Labour's
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A NEW POLICY FOR WIND FARMS
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Wind power is the most mature renewable technology – and by far the most cost-effective – to meet Britain’s climate change obligations. Yet the deployment of wind power in Britain has proved difficult, due to a lack of strategic planning and a lack of public support.
Limited Local Benefit The lack of strategy goes back to the fragmentation of the energy industry after privatisation. Until recently, Ofgem had no remit or vision, other than to keep a lid on prices for consumers. Privatisation has also contributed to the lack of public support. Wind farms can be enormously profitable to the private companies that operate them, thanks to the Renewables Obligation which accounts for almost half their income. But the communities which host wind farms derive very little economic benefit, whether in terms of jobs or income, apart from the minimal ‘community good’ funds designed to mollify local opinion.
Wind farms are like the large hydro dams of old, requiring enormous capital investment and huge squads of workers to build, but capable of being operated for decades thereafter with minimal local employment. Operation and maintenance costs are so low that there is little long-term economic spin-off for the host area. Little wonder, then, that the opponents of wind farms dominate local debate and that governments in both England and Scotland have had to revise planning rules to try to override the ‘nimby’ factor.
The foreign anomaly If we zoom out to the national scale, we see a similar socio-economic deficit writ large. Almost every wind farm developer in Britain is now foreign owned. Scottish Power, developers of the largest wind farms in the UK, is actually Spanish power, being wholly owned by Iberdrola.
In a normal free market, there would be no objection to this competitive outcome. But the renewable energy market is not free. It is an artificial market, created by government policy, with levels of demand determined by government targets and with its own currency, Renewables Obligation Certificates, paid for by a compulsory levy upon consumers.
Indeed, around half the income enjoyed by the wind farm developers is paid for by what is in effect a tax. Without it, the market would not exist.
The National Audit Office has estimated the annual value of this compulsory levy at £1 billion, so we are talking big numbers, and the numbers will need to go up to meet the government’s target of 30 per cent of electricity derived from renewables by 2020. What is uniquely sub-optimal about this form of neo-taxation is that, instead of financing public services, most of it leaves the UK in company profits.
The community alternative If this was the only way to deliver renewable power on a large scale in the UK, we would have to accept it, despite the financial and economic dysfunction that it symbolises. However, there is an alternative – one that can avoid the current drawbacks of the privatised market without reverting to old-fashioned nationalisation. Indeed, it can inject a new element of competition into the commercial wind farm market to the benefit both of local communities and of UK plc.
That new ingredient is social and community-owned enterprise. And the key point to grasp is that community-owned wind farms can be developed on a large and commercial scale, and not just restricted to the small-scale projects targeted by a feed-in tariff. The wind farm industry has particular features which make it ideal for development and ownership by social enterprise. Because turbine technology is relatively mature, with manufacturers happy to provide long-term operational guarantees, the costs of running a wind farm can be accurately calculated over a typical 25-year lifespan.
Likewise, the long-term income from a wind farm can also be made relatively safe and predictable through 10 or 15-year ‘power purchase’ agreements with the major utilities. Finally, the technical know-how to put all these elements together is available from a vibrant market of wind farm development consultants, many of whom are, happily, British-owned.
The combination of these features removes much of the risk of building and operating a wind farm, even for a community or social enterprise with no previous experience. In fact, the riskiest part of a wind farm business is trying to get planning consent for it in the first place. Around 40 per cent of projects fail to get consent, leaving their developers completely out of pocket. However, because community-owned projects attract much less local opposition, they have a much better track record of securing planning consents. In other words, social and community-owned enterprise can have a real competitive edge in the wind farm market.
Scottish success There are already examples in England of social enterprises building wind farms and in Scotland there is a growing movement. But to fulfil its potential to deliver on a large scale, the movement needs active government intervention and support.
The community-owned island of Gigha is probably the best known example of community-ownership. Its ‘dancing ladies’ have been operating for five years and bring in £75,000 a year to the 150 inhabitants.
However, community-owned wind farms don’t have to be small and rural like Gigha. Castlemilk and Cumnock Community Trust, representing 16,000 people in the deprived east end of Glasgow, have secured planning consent for a 2MW turbine and have plans for two more. The trust will make an annual profit of £500,000 for the next 25 years. The largest community-owned scheme so far is in the Outer Hebrides, where a three turbine,
£11 million development has been granted near Stornoway. The net profit from that project is projected to be over £1 million a year – not bad for a community business run entirely by volunteers. Local authorities have been slower to get involved, but here too there are bold pioneers. By far the biggest is in Shetland where a 50/50 joint venture with Scottish and Southern Energy will earn the local council £30 million a year, a return that is ‘life-changing’ even for a big metropolitan authority.
These are the first stirrings in the undergrowth and with determined support from government, both local and national, the potential is enormous. Just how big can be seen from the example of Denmark, which has the biggest proportion of renewable energy in Europe (already 20 per cent of the electricity supply), and where half the onshore wind farms are owned and managed by community cooperatives and municipal enterprises.
Denmark demonstrates that social enterprise does not have to be confined to the margins of the wind farm industry, nor is it at odds to the government’s primary aim to get more and bigger wind farms built to meet our renewable targets. On the contrary, the higher the level of community ownership, the greater will be the local support, the faster the renewable roll-out, and the greater the public and economic benefit.
Three steps towards change What policy changes are required to make this happen? There are three easy and inexpensive steps the government should take. First, change the planning guidance to allow local authorities explicitly to favour community owned ventures when issuing planning consents. As well as encouraging social enterprises to start their own schemes, this would incentivise private wind farm developers to do joint ventures with local, community-owned partners.
Second, the government should set up a revolving fund to which social enterprises could apply to pay their costs of development up to the point of planning consent. If a project fails to get consent, then communities should not lose out through risking their own cash. On the other hand, if the project succeeds in gaining planning consent, as the overwhelming majority will do given their higher levels of local support, then the enterprises can repay the revolving fund from their profits, so capping the amount of seed corn funding required. This would be an ideal area of investment for the planned new enterprise fund recently announced by the government.
Once a social enterprise has a planning consent, it has a valuable asset which can either be sold for an immediate and very handsome profit, or else used to develop its own scheme and enjoy a long-term income. If it chooses the latter, then the enterprise will need to take on substantial debt to finance the capital costs. This is the third area where the government should help, by setting up a regulatory body for community-owned wind farms which would provide advice and training for their staff and boards, monitor their performance and screen the best candidates for investment.
A regulatory body would provide a valuable reassurance to commercial lenders and could act as a central clearing house for commercial loans. It could, for example, negotiate preferential rates from lenders in return for providing a quality assurance guarantee for community-owned businesses, in much the same way as government-monitored housing associations currently access preferential lending rates in the commercial market.
Red, green and blue power
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