the place, as far as London, and in fact in the local community the picture may be slightly different. I mentioned that survey back in 2004. That is a long time ago but I still believe the majority are in favour of renewables, wind, but things get very stirred up and get very hot when there is a local application. The problem is if you are drip fed a message that says, "Climate change isn’t an issue and renewable energy does not work" and if an application comes up near you and people tell you it is going to devalue your house, it is logical and reasonable people are going to be angry and against, but I think that is not the reality.

Councillor Hall: What we find in having early adoption of neighbourhood planning in a couple of areas of the borough is that those areas are where people are keener to do things and try things out. It sort of fits with what Colin was saying about the fact that once people know the benefits, they will get involved. We certainly have more ease in getting planning through, for all different manner of things, in areas where a local neighbourhood-based planning decision has been taken, not a local planning authority, and that seems to work very well.

Ed Gill: Just to build on what Anthony was saying about the types of objections that you might get to a proposed site, in our experience a lack of engagement leads to a lack of debate and, at the end of the day, that means that those people who shout and scream the loudest in a certain manner perhaps can dominate that debate. More of an emphasis on consumer local engagement can address that fact and give the opportunity for other people who are perhaps pro the site to feed back. It is about facilitating that as well, but I think it is also linked to whether you are looking to say that these sites are going to act as a vehicle for social and economic investment through community benefit, because in those circumstances the engagement piece is key to that. You want to do it in a way in which communities have the opportunity to feed back and say, "This is a good way of doing it. We prefer to have things structured in this manner" rather than just chucking a load of money at it and walking away, which is not necessarily the responsible approach.

Anthony Weight: On the issue of local community, there is a challenge in terms of the benefit that the developer might provide, how that money gets used and making sure the community gets it. Unfortunately there has been a lot of mistrust at parish councils in our area about that sort of thing. How that gets used and how people feel it is being used in their community is also a challenge. I like the idea of bridging the gap between renewable energy generation and fuel poverty.

Ed Gill: Absolutely, and one of the things that we did at our existing site at Delabole wind farm is to ensure that the community fund is administered by an independent local community organisation. We go in and say, "Who would you like to administer this fund?" get round the problem that Anthony has identified.

Chair: Thank you very much, gentlemen, for your time this afternoon. Unfortunately we have to come to an end of our questions and discussions now, although obviously there are a number of further issues that one may want to think about. If you do have any further thoughts you want to offer the Committee, we would be very pleased to hear from you in writing, if that is what you want to do, but I hope you have had an opportunity to discuss the essential points this afternoon. Thank you very much. We have another panel waiting immediately behind you.

<?oasys [pg6,cwe1] ?>Examination of Witnesses

Witnesses: Philip Wolfe, Chairman, Westmill Solar Co-operative, Howard Johns, Director, Ouse Valley Energy Services Company (OVESCO) Limited, and Ian Bright, Managing Director, Totnes Renewable Energy Society (TRESOC), gave evidence.

Q74 Chair: Good afternoon. Welcome to our local and community energy inquiry. For the record, I would be grateful if you could introduce yourselves briefly, although I believe everyone is well known to our panel anyway.

Ian Bright: My name is Ian Bright and I am Managing Director of the Totnes Renewable Energy Society.

Philip Wolfe: I am Philip Wolfe. I am currently the non-executive Chairman of Westmill Solar Co-operative.

Howard Johns: Howard Johns, Director of OVESCO.

Q75 Chair: Thank you. Could we start with some thoughts on the financing of community schemes? In the evidence from the earlier panel and in previous hearings we have heard that the problems of pre-planning, planning development and so on are particular barriers to community schemes. How have you funded that particular aspect of your own projects?

Ian Bright: In our case the funding arrangements are different for different projects, but in the case of the Totnes community wind farm that is a £6.5 million 4.6 megawatt project and we were able to raise £175,000 by a share subscription to the local community just on the basis of the fact that we have a signed agreement with the landowner and with the developer to develop the site. In terms of the cost of preparing the planning application and submitting it, so far the developer has probably spent somewhere in the region of £200,000 and we are now looking at the cost of going to appeal. The arrangement that we have with the developer is that we will have the option to take a 49% equity stake as and when the project gets consent. We have a number of other projects that we are financing in different ways, but we have no difficulty in raising money for a viable project, once it is consented, from local share and bond issues.

Q76 Chair: You do have a particular partnership in the case of TRESOC, don’t you?

Ian Bright: Yes, we do with Infinergy for the wind farm development. It has been very interesting to work with them because from the work that I have done as Renewable Energy Officer with Somerset prior to being Managing Director of TRESOC, I believe that the single factor that correlates most strongly with public acceptance of wind farms is public local ownership. You see this from Australia, Germany, Denmark and North America, but that is not apparent until the deal is done, until the wind farm is in place and people are seeing the blades turning round and seeing the money going into their pockets.

Philip Wolfe: Westmill Solar was different in many ways and fortunate in that, at the time when the funding needed to be raised, the installation had already been built. There was no development risk for those putting in funding at that stage. Westmill Wind <?oasys [pc10p0] ?>Farm, who co-operated also in the evidence that we submitted to you, was in the more normal situation where they had to raise the funding before that stage. In that particular case, the landowner himself invested in the early stages of developing that project through to getting planning consent, so by the time the funding for the co-operative was being put in then again it was a consented project.

I would agree with Ian that once you have got over the hurdle of planning consent it is not substantially more difficult to fund a community project than it would be for a commercial project, beyond perhaps the fact that community projects tend to be done one at a time. Therefore, the quantum of funding is typically lower than a commercial developer who may be developing a portfolio of projects and working at the tens of millions of pounds, which is an area it is easier to fund on the whole than projects of a few hundred thousands up to a few million pounds. Typically, once you have overcome the development risk stage, then funding is not substantially more difficult for communities than it is for commercial projects.

Howard Johns: OVESCO set up as a limited company first and we got a commercial contact that effectively funded us to do another job and the profits we made from that were put into developing our community energy business. So again, that was quite unusual. Most people starting out probably need to find at least £10,000 to set up their company. In other cases what I have seen is that the directors who set it up are doing that from their personal donations to the whole thing, but for me that is a huge barrier and particularly for funding planning. Right now OVESCO is looking at some larger-scale solar field sites and the planning requirement is much more expensive. When you are doing a small rooftop scheme, for example, it is potentially zero cost in terms of planning. All you need is the legal stuff done and the actual company registration, which can probably come in under £10,000, but the moment you start trying to build a field-scale solar PV rig, let us say 1 megawatt or 5 megawatts, you probably need between £20,000 and £60,000 at-risk capital, which not many people can find at that stage, and that to me is a huge barrier. I think there are some ideas as to how to get around it and certainly Philip set something up that could help with that.

Philip Wolfe: I believe you may have had evidence from an organisation called Communities for Renewables, of which I am also a non-executive director. This is a newly established community interest company that helps community schemes get up and running and it puts at-risk resources behind them to help them get through the project development stages. Communities for Renewables will help local schemes that do not have the expertise. Communities for Renewables does have that expertise and will help them get through the initial early stages <?oasys [pc10p0] ?>of the project and will take risk alongside them. So it will fund the early stages of project development in the hope that if the project succeeds it will receive a fee later in the process.

Howard Johns: There are others that do that as well, aren’t there? On the hydro side and on the wind side there are other companies that will help communities, but I did feel that the community energy strategy from Government would be made far more powerful if there was one-off either loan finance or grant finance available for community groups that could get themselves to a certain level of organisation but could not raise the £10,000 to £20,000 that they needed just to get off the blocks. I did put that to Minister Barker as a suggestion of what they could do to really speed community energy in the UK.

Q77 Chair: Do you think that is a particular stand-out problem in the whole process of finance?

Howard Johns: Personally, I think it is.

Q78 Chair: The Scottish Government, for example, provides loans. Westmill has secured loans from, I think, the Co-op Bank, Lancashire County Council, but that is presumably post the issue of risk.

Philip Wolfe: Exactly, yes. I think loan finance in the early stages of a project for a community would be almost impossible.

Howard Johns: If you look at who sits on the board of most of the successful community energy companies, there is normally someone on there who is an expert in the field or has a breadth of experience. Certainly on this panel you have people who have a breadth of experience in this field anyway. We are talking about those groups out there who want to replicate what we have achieved but do not have the expert in-house who could get them through some of the minefield areas. That is what we are wanting.

Ian Bright: I would add to that that community groups also bring their own expertise. On our board-and these are all people who have come forward-we have a very expensive lawyer who is putting in his time for nothing. The ex-head of planning for the local authority is now our planning director. We have a very well qualified engineer as our engineering director, and an accountant and a professional communications director. These people are all putting in their professional expertise. They have the same skill sets as would be held by any wind development company and so they are learning fast in their own fields and bringing that expertise into the community sector. If we were to add up the amount of professional time that our directors have put into this it would certainly equal the costs for their own employees that Infinergy have put in.

Q79 Chair: I think it is fair to say that, in terms of those groups who are thinking of doing this that are perhaps rather on the outside, the advice and support services might be perceived as fairly fragmented and certainly oversubscribed. Co-op UK have recently recommended the introduction of a co-ordinated advice and support service, perhaps funded by Government, run by independent experts. Do you think that would assist or would that perhaps bureaucratise a system that maybe benefits from indeed its own individual entrepreneurship?

Ian Bright: I was at a conference on Friday organised by Region South West for community energy groups with the head of onshore wind and she said that we are on target to meet our onshore wind targets and that 1% of onshore wind is currently community-owned and it did not matter to her how much of it was community-owned, which I have to say was no surprise to the assembled community energy representatives. If you want the benefits of community energy then you have to provide some targeted support and, although at the moment it says that in planning there should be a presumption in favour of community-owned groups, that does not seem to be translating into planning decisions and the strike rate for planning decisions.

At the same time, some form of tangible recognition of the benefits that community ownership brings, perhaps in the form of an enhanced FIT rate, no matter how small, would be a really clear signal that Government is in favour of community ownership. At the moment it is a group of individuals who are very much on their own and everybody is having to overcome the legislative hurdles associated with a legislative framework that is there to support the existing power supply infrastructure, which is down to six companies.

Philip Wolfe: I agree with all the things that Ian has said. As has been said before, the successful ones almost invariably rely on expertise within the board to provide what a commercial company would otherwise have. It strikes me there must be lots of other prospective community projects out there where that expertise does not exist or is not participating and where they can’t get off the ground. I have had some discussions with groups who have really good ideas but do not have the expertise, and I fear for lack of that expertise they will probably never come to light and so, despite all the best intentions, it will not happen.

I think you also have to bear in mind that, even where you have the expertise, this is almost invariably working on a volunteer basis. It is unpaid. They do not have any financial resources behind them and therefore these projects will take very much longer to deliver because you are relying on people who might otherwise have a day job and it is not their primary activity or they are retired and so on. You need to provide some compensation for the fact that they do not have the resources and they are going to take longer to get there, and therefore some kind of targeted support would be helpful.

Secondly, it strikes me that under the support schemes that do exist, things like the feed-in tariffs, there is no recognition of the fact that a community scheme will take longer and therefore go through multiple degression deadlines, potentially, before it is implemented. It strikes me that that is another area where the Government could provide support. They could provide a pre-approval mechanism for community schemes and then if they take some time to get the project up and running they already know at the start what the tariff level is going to be, for example.

Howard Johns: There are some great schemes out there. People like CSE in Bristol and Carbon Leapfrog are doing their best to provide coherent support, but before the original feed-in tariff changes OVESCO were inundated with other groups that were keen to replicate the model and be mentored by us and we had no resources to be able to deal with that. I think there is a massive demand out there and it would really help if there was a good, simple, centralised place where people could find out what are the different legal structures, what are the barriers, how many hours might it take you to get through this process, just some sort of guidance. It is often going to be finances that stops them, because maybe people do have time but if they do have time they probably don’t have money and you need a combination of the two to make this thing successful. If you are going to give them advice you probably need to put some sort of seed funding there-maybe you make the criteria quite hard to get it-to support the enthusiastic ones.

Q80 Barry Gardiner: We have heard about the support mechanisms, the RO and the CFDs, being too complex for community groups. What would be the best way of addressing those problems? Does it need to be simplified? Should some form of assistance be provided? What is the best way of taking this?

Philip Wolfe: The best way would be to keep the FITs and increase the level to which community schemes can participate. We have suggested all the way up to 50 megawatts. The Renewables Obligation and the CFDs are both measures that were invented by the energy industry for the energy industry and they are almost impenetrable. With my background I do understand some of these things, but they are impenetrable to the vast majority of the population. They were never designed to be usable by people who are not members of this tight energy fraternity.

The feed-in tariffs have the potential to do that. It is quite straightforward, so many pence per kilowatt hour; everyone understands it because that is what they live with at home. As long as you keep it at that level of simplicity then it will work. Once you migrate to a Renewables Obligation type mechanism, contracts for difference, things that rely on the investor having to predict what energy prices are going to be in the future, all of those things alienate community schemes. Unless there is a model that is relatively simple, community schemes will be few and far between.

Q81 Barry Gardiner: If you are doing that, should it be for any medium-sized project or should it only be for community-owned?

Philip Wolfe: The logic of what I have just said is that it should be for entities that are outside the energy industry so, yes, it should be for community-owned. There is a strong argument that says it could also apply to commercial entities which are not in the energy sector. How one does that legislatively fortunately would not be my problem. I accept that that might not be very easy to draft into legislation but that is the logic of what we have suggested.

Ian Bright: I have been lobbying with Co-operatives UK on behalf of the community-owned industry and it is apparent that there is common cause with small scale producers, particularly in our association with the Renewable Energy Association. Nevertheless, I think the wider benefits to the community from community ownership could be recognised and even a slight differential between community-owned and privately-owned would be enough to send a signal that community ownership is favoured and would give a lot of encouragement. There are a lot of hurdles that community-owned groups have to overcome on their own without any kind of support currently and it would be good to see tangible support.

Philip Wolfe: Can I just mention a related issue and that is that all of these mechanisms at the moment are administered by Ofgem, which again is a body from within the energy industry, funded by the energy industry and dealing for the energy industry. Their schemes make it also very difficult for the non-expert to get projects accredited and there are schemes that have taken months, even years, just to get accredited under the existing Renewables Obligation, Renewable Heat Incentive and feed-in tariffs, because of the way in which Ofgem operates and the intangible barrier this presents to people outside the energy industry.

Howard Johns: To give you an active working example of that, OVESCO’s first project, which was only 100 kilowatts of PV on our local brewery roof, took over a year to get accreditation from Ofgem because the forms were never filled in correctly and every time we sent them back they came back with another question on there, "Oh, you’ve missed this one". It was something like 15 months before our scheme could claim any of the income that it had generated. It is a huge barrier and that is with what is meant to be a simple, accessible scheme, the feed-in tariff. There is a particular issue with the feedin tariff at the moment because it is in bands and there is a band of between 250 kilowatts and 5 megawatts, which is perfect for communities and for many commercial organisations, and it simply doesn’t work financially. If there was anything that could be done to get that working again and get it in parity with what people can get from ROCs that would be a massive help to get more communities engaged. We are planning a megawatt scheme and we are having to go down the ROCs route for it when in fact it would be much more sensible to go down the FITs route if it would only add up, so it is a huge challenge. I think contracts for difference, CFDs, ROCs is probably just about doable for communities when they have got someone who is very engaged who can help steer them through it, but the feed-in tariff is a simpler way. It is a much easier way and I would agree with these chaps that it is a perfect one for communities. If there could be some uplift for communities it would accelerate community energy in the UK.

Q82 Dr Lee: You have mentioned already that planning is often costly, onerous and time consuming. The unpredictability of the system seems to be a major barrier to community-owned schemes, but good local plans and clear guidance about what is required from energy developments could make the process less risky. What are your views on this idea?

Ian Bright: I think they would if we had it, but we don’t have that at the moment. What we have is a system where a very large proportion go to appeal, and the appeal process has been described to me by our commercial partner as a circus of very highly paid QCs and planning inspectors touring the country taking up money and time. I think probably the most effective thing would be training for council members specifically in dealing with renewable energy applications because the level of knowledge among councillors about renewable energy is not very high in my experience, with some notable exceptions, Cornwall being among them. But I think education of local authority planning members would be very helpful.

Philip Wolfe: Additionally, it would be helpful not just for community schemes but for renewable schemes in general if a certain number of issues that get raised repeatedly can be dealt with at the national level once off and then taken outside the scope of what local planning decision making can cover. The old sort of problems of "do wind turbines kill birds?"; "do we need renewable energy anyway?"; "isn’t it intermittent and therefore useless?", these kind of things just get raised at every single instance and really that can be dealt with once and then put on one side. As Ian said, most planning officers are basically trained to deal with planning for buildings, they are not experts in energy anyway. If some of these renewable energy-specific aspects could be dealt with where it can be dealt with properly and then put on one side and not be eligible for discussion within local planning that would streamline the system without removing any element of local democracy.

Q83 Dr Lee: Mr Johns, OVESCO suggested that preference should be given to community schemes over private schemes in the planning process. How could this be achieved in practice?

Howard Johns: To give you an example of how planning works for, let’s say, a community solar farm or any solar farm, you put in an application that is akin to putting in a housing development application. The way it is priced is on the acre, so you are paying for a whole lot of time for what would probably be quite a complex process going through, let’s say a housing development scheme, for a field with solar panels in that does not need necessarily the same amount of input. So to give some reduced rate planning for that sort of thing might be one way to preference communities for community applications. It might be one way to encourage them to do it.

Q84 Dr Lee: Mr Wolfe, Westmill suggested that the concept of presumption in favour should be re-examined for community projects. Can you explain the thinking behind this proposal?

Philip Wolfe: As my colleague suggested earlier on, there is in theory presumption in favour, it just doesn’t seem to happen in practice. One important way in which this could be achieved is being clearer to the local planning decision-making process what are valid reasons for refusing consent and what reasons would not be valid for refusing a community-owned energy project. If one could take some of the fog away from the process it would enable them and the developer to focus more specifically on the genuine local advantages and disadvantages of any particular scheme.

Q85 Chair: Just briefly, what are your thoughts on the most recent announcement of the changes in planning and community benefits that arose last week? Do you think the suggested changes are going to be, or could be, net beneficial for the sort of schemes that you have been developing or do you foresee problems arising from them?

Ian Bright: I think the extra weight given to landscape, certainly in our area, will kill off any substantial wind farm developments, essentially. Our application was refused at the very last minute on grounds submitted by English Heritage that said that they opposed it because it would introduce a tall moving structure into the landscape. On those grounds no wind turbines would be constructed anywhere in the South Hams, and sites are constrained enough as it is. So to put more weight on that is the end; forget wind development where we are. Some guidance needs to be given to planners as to how much weight they do give to community-owned schemes. How do you weigh that in the balance when you are making a judgment? That is not clear at this time.

Philip Wolfe: I support a lot of the things mentioned in your earlier session by the Co-operative Group. It does seem to have been largely a lost opportunity. The most substantive, if you like positive, recommendation seems to be just increase the lump of money that a commercial developer chucks into the pot and that is not really taking a very refined stance on enhancing the genuine community projects of the type that we have been fortunate to be involved in.

Ian Bright: If I could give an example from our own experience. We were asked fairly early on what benefit there would be to the local community from this wind development and we said everybody will have the opportunity to invest and get a decent return on their investment and they said, "But if we don’t want to invest, what do we get?" We then made an offer of £2,000 per megawatt, which was twice the going rate at that time, and the response was, "You’re bribing us". So, I don’t know. My view is that a payment to the community is going to go probably to the parish council. That is a benefit but it doesn’t have as much impact on whether people approve or don’t approve of a local wind farm as the money going into their pocket, which is an option through community ownership.

Howard Johns: I agree with everything that has been said and don’t have much to add, other than I think any more barriers is just a no-brainer. It is hard enough to do this stuff anyway without adding more barriers to it. The visual impact thing-we live in South Downs National Park. We already have huge constraints on whatever is done there, so to put up a solar farm there is going to be challenging. If there are extra powers for local people to object on visual grounds, it is going to stop anything happening in that area, which would be a real shame.

Chair: On that perhaps slightly gloomy note, thank you for your contributions this afternoon. We will be producing a report shortly, which I am sure will incorporate very many of the things that have been discussed today. Thank you for your evidence to us and for your continuing commitment to your community projects.

Prepared 2nd August 2013