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Community Energy schemes are about to change

The government has launched a consultation to remove pre-accreditation as part of bigger plan to cut the costs of the Feed in Tariff (FiT) scheme. Here's why we think this consultation is important and also what we think this will mean for community energy groups across the UK.

 

What has happened?

The government is planning to remove the pre-accreditation Feed in Tariff (FiT) mechanism that helps community energy groups guarantee a return on investment for a renewable energy project.

 

What is pre-accreditation?

Pre-accreditation is where a scheme is assured of the level of tariff they will receive under the FiT after the planning stage, rather than depending on when their renewable system is built and commissioned. Pre-accreditation makes it easier to raise investment to pay the upfront costs involved and it applies to solar PV and wind projects between 50kW and 5MW as well as to all hydro-power up to 5MW and anaerobic digestion (AD) projects. In addition, all school and community installations of solar even below 50KW qualify for pre-accreditation.

 

So why does this matter?

The level of the FiT is regularly cut by government using a process of regular cuts called ‘degression’, The thinking behind degression is that, as more renewable energy measures are installed, prices should fall and less FiT subsidy should be needed.

Pre-accreditation helps protect organisations from the impacts of degression, giving them more certainty around what level of Feed in Tariff they will get. That makes their project less risky and more attractive for investors.

Without the protection of pre-accreditation it will be harder for community groups to raise finance and plan and deliver their project.

 

We think it’s the wrong decision

At the Energy Saving Trust we think that community groups need the ongoing protection that pre-accreditation gives them because:

  1. Community projects take longer to develop than commercial projects – so they’re more likely to be impacted by degressions
  2. Communities more often need to raise funds to pay for their project –for example through share issues.
  3. Communities have less development experience than commercial organisations and will be less able to manage increased risk from removal of subsidies.

The most damaging implication of the proposed changes is uncertainty. Pre-accreditation doesn’t just give confidence to community groups, more importantly it gives lenders confidence to provide a loan to the community, enabling them to accurately predict the return they will get. By taking away the security of a guaranteed rate, it will become even more difficult for communities to secure funding.

 

As Amber Rudd explains in her recent Foreword to the update of the Government’s Community Energy Strategy:

 

“Community energy groups bring people together in common endeavour. They generate local employment, both directly and indirectly through enabling people to reduce their energy bills, and generate income for other purposes.”

 

Community energy offers a route for local people to be involved in projects, to engage with renewable energy, and to see success for the developments that are locally supported. The proposed removal of community pre-accreditation for FiTs will deter involvement in what is a growing, exciting and active sector.

We’ve prepared a detailed briefing note that interested organisations and citizens can use to understand the government’s plans and to help them respond to the consultation. Download the PDF >

 

Community energy case study: Ynni Anafon Energy

The Ynni Anafon hydro electricity project shows what can be achieved with pre-accreditation. The community group, near Abergwyngregyn, in the Snowdonia National Park, formed in 2010 and hopes to generate income for residents through the Abergwyngregyn Community Trust.

As with all community energy projects, going from the initial idea to actual construction (currently ongoing) involves a lot of hard work but having the certainty of a guaranteed tariff level (subject to project completion time limits) is understandably important.

Pre-accreditation gives confidence to both the community group itself and also to lenders, enabling them to accurately predict the return they will get. This security of a guaranteed rate is vital for communities to secure funding which is why EST strongly argues for pre-accreditation not to be removed from community energy projects such as the this one.

How is it going?

There is a great level of support and enthusiasm behind the project. Ynni Anafon Energy opened a share offer to the public with the aim of raising £300,000 and in the end raised a grand total of £450,900!

What is the FIT level?

  • 15.59p/KWh pre-accreditation level
  • Current tariff level for hydro generation on this scale: 12.67, going down to 11.40 in October

What are the costs involved?

Approx. £1,249,000

  • Project development costs - £60,000
  • Project construction costs - £1,055,000
  • Contingency - £134,000

What does the future look like?

Once up and running Anafon hydro should generate around £200,000 a year for the 20 years the FiT is guaranteed. The revenue will cover operating costs with all profits going to the Abergwyngregyn Community Trust. Once the FiT period is over the sale of electricity will provide income unless there are further government subsidy programmes.

 

 

Our Head of Policy, David Weatherall, is one of the Energy Saving Trust’s most experienced spokespeople and has worked on the policy issues around energy efficiency for more than ten years. Follow David on Twitter: @Atrapalhado
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