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Global perspectives on the energy sector

What is the future for traditional power utilities?  What can Europe learn from the US experience of capacity markets?  What is holding back the development of the power sector in Africa?  What are the key political and economic considerations for those investing in Middle East energy projects?  How should energy companies deal with cyber security risks?  How can they gain business advantage by engaging proactively with Human Rights law and international investment treaties?  Where is the oil price going and what does that mean for industry consolidation?  Will the Paris 2015 UN Climate Change talks succeed where others are perceived to have failed?  How can projects to prevent deforestation be made to pay their way?

For perspectives on these and other hot topics in the energy sector worldwide, see our Global Energy Summit London 2015: Key Themes report, based on presentations given on 21 and 22 April 2015 in Dentons’ London Office by a range of expert contributors.  Individual presenters’ slides are also available on our website.

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Global perspectives on the energy sector

Failure of competition in retail energy markets: “disengaged customers” (still) the root cause?

Emerging analysis from the investigation into GB gas and electricity supply by the UK’s Competition and Markets Authority (CMA) suggests that consumers are paying more than they need to because of their failure to “engage in” the market and because of shortcomings in the regulation of the sector.

Some seven months into an investigation instigated by Ofgem and six months after producing its initial issues statement setting out the areas on which it would be focusing, the CMA has published an updated version of the issues statement and a summary of smaller suppliers’ views on barriers to entry and expansion in the market (one of a series of “working papers” that provide more detail of the CMA’s analysis and the evidence on which it is based).

The problem

The CMA is fairly clear that both domestic and “microbusiness” consumers of gas and electricity are paying more than they need to – noting, for example, that “95% of the dual fuel customers” of the Big 6 could have saved an average of between £158 and £234 by switching tariff and/or supplier.  They also note, as others have done before them, that customers on “Standard Variable Tariffs” (SVT) tend to see their bills rising faster and falling slower than increases and decreases in the underlying costs of supply would suggest (the so-called “rocket and feather” effect – see graph below).

CMA fig 1

The search for causes

However, the CMA has so far rejected a number of the “usual suspects” when it comes to explaining why consumers appear to be paying more than they need to, without there being any obvious reason for their loyalty to their existing suppliers.  The initial issues statement was based on four hypothetical “theories of harm” that could account for failures of competition:

  • “market power in electricity generation leads to higher prices;
  • opaque prices and/or low levels of liquidity in wholesale electricity markets create barriers to entry in retail and generation, perverse incentives for generators and/or other inefficiencies in market functioning;
  • vertically integrated electricity companies harm the competitive position of non-integrated firms to the detriment of the customer, either by increasing the costs of non-integrated energy suppliers or reducing the sales of non-integrated generating companies;
  • energy suppliers face weak incentives to compete on price and non-price factors in retail markets, due in particular to inactive customers, supplier behaviour and/or regulatory interventions.”.

Taking each of these in turn, the CMA’s current (but explicitly provisional) analysis is as follows:

  • The Big 6 are not making excessive profits from generation and do not have the ability or incentive – individually or collectively – to increase profits by withdrawing capacity.
  • There are not significant problems as regards the transparency of the wholesale markets.  Those smaller suppliers who complain about a lack of liquidity, at least for certain products, have yet to persuade the CMA that this is a major concern, although they note that Ofgem’s Secure and Promote licence condition has not addressed all the problems in this area.
  • The CMA also does not think that the Big 6’s vertical integration enables them to cause independent generators to restrict their output or allows them to take action in the wholesale markets that disadvantages independent retailers.  One independent supplier saw vertical integration as a competitive disadvantage (potentially tying a supplier to generating plant whose efficiency reduces over time, especially if measured against the best in the market).
  • The only one of the original “theories of harm” which seems to offer an explanation of the failure of competition is the fourth one above, notably “inactive consumers”.  Although the domestic market share of independent suppliers grew from 1% to 7% (electricity) or 8% (gas) between July 2011 and July 2014, the fact remains that almost half of domestic consumers have not switched supplier for at least 10 years.  Many do not even believe switching is possible.  As one of the independent suppliers points out, having a large base of relatively price-insensitive customers on SVT may enable an incumbent to compete more aggressively against new entrants for the business of those who do take active steps to get a good deal.  Another suggests that it is almost as if there are two markets: one composed of potential switchers and another of those who are terminally loyal to their incumbent supplier.

Regulation may be stifling competition

One of the things that stands out in the CMA’s analysis is the emphasis on the potentially adverse effects that various aspects of sectoral regulation may be having on competition.  This is most conspicuous in the addition of two new hypothetical “theories or harm”:

  • “the market rules and regulatory framework distort competition and lead to inefficiencies in wholesale electricity markets;
  • the broader regulatory framework, including the current system of code governance, acts as a barrier to pro-competitive innovation and change.”.

But it is also seen elsewhere.  Examples of potentially problematic regulation identified include:

  • Elements in Ofgem’s recent reform of cashout prices (the Electricity Balancing Significant Code Review) “may lead to an overcompensation of generators”.
  • It may be inefficient not to have a system of locational prices for constraints and losses on the transmission network.  It may be that consumers in Scotland and the North of England should be paying more, and those in the South of England paying less, for their electricity.
  • The Capacity Market element of Electricity Market Reform (EMR) “appears broadly competitive”, but the CMA plan to look at if further.  They note that the Contracts for Difference regime may not secure the lowest prices for renewable generation subsidies by having separate “pots” for different technologies, rather than requiring them to compete all-against-all, or by allowing the award of contracts on a non-competitive basis, before observing, equally obviously, that “there are potentially competing objectives that need to be taken into account in the design of the CfD allocation mechanism”.  One independent supplier also characterises the system by which CfD costs are recovered from suppliers as “madness”.
  • But any problems caused by EMR are for the future.  Looking back, the CMA have clearly listened both to those who have criticised Ofgem’s 2009 decision to prohibit regional price discrimination (while providing exemptions for promotional tariffs), which may have led to a consumer-confusing increase in the number of tariffs, and to those who question Ofgem’s 2013 decision to force suppliers to “simplify” their tariff portfolios drastically, which resulted in the loss of tariff discount options that may or may not have been valued by consumers.  However, the CMA have yet to form a final view on the merits of either decision.
  • It has often been observed that the 250,000 account threshold, above which suppliers become subject to the Energy Company Obligation (ECO), may act as a barrier to growth for independent suppliers.  More interestingly, the CMA note that the costs of the social and environmental policies delivered by suppliers “fall disproportionately on electricity rather than gas”, meaning that “domestic consumption of electricity attracts a much higher implicit carbon price than domestic consumption of gas” – which may have implications for the take-up of electrical heating systems (normally thought of as part of decarbonising energy usage).  This is another area where the CMA will be investigating further.
  • Finally, the CMA identify aspects of the Balancing and Settlement Code (BSC) and other industry agreements that could be standing in the way of more effective competition.  They ask, for example, why, once smart meters have been rolled out, there are no plans to move away from the system whereby domestic customers’ consumption is “profiled”, rather than being based on half-hourly meter readings.  Failure to take advantage of the new technology in this way could “distort incentives to innovate”.  The CMA will also be considering further whether there are just too many codes in the electricity industry (constituting a barrier to entry) and whether the mechanisms for changing industry rules may be stacked too heavily in favour of incumbents and the status quo.  On the first point, Elexon itself, administrator of the BSC, apparently thinks that “rationalising” the codes will remove potential barriers to competition.

Next steps

Interested parties have until 18 March 2015 to comment on the updated issues statement.  The next major step will be the publication of “provisional findings”, currently scheduled for May 2015.  Overall, the investigation is not due to conclude before November / December 2015, and it could be extended into 2016.  It is of course far too early to speculate on possible remedies, but for now the more obviously Draconian options in the CMA’s armoury, such as the breaking up of vertically integrated groups, appear unlikely outcomes.  Something eye-catching to cause “inactive” consumers to “engage”, and a lot of “boring but important” changes in the regulatory undergrowth around industry codes and agreements seem reasonable bets for now, but there is a long way to go yet.

 

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Failure of competition in retail energy markets: “disengaged customers” (still) the root cause?

Clearing the way for UK shale (and deep geothermal) exploitation: Infrastructure Bill Update (2)

In the previous post we looked at the new right to exploit deep-level land for petroleum extraction and deep geothermal projects that is now included in the Infrastructure Bill.  Here we report on the associated financial provisions and some proposals on shale-related matters that have so far not found their way into this part of the Infrastructure Bill.

The Infrastructure Bill provides for secondary legislation about “payment schemes”.  The Government favours the voluntary scheme proposed by industry, under which a one-off payment of £20,000 would be made to communities for each unique horizontal well that extends by more than 200 metres laterally.  So although Ministers will be able to make regulations requiring payments to owners of land over which the new right is exercised (and other persons for the benefit of areas in which such land is situated), the Government currently intends to use these powers only if the voluntary scheme “is not honoured”.

Regulations may also require notice to be given where the new statutory right to use deep-level land for petroleum extraction or deep geothermal projects is to be exercised, including notice of any applicable statutory payment scheme.  The secondary legislation powers are to be reviewed after five years and must be repealed after seven years if they have not been used and the Secretary of State is satisfied that they are no longer required.

The principle behind the clauses on the new right was not seriously opposed in the House of Lords debate.  Amendments were put forward proposing to exclude National Parks and other areas protected for nature conservation or heritage reasons from exercise of the new right, and to require DECC to publish a report on fugitive green-house gas emissions from onshore energy extraction.  Like most of the responses to the Government’s consultation on the new right, these were treated as merely general warnings about potential impacts of shale development that the existing regulatory frameworks are fully capable of addressing.  However, it is always possible that they may re-surface at a later stage in the passage of the Infrastructure Bill, when they can be voted on (by convention there are no votes at the Lords Grand Committee stage which has just concluded).

A separate shale-related amendment was proposed by the Conservative Peer Lord Hodgson of Astley Abbotts.  Drawing on the example of Norway (like the Scottish National Party in the run-up to the Independence Referendum), Lord Hodgson advocated the establishment of a shale sovereign wealth fund.  This would receive “no less than 50% of any revenue received by the United Kingdom Government from any activity connected with the extraction and sale of shale gas”, and its assets would be “deployed to serve long term public objectives other than those connected with monetary and exchange rate policy”.  Lord Hodgson argued that it is imprudent and – from an inter-generational perspective – unfair for all tax revenues from major natural resources such as UK shale gas to be spent when they are received.  So far, the Government response to is that the industry is too immature and the Treasury might need to spend 100% of the revenues from shale gas when it receives them, especially in view of the declining North Sea revenues.

For more shale-related posts, including commentary on the 14th Onshore Licensing Round, see Dentons’ UK Planning Law Blog.

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Clearing the way for UK shale (and deep geothermal) exploitation: Infrastructure Bill Update (2)

Shared Ownership – Shared Responsibility

The Community Energy Strategy (Strategy) published by the Department of Energy and Climate Change (DECC) set the expectation that “by 2015 it will be the norm for communities to be offered some level of ownership of new, commercially developed onshore renewable projects”. As a step towards achieving this aim, DECC requested the establishment of the “Shared Ownership Taskforce” formed of representatives from the renewables industry (Industry Taskforce). The Industry Taskforce’s mandate was to liaise with communities and, by September 2014, produce a robust framework and timetable for the implementation of widespread community ownership of renewables projects.

Whilst engagement with the Strategy is nominally voluntary, DECC made it clear that if by 2015 progress towards its community ownership objectives is unsatisfactory, it will consider requiring, by law, all developers to offer shared ownership to communities. This imperative was given further teeth in the draft Infrastructure Bill published on 6 June 2014 (Draft Bill). The Draft Bill sets out a broad enabling power (to be activated, or not, at DECC’s option) to give community residents and/or community groups the right to invest in renewable electricity generation projects located within their community.

Draft Report for Consultation

In this policy context, the Industry Taskforce published its Draft Report for Consultation on 23 June 2014 (Draft Report). The Draft Report sets out the Industry Taskforce’s initial proposals for shared ownership and invites further views from renewable industry stakeholders, before publication of its final report in September 2014.

The Industry Taskforce’s key recommendation was that commercial developers seeking to develop significant renewable energy projects (above £2.5 million in project costs) for the primary purpose of exporting energy onto a public network should offer local people the chance to invest alongside the developer. Such an offer should be a based on a fair market value and should be subject to an (as yet unspecified) minimum threshold for investment (as very small levels of community ownership may be commercially unviable).

The Industry Taskforce recommended that communities should be able to choose between three different ownership models:

  1. Split ownership: the project is divided into two or more separate generating systems, allowing for the community entity and the developer to own distinct generating assets.
  2. Shared revenue: although not strictly an “ownership” model, this model enables the community entity to buy rights to the project’s future revenue streams.
  3. Joint venture: the community entity and the developer jointly develop and own the project.

Government’s role

The Draft Report was clear that Government has a key role to play to ensure that shared ownership is a success. For example, financial support mechanisms and planning were identified as two areas in which Government support was critical.

Financial support mechanisms

The Draft Report notes how financial support mechanisms for renewable energy are currently in a state of flux. Examples of such flux include DECC’s consultation to increase the capacity ceiling for community projects eligible for the Feed-in Tariff from 5MW to 10MW, the replacement of the Renewables Obligation with Contracts for Difference by 2017, and the potentially insufficient budget set aside to fund the Levy Control Framework. Furthermore, it is also unclear whether DECC intends to create a bespoke support mechanism for shared ownership schemes, or rely on existing support mechanisms.

In response to this policy uncertainty, the Draft Report argues that the Government must provide greater clarity in relation to the types and levels of financial support available to both the community and commercial developers in order to encourage the uptake of community ownership.

Planning

The Draft Report argues that shared ownership is currently not given enough weight when planning decisions are taken. In addition, the complex and expensive planning process (often requiring detailed environmental impact assessments) can act as a barrier to entry for certain communities.

To address this issue, the Industry Taskforce recommends that shared ownership should become a “material planning consideration” in the determination of renewable planning applications and that local authorities should treat discussions regarding community ownership in a similar way to discussions with residential applicants (i.e. through enhanced planning officer support). Such a supportive approach would be consistent with the Government’s shared ownership ambitions.

Conclusion

A clear message from the Draft Report is that UK renewables industry representatives are willing to engage on the issue of shared ownership. Indeed many shared ownership projects already exist and are successful. However, the renewables industry suggests that it should not bear the burden alone. For shared ownership to succeed, it is argued that the Government must offer tailored practical and financial support (as it is noted to have done indirectly with the UK’s nascent shale industry, whereby local authorities will be entitled to retain 100% of the business rates collected from shale sites).

Dentons was delighted to host a Joint Renewable Energy Association/Solar Trade Association Members’ Meeting on 23 June 2014 at which the Draft Report was presented and discussed. A copy of the Draft Report and Taskforce working papers are available on the RenewableUK website.

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Shared Ownership – Shared Responsibility

Themes from Budget 2014 (2): investment in renewables projects – a boost for communities?

Budget 2014 limits the scope for obtaining tax relief on investments in renewables projects, but it also opens up a new relief, of which some renewables investors may be able to take advantage.

The bad news: no more EIS or VCT for ROC or RHI projects

The Budget announced some unwelcome changes for investors in renewables projects.  It states that, from the date on which the new Finance Act receives Royal Assent, it will not be possible for investments in companies benefiting from Renewables Obligation Certificates (ROCs) and/or the Renewable Heat Incentive scheme to benefit from the EIS, SEIS or VCT tax reliefs.

The Budget further noted that Government “is concerned about the growing use of contrived structures to allow investment in low-risk activities that benefit from income guarantees via government subsidies and will therefore explore a more general change to exclude investment into these activities, consulting with stakeholders. The government is also interested in exploring options for venture capital reliefs to apply where investments are in the form of convertible loans, and will be considering this as part of a wider consultation and evidence gathering exercise over summer 2014”.

This is not the first time that the scope of the EIS and VCT schemes has been narrowed with respect to projects benefiting from renewables subsidies.  The Finance Act 2012 removed EIS and VCT relief from investments in businesses benefiting from Feed-in Tariffs (FIT).  However, the 2012 Act made an exception for certain bodies which are subject to constitutional restrictions on the distribution of profits – namely community interest companies (CICs) and certain “asset-locked” community benefit and co-operative societies.  Investors in these were still permitted to benefit from the EIS and VCT schemes.

But good news for social investors

The exempting of CICs and asset-locked co-operative and community benefit societies from the exclusion of FIT-supported projects from EIS and VCT relief in 2012 was in part an acknowledgement of the fact that the generation of electricity from renewable sources is the sort of activity which could qualify a business to be set up as, for example, a CIC.  There is a clear benefit to the wider community in the avoidance of greenhouse gas emissions associated with coal or gas-fired generating plant, and for smaller scale renewables projects, the CIC structure is an obvious way of involving local host communities and enabling them to receive financial benefits from a renewable development.  For an overview of the CIC regime, see our September 2013 briefing, Community Benefits Incorporated.

The Government is keen to promote community involvement in energy schemes, so it comes as no surprise that, just as EIS / VCT is removed from non-FIT projects, Budget 2014 offers an alternative route to tax relief for those who are prepared to live with any of the varying levels of restrictions on distribution of profits associated with investments in CICs, asset-locked community benefit and co-operative societies, or charities.  Schedules 9 and 10 to the current Finance Bill set out a new scheme of social investment (SI) relief which bears more than a passing resemblance to the EIS regime in particular.  FIT-supported schemes (but not ROC- or CfD-supported ones) are specifically excluded from the new SI relief but will presumably be able to continue to rely on the EIS and VCT schemes.

Of the various forms of business that may attract the new SI relief, CICs probably have the most to offer to any investors who expect to see a return on their money, rather than simply engaging in tax-efficient philanthropy.  The announcement late last year by the Regulator of CICs of a significant liberalisation of the existing rules on dividend payments by CICs is a further advantage – although dividends remain restricted to a proportion (35%) of distributable profits.

The new SI relief will deliver the same rate of relief as the EIS scheme (30%).  While the other restrictions applicable to CICs and the other kinds of businesses which are eligible for SI relief will mean that it is not an effective substitute for all types of investors in renewables projects who have benefited from the EIS and VCT schemes, those who are not looking for spectacular returns and are prepared to make the initial investment in reconciling the relevant Finance Bill provisions with the CIC regulatory regime, may find SI relief an option worth considering.

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Themes from Budget 2014 (2): investment in renewables projects – a boost for communities?

Market investigation: just what UK energy markets need?

It has been widely reported that Ofgem has referred the “Big 6” UK energy companies for investigation by the Competition and Markets Authority (CMA).  That is of course not strictly true, for three reasons.

  • First, and most trivially, the CMA, which will take over the functions of the former Office of Fair Trading (OFT) and Competition Commission, currently only exists in “shadow” form, and does not assume its statutory functions until next month.
  • Second, although the prospect of a market investigation reference has been canvassed for some time, Ofgem have not yet made a reference.  They are consulting on a proposal to do so.  The consultation ends on 23 May 2014.  As any administrative lawyer will tell you, a decision-maker must not consult with a closed mind, so we are probably still at least 3 months away from the start of a CMA investigation.  It would be possible for Ofgem to agree “undertakings in lieu of a reference” from players in the market if it felt that would adequately address the problems it is concerned about without the need for a market investigation – although at present that seems an unlikely outcome.
  • Third, as is normal with a market investigation, the proposed terms of reference do not refer to individual companies.  What Ofgem proposes that the CMA should investigate is no more and no less than the supply and acquisition of energy (i.e. electricity and gas) in Great Britain.

Market investigations are the oldest and in some ways the most powerful tool in UK competition law.  In their modern form they are governed by the Enterprise Act 2002, a piece of legislation enthusiastically promoted by the then Chancellor, Gordon Brown, as destined to make the UK economy more competitive by the more vigorous application of competition law.  They exist to deal with markets which appear to be insufficiently competitive, but whose problems do not appear to come from cartels or other anti-competitive agreements between firms, or the abuse of a dominant position – all of which obviously anti-competitive kinds of behaviour are prohibited under UK and EU law in any event.  A market investigation aims to find other features of a market which prevent, restrict or distort competition and then to devise a means or remedying, preventing or mitigating those effects, taking account of any incidental benefits which those features may bring to customers.  In a regulated market such as gas or electricity, the CMA may also need to have regard to the statutory functions of the sectoral regulator concerned.   The powers which the CMA can deploy in devising remedies for any problems it finds are extremely wide, and – unless Ministers legislate under the Act to give themselves a role – are formulated and imposed without any political sanction.  They can include everything from price regulation to divestment of a business – such as the forced sale of Stansted Airport that took place following a market investigation into airports.

Back in 2002, it was expected that there would be between two and four market investigation references a year.  In fact there have been slightly fewer: 17 completed investigations.  Back in 2002, some questioned whether economic sectoral regulators such as Ofgem would ever use the power that was being given to them to make a market reference in respect of their own sectors (otherwise, the power to refer a market rests with the OFT, or, in an extreme case, Ministers): would referring the market that it was their function to regulate not look like an admission of defeat?  Ofgem’s proposed reference, if made, will be the first to be made by an economic regulator into the very heart of the markets which it is responsible for regulating.

Ofgem have published a consultation on the proposal to make a reference and, separately, a state of the market assessment containing the fruits of its own investigation, with the OFT and CMA, into the current state of competition in energy markets.  Both are well worth reading (as is the Secretary of State’s statement to Parliament on the Ofgem announcement).  Don’t be put off by the apparent length of the state of the market assessment, as a large amount of its more than 100 pages is taken up with rather striking graphs and charts.  I particularly liked Figure 14, which shows that the proportion of consumers who said they have not switched supplier because they are “happy with their current supplier” fell from 78% in 2012 to 55% in 2013; the proportion who claimed to have checked prices and found that they were on the best deal rose from 9% to 12%; and the proportion of those honest enough simply to say that switching was too much of a hassle rose from 20% to 27%.

The points that Ofgem have highlighted as reasons for proposing a market investigation are mostly what economists would regard as potential symptoms of competition problems rather than the actual features of the market that are giving rise to those problems.  They are, however, symptoms traditionally associated with uncompetitive oligopolies, which is what market investigations are meant to be good at tackling: high levels of apparent customer dissatisfaction, but low levels of customer switching; static market shares of incumbent firms; possible “tacit collusion” (e.g. co-ordinating in the timing and size of price changes); possibly high profits; and potential barriers to entry.  The last of these is the most significant, but the assessment document is notably circumspect in its conclusions: “In the time available…we have not been able to examine in depth the claimed benefits and reasons for vertical integration for the suppliers and the implications for barriers to entry, and assess the net impact on consumers of vertical integration overall.”.

The big question of the effect of the Big 6’s high shares of both the supply and generation markets is therefore left for the CMA to consider in the greater depth that its procedures and wider powers to compel the provision of information allow.  Another big question in any regulated market is of course the effect that regulation itself has on competition.  Here, the CMA will really have its work cut out, because the regulatory landscape in the energy sector is in a more than usually fluid state just now, with various significant Ofgem reforms about to take effect and DECC in the process of finalising the radical upheaval that is Electricity Market Reform (EMR).  The CMA will have a ring-side seat as the first allocations of EMR Contracts for Difference take place and the EMR Capacity Market is launched, expected to be later this year.

That in turn raises the question of timing.  Some have been calling for an energy market investigation for some time.  Others suggest that with so much change, such an investigation can only add to uncertainty and further inhibit decision-making on new infrastructure that is sorely needed to keep the lights on.  What is certain is that market investigations can, and frequently do, take up to two years (not counting any further time taken up in legal challenges to the outcome).  There are often good reasons for that, but even apparently uncompetitive markets can change over time.  What appear to be problems at the start of an investigation may not still be there at the end.  How relevant will the CMA’s findings be in 2016, a year after an election that may be won by a Labour Party which has announced its intention of making a series of further regulatory changes, including the abolition of Ofgem and the separation of generation and supply businesses?  In any event, if the CMA do find that there are features of the regulation of energy markets that are part of the competition problem, that is one area in which it may not be able to impose remedies, and may instead have to limit itself to making recommendations to the sector regulator or the Government of the day.  So those welcoming Ofgem’s announcement as an end to “the politics” around the issues and the start of a dispassionate, technocratic process may have spoken too soon.

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Market investigation: just what UK energy markets need?

Strategies for community energy

On 27 January 2014 DECC published its first Community Energy Strategy (the Strategy). The Strategy seeks to promote the creation of new initiatives and expand existing programmes to encourage community-led development in the UK’s energy industry. The stated ambition of the Government, developed from its commitment to community-led renewable development in the Coalition Agreement, is “that every community that wants to form an energy group or take forward an energy project should be able to do so”.

The Strategy, published following the Government’s review of responses to a call for evidence, issued in June 2013, identifies four areas in which the Government wishes to promote and support communities: generation, energy efficiency, managing energy and purchasing energy.  It recognises that given the diversity of needs and geographies there can be no one size fits all approach for community development. This is captured in the varied support to be made available. As an example, the Strategy envisages that the Cheaper Energy Together scheme will continue to support energy purchasing collectives, but also paves the way for larger projects, announcing the Government’s commitment to consult on raising the maximum capacity for Feed-in Tariffs from 5MW to 10MW.

The Strategy foresees that community involvement will increase through vital partnerships with developers, investors, local authorities and regulators. In addition, it seeks to tackle some of the main challenges communities currently face:  limited access to funding, a lack of knowhow and understanding of energy projects and dealing with the regulatory processes. A new £10 million Urban Community Energy Fund will be set up to provide finance for planning electricity and heat generation projects in England which will be in addition to the existing DECC/ DEFRA Rural Community Energy Fund already established in June 2013. Similar funding schemes are available in Scotland and Wales.

The next key challenge is to build the levels of understanding and knowledge. A ‘One Stop Shop’, developed with community energy groups, for knowledge sharing and ideas will go towards bridging the knowledge gap. But more than this is needed for the community projects to navigate their way through the regulatory and commercial minefield that is the UK’s energy industry and to ensure sufficient buy-in from the wider community to support community energy projects. In addition, it will be interesting to see how the concept of the Licence Lite, an alternative electricity supply licence, with reduced supply obligations, will be developed to enable community projects to supply electricity to the community.

This Strategy comes at a time when the energy industry itself is doing more to engage local communities in new energy developments: the shale gas and oil industry presented a package of benefits for communities located near fracking sites in its Community Engagement Charter in the Summer of 2013. Whilst RenewableUK updated its Community Benefits Protocol in October 2013, which commits developers of qualifying projects to providing certain levels of benefits to host communities. DECC’s plan, however, is for communities themselves to play a greater part in developing local energy strategy, and ultimately it is the extent to which the public is made aware of the resources available and the take-up of those resources, which will determine whether the Strategy achieves its aim.

solarpowered

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Strategies for community energy