Bath & West Community Energy – Consultation Response – Changes to Feed in Tariff Accreditation
Bath & West Community Energy (BWCE) is a Community Benefit Society set up in 2010. BWCE has raised over £10 million through community share offers, plus debt, to finance the construction of just under 6 MW of community owned solar PV for BWCE and its community energy partners. Last year BWCE distributed £20,000 of its surplus income, via its independent community fund, back into local community projects. This year BWCE will be distributing a further £45,000 via the same route and will be retaining 60% of project income within the local economy. To date BWCE has paid 7% interest to its members, the majority of whom live in the local area.
The community energy sector is laying the foundation for local community acceptance and so the continued successful roll out of distributed renewable energy, by increasing local governance and control, recycling profits back into local communities and retaining economic value within the local economy. So the community energy sector is crucial to the UK’s response to climate change, particularly as current projections suggest that more needs to be done to meet the UK’s fourth carbon budget to deliver a 50% reduction in carbon emissions by 2025.
BWCE is deeply concerned about the potential removal of the ability to pre-accredit community energy projects. The enthusiasm, commitment and momentum that have been generated by community energy projects could be stilled at a stroke with the removal of pre-accreditation.
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.
In addition, if there is no pre-accreditation then 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.
If finance is to be raised without security around income levels, then the level of risk will again be greatly increased, reducing numbers of potential investors, driving up the minimum level of interest required to secure investment and so removing or greatly reducing the community benefit that projects will be able to generate. This is something that the FCA is already greatly concerned about, as evidenced by their recent consultations.
This increased risk and uncertainty is acknowledged within para 1.19 of this consultation. However, no mitigating factors or suggestions are made as to how community energy projects in particular can accommodate this massive change in the regulatory framework. Community energy projects will be going from an expectation of a 12 month period to reach financial close and commission, for solar PV for example, to nothing, in very short order.
The removal of pre-accreditation and pre-registration as described in para 1.11 of the consultation document will devastate the community energy sector and we urge government to re-consider their plans.
QUESTION 1: Do you agree that, in the context of deployment and spend under the FIT scheme significantly exceeding expectations, it is appropriate to remove the ability to pre- accredit from the FIT scheme?
No we do not agree that it is appropriate to remove the ability to pre-accredit.
The most effective mechanism for controlling spend is degression. Pre-accreditation adds to the levels of deployment and if projects do not come to fruition then degression could be triggered prematurely, but will nevertheless increase degression rates. This will reduce spend and so deliver the cost control required by DECC.
QUESTION 2: Are the assumptions made above on the impact of removing pre-accreditation reasonable? Please provide robust evidence to support your response.
Whilst BWCE would agree with the impacts outlined in terms of increased risk and uncertainty (paras 1.16-1.19), the consultation states that due to the uncertainty in the impact of changes, there has been no attempt to quantify potential savings or impacts on deployment.
The admission that DECC is proposing changes that have substantial, known and acknowledged negative impacts with no attempt to quantify whether the changes would actually make any savings at all is at the very least questionable.
The impact on the Community Energy sector would be particularly severe. A typical fund raising cycle for a community project takes at least 6 months from start to finish. For example, BWCE supported the fund raise for the 5 MW community project at Braydon Manor that is owned by Wiltshire Wildlife Community Energy. The fund raise was prepared in September 2015, launched in October and closed in January 2015. It then took a further 6 months to agree bank debt and contract terms before financial close could take place. Removal of pre accreditation would have made it impossible for this project to reach financial close because there would be great uncertainty on the FIT level.
This is really damaging to a sector that offers an alternative vision to the incumbent power companies and which DECC has clearly stated previously it wishes to support.
BWCE would strongly recommend that before DECC enacts such major changes to the FIT it carries out a full impact assessment to provide evidence that the changes proposed will deliver the savings required.
QUESTION 3: Are there additional measures which could achieve the objectives of encouraging deployment under the scheme while ensuring value for money under the LCF?
Whilst BWCE does not believe that the LCF is an appropriate control mechanism for delivering the necessary UK response to climate change, it would be better to give the sector clear policy direction in terms of priorities. Rather than enacting change that will undermine the whole sector, government has the ability to bring forward the technologies and scales of project that it wants to see through the setting of FIT levels and or/differential degression rates.
Otherwise there is the high chance that changes will be implemented that will not deliver the desired cost savings and will fundamentally undermine the renewable energy sector at a time when there is the real prospect of renewable energy delivering grid parity for some technologies, within the near future.
Ultimately, subsidy free renewable energy is the most effective way of delivering value for money. The removal of pre-accreditation will make grid parity less likely and so will have a negative impact on value for money.
DECC should also consider the potential for making savings in other areas, for example subsidies for conventional and nuclear energy production, which would have a less devastating impact given the far higher levels of funding involved.
QUESTION 4: Are there groups or sectors where it may be appropriate to reintroduce pre-accreditation in the future?
For the reasons outlined within the introduction and in our response to Q2, community energy projects are even more vulnerable to the removal of pre-accreditation than commercial projects. So whilst BWCE believes that pre-accreditation should be retained for all projects, there is a very strong case based on policy precedent (extended pre-accreditation periods for community energy) for special dispensation for community energy projects.