How has the austerity drive impacted community energy?

Community energy organisations are shelving or scaling back their plans as a result of austerity cuts to community energy subsidies.

Emma Bridge, chief executive of Community Energy England (CEE) says the Conservative government’s roll back of support, and particularly its plans to scrap pre-accreditation of the Feed-in Tariff, have already hit some projects.

But, she adds, the sector remains a force to be reckoned with.

“I’m being contacted daily by local community energy groups, many of which are 100% run by volunteers, who have been working on projects for years but which have now either had to be shelved or are being seriously destabilised,” says Ms Bridge.

“These range across the entire spectrum of community energy from large-scale schemes to the very small-scale and across the onshore wind, hydro and solar sectors.

“CEE’s membership is suffering very significant ‘collateral damage’ as a result of the raft of recent announcements from the Treasury, Department for Energy and Climate (DECC) and the Department for Communities and Local Government (CLG).”

Ms Bridge singles out government proposals to remove pre-accreditation of the Feed-in Tariff (FiT) as potentially the most damaging policy change.

“This has already had a devastating impact on a large number of community hydro and solar projects in particular,” she says.

“Some have already had to be shelved, others have been put on ice and many more are looking hard at their financial viability. The government is clearly aware that pre-accreditation is vital to community projects because it’s talking about a possible reintroduction of pre-accreditation as part of the forthcoming FITs review.

“But that will be too late for some schemes.”

If the DECC’s proposed removal of pre-accreditation and pre-registration for the FiT is passed, groups will not be certain of the level of FiT support they will receive until they file their application for accreditation with Ofgem.

Without this guarantee, raising finance from share offers and loans will be more difficult. This also disproportionately affects the community sector where schemes take longer to develop, as most projects are developed mainly or entirely by volunteers.

Community energy bencoms have been feeding into a DECC consultation on the matter, which closed on 19 August.

Pete Capener, chair of Bath & West Community Energy (BWCE), said in his consultation response: “BWCE is deeply concerned about the potential removal of the ability to pre-accredit community energy projects.

“The enthusiasm, commitment and momentum that’s been generated by community energy projects could be stilled in a stroke with the removal of pre-accreditation.”

He added: “Community energy projects have longer development periods than comparable commercial schemes, bringing as they do the need to build support for projects locally and to raise finance. This was recognised by government very recently with the increase in pre-accreditation periods for community energy projects.

“The likelihood is that commercial schemes, with their ability to move to commissioning more quickly than community energy schemes, will trigger degression rates more rapidly, increasing further the inherent risk associated with investing in community energy.”

Mr Capener argues that the most effective mechanism for controlling spend is degression, a mechanism whereby the tariff decreases over time. “Pre-accreditation adds to the levels of deployment and if projects do not come to fruition then degression could be triggered prematurely, but will never the less increase degression rates,” he says.

“This will reduce spend and so deliver the cost control required by DECC.”

Emma Bridge adds: “Although times are currently hard for the sector it will survive not least because of the determining and dedication of the groups who develop community energy schemes.

“There are currently many local energy projects already generating renewable energy and benefiting their local communities with many such projects more in the pipeline which will go ahead.”

Other policy changes affecting the sector:

Removal of the Renewables Obligation and changes to the planning system for onshore wind in England

New onshore wind projects will no longer be eligible for the Renewables Obligation – the main support mechanism for renewable electricity projects – from April 2016 unless they have planning consents and a grid connection offer and acceptance, or confirmation that no grid connection is required.

They must also confirm ownership of the site, have an option or agreement to lease it or be party to an exclusivity agreement.

Councils will only be able to grant consent to wind farm applications if the site is in an area identified as suitable for wind energy in a Local or Neighbourhood Plan, and planning impacts identified by affected communities have been addressed.

Emma Bridge says: “Communities should be involved in decision making but the changes came in with immediate effect and I’ve not been able to find any Local Plans which have identified wind energy as favourable. The planning system takes a long time to change so until councils re-visit their plans communities will be unable to have a say on whether wind proposals go ahead.

“The early closure of the Renewables Obligation in 2016 and the changes to planning policy guidance have had a devastating impact on UK onshore wind and are predicted to add hundreds of millions of pounds every year as more expensive technologies are substituted for onshore wind.  Another impact is the destruction of investor confidence in other infrastructure projects.”

Removal of Levy Exemption Certificates

In his 2015 budget treasurer George Osborne announced that in the near future renewable energy would be subject to the Climate Change Levy (CCL); a tax on the supply of commodities including electricity or natural gas to businesses.

“This change is effectively retrospective,” Emma Bridge explains. “The consensus is that this could see a drop in income for some schemes by 5-6%. That will represent a very significant impact in the area of onshore wind, hydro and large scale solar.

“There could also be implications for some groups operating in the rooftop solar sector where electricity is supplied to the building occupier.  As far as we can ascertain, CCL exemptions remain for non-business activity and some small scale supplies. We understand that the definition of business/non-business use follows the VAT definition.

“Schemes with panels on educational establishments where education is provided for no charge and/or where the educational establishment is a charity, this is a non-business activity and so is currently exempt from the Climate Change Levy and we do not think this position has changed.

“Where premises are used for both business and non-business activities, with the removal of the renewables exemption we think the Climate Change Levy have to be applied to supplies to the business or where the non-business use of the premises is less than 40% of the total use of the premises.

“Our other concern about these changes are that they will undermine investor confidence in future community share offers.”

Changes to financial support for solar photovoltaics

A DECC consultation on how to control spending on small solar photovoltaic (PV) projects closed on 2 September.

The Government proposes the early closure of the Renewables Obligation (RO) to new solar PV projects of 5MW and below and additional capacity added to an accredited solar PV station up to 5MW total installed capacity from 1 April 2016.

It also wishes to remove ‘grandfathering’, a mechanism designed to protect technologies accredited under the RO from future changes in support levels, for solar PV projects not accredited as of 22 July 2015.

Subject to the consultation, DECC also intends to publish proposed bandings for new solar PV projects of 5MW and below for further consultation.