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Andrew Lyle Talks Small-Scale Renewables & Government Policy
Locogen MD, Andrew Lyle, addressed the Scottish Renewables Annual Conference on the subject of the UK Government’s Clean Growth Strategy and how this, and other policies, impact the small-scale renewables industry.
For the purposes of the talk, on 27th March, Andrew classed small-scale renewables as both heat and electricity generating technologies. These can be integrated into buildings to provide energy at the point of use, or connected to the distribution network near to consumption. These types of projects are typically developed by homeowners, businesses, farmers, community groups and local developers. Small-scale therefore covers everything from domestic systems right up to multi-megawatt projects.
Andrew split his Scottish Renewables talk into two parts, speaking briefly about the low carbon heat market then about the small-scale renewable electricity market, as the issues for each are quite different. We’ve shared the transcript of Andrew’s talk below – it gives an excellent overview of the issues facing this sector of the renewables industry today.
Heat and Small-Scale Renewables
What does the Clean Growth Strategy (CGS) say about renewable heat?
Well, in the short-term, up to 2021, the CGS commits to spend £4.5bn through the reformed Renewable Heat Incentive (RHI) and to connect 400,000 homes to low carbon heat networks. It also announced a £10m grant fund for innovation on low carbon heat for businesses and homes.
So there are good opportunities through to 2021 for a wide range of technologies, including biomethane on the gas network, biomass and biogas heating off the gas network and heat pumps in both domestic and commercial applications. There are opportunities both to integrate these technologies into buildings or in district heating networks.
However, beyond 2021 the policies and objectives are unclear. There are no long-term specific targets for renewable heat in the CGS. Instead, it states: “We need to lay the groundwork in this Parliament to set up decisions in the first half of the next decade about the long-term future of heat,” which is pretty vague. The Scottish Energy Strategy and the Climate Change Plan have more detail on targets, and more information about the policies that will support them, but they do not provide a plan on how these targets will be delivered.
One area both strategies agree on is delaying action on low carbon heat until after 2025. The main focus prior to that is energy efficiency, only considering renewable heat off the gas network, initially in new build.
So, my first question to BEIS for the heat sector is: what are the Government’s long-term and interim targets for low carbon heat through to 2030? The Committee on Climate Change (CCC) recommends a target of a quarter of heat from low carbon sources by 2030. This is up from 6.2% in 2016.
What policies will be put in place to support low carbon heat beyond 2021? In particular, for the period between 2021 and 2025, where there is a gap. Will policy follow the advice of the CCC and continue to invest in the “low-regrets” low carbon heat options, including biomethane and heat pumps both on and off the gas network? Or will we continue to delay investment, while the electrifying heat vs repurposing the mains gas grid to hydrogen dilemma continues to paralyse decision making?
Another question I have is: what is classed as low carbon heat? Neither policy document is clear. Electric heating has been included on the assumption the grid is green. But is Gas CHP included? Businesses and the public sector are investing now in new gas CHP, in some cases not realising that they will be a net contributor to CO2 emissions in the near future. We need clarity and good communication on this point.
What role should the Scottish Government Energy Company play in renewable heat? There is a lot of chat around corporate power purchase agreements (PPAs) and support for community renewables, which is very welcome, but should there be a role to support renewable heat as well?
And finally, will building regulations and energy efficiency standards be used to encourage new and existing building owners to invest in low carbon heating systems? I’m aware of high energy consuming businesses off the gas network that have recently made decisions to invest in new LPG and oil boilers, despite the availability of the RHI. We’ve had seven years of the commercial RHI but it’s only achieved a fifth of expectations. It’s been a great carrot for those who want to change; but we need regulations to ensure businesses and homeowners switch to low carbon heat in the long-term.
Both strategy documents acknowledge the impact of heat on emissions and the scale of the challenge to address this issue; however, both are delaying making decisions until after 2025. A long-term plan and more clarity is needed on how we transition to a low carbon heat future to provide a stable market for growth in the sector.
Electricity and Small-Scale Renewables
So, what do the policy documents say about the small-scale renewable electricity sector? Well, to be frank, not a lot.
The CGS says it wants people to invest in small-scale renewables without support. Other than that, it says it’s going to close the Feed-in Tariff (FIT) in 2019 and give an update on the future policy approach in 2017. Presumably this is the delayed FIT consultation which is now expected in April/May this year. And without the FIT consultation or an understanding of BEIS’ vision for the future of small-scale renewables, it’s difficult to say where the opportunities are for a sustainable future.
I’m not sure if BEIS are aware of the scale of impact this is having on the industry. Installations have fallen significantly since 2015. There has been a 59% reduction in the number of hydro installations, a 90% reduction in wind and a 97% reduction in commercial solar installations recorded on the FIT register. But that’s only half the story. Most of those installations registered are not new projects. This is the tail-end of projects started before 2015. Since 2015 there have been almost no new projects started, particularly in the wind and hydro sectors.
A clear example of the impact this is having is the recent demise of Gaia: an iconic small-scale wind turbine manufacturer in Scotland which has gone into liquidation this month. This is a direct result of the lack of vision and policy from BEIS for the small-scale renewables sector.
It’s 12 months from now to the closure of the scheme. The industry needs the FIT consultation to be published now. We need to understand what “without support” means. I understand it means no FIT, but does it mean without the same support that energy efficiency and fossil fuel consuming gas CHP technologies get? We need to understand to what extent there is there an appetite to support small-scale renewables.
There are so many areas that also need addressed. We need to understand if there will be any “recycling” of unused capacity in the FIT to bands that are exhausted to allow projects to be built in the interim. Also, will there be an opportunity to maintain existing projects? Currently there is a risk that replacing generating equipment will invalidate the FIT accreditation, which is causing even more uncertainty. We need the opportunity to be able to maintain operating projects and replace generating equipment without the risk of losing accreditation. And what about MCS accreditation? It’s the industry’s method of controlling the quality of installations and ensuring consumer protection. It’s been required to access the ROC and the FIT but will that continue beyond the FIT, or is there a risk to the quality and safety of installations and consumer protection? Finally, we need clarity on BEIS’ future policy for the sector. I can’t stress this enough.
However, despite the uncertainty, there are a few opportunities, mainly behind the meter (BTM) in high energy consuming businesses, where projects offset the retail price of electricity. But this is limited mostly to technologies, like solar, which can be located BTM. Whilst possible, it is not as scalable for wind, which can struggle to get planning consent in suitable locations, or hydro which is limited to locations where there is resource. BTM projects are also hampered by excessively high business rates, which are severely holding back uptake.
Another area of opportunity is repowering and, in Europe, this is leading to a market for refurbished wind turbines. This is creating an interesting opportunity for subsidy-free small-scale projects in the UK. Finance can be an issue; however, I am aware of community groups, farmers and businesses who have raised finance and built these types of projects, which is encouraging.
There are also potential future changes to the electricity supplier-hub model, which could allow local generators to trade energy with local consumers via Virtual Private Wires or peer-to-peer (P2P) trading platforms. This would provide similar benefits to BTM without being as constrained by location, which would benefit the wind and hydro industry. There have been trial projects in the UK and the model is operating successfully in other countries. But this requires regulatory change in the UK, so is not available at scale at the moment.
Also, the recent changes to the Renewable Transport Fuel Obligation (RTFO) open up opportunities for subsidy-free small-scale technologies to produce green hydrogen as a transport fuel. The value available is higher than a simple export arrangement, or what you can expect on a typical corporate PPA, and it is certainly interesting in applications with constrained grid, as demonstrated by the ‘surf and turf’ project in Orkney. But it is expensive to produce renewable hydrogen and it currently relies on grant funding. Also, there is not yet a volume market in the transport or heat sector, so, again, it is not available at scale.
The future is likely to be a combination of these areas – holistic local energy solutions bringing together distributed generation, energy storage, demand side response (DSR), transport and heat solutions. Local generators trading with local consumers to the benefit of both businesses. Cutting out the margin of the supplier, paying only for the proportion of the distribution network used and offering cheaper energy for the consumer and higher value for the generator.
We know this is where small-scale renewables can deliver on a subsidy-free basis. But the market is not there yet. There needs to be an interim route to market to help with the transition beyond 2019. I feel the distributed generation market, alongside smart grid, energy storage and other flexible energy solutions, needs a Sector Deal.
This could consider giving subsidy-free small-scale renewables the same benefits and tax breaks available to energy efficiency technologies and gas CHP. It should address the business rates issue for subsidy-free projects. As with renewable heat, it could look at building regulations and energy efficiency standards to encourage uptake by homeowners and businesses. It could look at long-term finance to help homeowners and businesses to invest in solutions. It could also look to fast-track the innovative energy trading models I mentioned earlier. This has benefits for both generators and consumers. Really, the Sector Deal is about building the right framework now to help with the transition to a subsidy-free market in the future.
At the moment, it feels like all policy is focused around large, utility-scale projects like Hinkley Point C and offshore wind. These are obviously important, but it is also important not to forget about small-scale renewables, as they benefit local businesses and communities and can contribute to many of the aims and objectives of the strategy documentation.
We know that the policies and proposals contained in the Clean Growth Strategy do not fully close the gap to either the fourth or the fifth carbon budget. The small-scale sector can help Scotland and the UK meet their targets cost-effectively. Commercial solar alone could deliver approximately 200GW of capacity from south-facing industrial roof space. That could go a long way towards meeting the 4th and 5th carbon budgets and could be built quickly and cost-effectively.
Small-scale technologies can be integrated into businesses in urban and rural environments to drive down energy costs, improve energy productivity and support the competitiveness of business, which is in line with the aims to save £6bn in energy costs set out in the Industrial Strategy.
Integrating technologies BTM or in the distribution network, when combined with energy storage and flexible solutions, can improve security of supply by increasing network diversity and can also help avoid expensive grid upgrade costs. This is in line with the aims of both strategy documents and Ofgem’s Smart Connections and Flexibility Plan.
In the future, small-scale technologies will start to interact more with the smart grid, energy storage, flexible solutions, transport and heating sectors, to provide integrated local energy systems, many of which will be local community-led projects, which is one of the six priorities set out in the Scottish Energy Strategy and one of the main themes of the Flexibility Plan.
Finally, investing in this sector now will ensure we have the products, engineering skills and innovations that we can export to the rest of the world to help them meet their decarbonisation goals through the Paris Agreement. This will lead to significant growth in wealth for the UK economy and is in line with the aims of the Industrial Strategy and the Clean Growth Strategy.
So, the small-scale sector can offer a positive contribution towards many areas of UK policy. We would therefore ask that more focus is given to setting a clear vision for small-scale renewables through publishing the FIT consultation and agreeing a Sector Deal to put in place the framework that will provide a smooth transition beyond the FIT and to help to ensure a sustainable future for the industry.