Select committee inquiry
Local Energy
Closed
What the inquiry looked at
“Historically, the vast majority of electricity generating assets in the UK have been owned by large energy companies. New technologies, which can be built at much smaller scale (for example wind, solar and combined heat and power) have opened up new opportunities for different forms of ownership, such as projects owned by community groups, co-operatives, local authorities and commercial organisations. This has the potential to tap into new sources of investment and may also help to overcome some of the public acceptability problems that have plagued larger-scale energy projects. The Government currently supports small-scale renewables (smaller than 5MW in size) through the feed-in tariff scheme. Larger renewables are supported under the Renewables Obligation (RO) and in future, will be supported through Contracts for Difference (CfD). The Committee has previously argued that medium-sized projects (between 5-50MW) are disadvantaged because they cannot access the feed-in tariff, yet often lack the financial capability to deal with the complexities of the RO/CfDs. In addition, they may struggle to obtain the reference price under the CfD regime, meaning they would lose out financially. The Committee is seeking to explore the role that medium-sized local energy projects could play in the UK’s energy system and the extent to which Government policy currently supports these types of development.”
The committee's words, from the inquiry page on parliament.uk ↗.
What the government said
6th Report - Local Energy - Volume II (Additional Written Evidence)
No government response is linked to this report.
6th Report - Local Energy - Volume I (Volume I: Report together with formal minutes, oral and written evidence)
The government responded on 21 October 2013.
Summary written by Accountability Index from the government's response.
The government thanks the Committee for its recommendations, agrees with several of its conclusions, and says many points will be addressed in a Community Energy Strategy due to be published "towards the end of this year".
- On the definition of 'community organisation' under the Feed in Tariff Order, the government "notes" the recommendations but has "no plans to make any further changes at this time"; it intends to consult on secondary legislation, including the definition of 'community', after Royal Assent of the Energy Bill.
- On grid connections, it agrees that network connections "must not be a barrier" but says it is "not for Government to play an active role in regulating network operators", as that is for Ofgem.
- On access to the market for independent generators, it says it has amended the Energy Bill to grant powers enabling the Secretary of State to implement an 'offtaker of last resort' scheme, and it believes the PPA market "will improve under Contracts for Difference".
- It does not currently plan to specifically encourage joint ventures between local communities and the oil and gas industries, but will "continue to study" community benefit models and share best practice.
Read the government's response ↗ Read the report ↗ Report an error
How the inquiry ran
Each dot is a dated item listed on this page, from the inquiry's opening on 13 April 2013 to 21 October 2013.
- Report 2 reports
- Government response 21 Oct 2013
What it recommended 12 recommendations · 7 conclusions
1Given the potential benefits, DECC should do more to promote joint ventures between community groups,...
Recommended (the committee's words)
Given the potential benefits, DECC should do more to promote joint ventures between community groups, private and public sectors. We recommend that the option for a local ownership share in new energy projects should be added to the industry’s Community Benefit Protocol.
2As we noted in the introduction, there are a range of different ownership models for...
Recommended (the committee's words)
As we noted in the introduction, there are a range of different ownership models for projects at the medium scale, including private landowners, farmers, local authorities, other public sector organisations and commercial organisations, as well as those owned by community groups. However, there is a lack of research showing what the combined contribution of these different types of projects could be. We recommend that DECC carries out an assessment of the potential that 5-50MW projects of all types could play in the UK’s energy mix.
3DECC has chosen to focus narrowly on just those projects that are run by community...
Recommended (the committee's words)
DECC has chosen to focus narrowly on just those projects that are run by community groups in its most recent consultation and therefore is likely to overlook the contributions that other types of project could make to opening up new sources of finance. We recommend that DECC broadens its outlook and assesses the role that medium-sized projects with different models of ownership could play in the energy mix as well as what sources of finance might be available.
4We note that while the scope and nature of the impact of local energy projects...
Concluded (the committee's words)
We note that while the scope and nature of the impact of local energy projects on consumer costs remains uncertain, the advantages of local energy projects in terms of increased diversity and flexibility of supply are apparent. Local energy projects also have the potential to broaden public understanding of energy issues, encouraging energy-conscious behaviour and greater engagement in carbon reduction initiatives at community level.
5Although the National Planning Policy Framework states that local authorities should consider identifying suitable areas...
Recommended (the committee's words)
Although the National Planning Policy Framework states that local authorities should consider identifying suitable areas for renewable energy development, Government needs to do more to encourage local authorities to adopt this approach in practice. It should also encourage local authorities to develop clear guidance about what is expected from local energy projects, to reduce uncertainty and risk in the planning process. This approach is also more likely to prevent bad projects from coming forward. While we recognise and support the Government’s ambition to return decision-making powers to local authorities, carbon reduction is a national priority. National level planning guidance on key technical issues would help to improve consistency between different local authorities and would help to ensure that only genuinely local issues were addressed through the local consenting process. We recommend that Government incorporates such guidance as part of its planned reform of the existing guidance suite.
6The current landscape for accessing “at-risk” finance is fragmented and in some cases restricted to...
Recommended (the committee's words)
The current landscape for accessing “at-risk” finance is fragmented and in some cases restricted to certain geographical areas. We welcome the Government’s introduction of a community energy fund, however we note that it is not just rural communities that experience difficulties in raising “at-risk” finance for local energy projects. We also fear that the high premium repayable on the loans from this fund may discourage applicants. We recommend that the Government considers how support might be extended to other organisations that are interested in local energy projects. The Scottish Government’s Community and Renewable Energy Loan Scheme provides a useful model that could be emulated either by DECC or by the Green Investment Bank. DECC is aware that the PPA market currently poses difficulties for independent generators and this situation is only likely to get worse with the move from the Renewables Obligation to Contracts for Difference. We raised this issue a year ago in our report on the draft Energy Bill. It is therefore disappointing that the Government has not come forward with an adequate solution. If Government is serious about increasing competition in electricity generation it must come forward with a credible solution urgently.
7Cost of connection and lack of capacity in the grid to take new connections without...
Recommended (the committee's words)
Cost of connection and lack of capacity in the grid to take new connections without significant upgrading, are hindering the development of local energy projects. As a first step, we recommend that Ofgem requires DNOs to publish maps detailing where there is connection capacity. Once the scale of the issue is known, Government should assess the options for facilitating grid connections for small and medium-sized renewable developments, in order to ensure that local energy renewables have “priority access” to the grid wherever possible. Government should also provide advice on grid connection as part of the advice service suggested in paragraph 63 under ‘Advice and Support Services’. We also recommend that Government reviews the arrangements between suppliers and District Network Operators so that connections can be better facilitated. We agree with Community Energy Scotland and recommend that DECC review the current RIIO TD-1 business plan for National Grid, and the proposed RIIO ED-1 business plans for DNOs.
8We commend DECC for undertaking to extend the Feed in Tariff threshold to enable projects...
Recommended (the committee's words)
We commend DECC for undertaking to extend the Feed in Tariff threshold to enable projects of up to 10 MW in size to access this support mechanism. This should provide greater certainty for small to medium-sized local energy projects to come forward and is a step in the right direction. However, projects between 10MW and 50MW will not be served by Feed in Tariffs and are unlikely to be able to access Contracts for Difference, which are geared toward much larger-scale developments. There is a risk that these projects will be disadvantaged by the move from the Renewables Obligation to Contracts for Difference. We recommend that Government brings forward an alternative proposal to support projects within the 10-50MW range to incentivise the development of medium-sized projects which cannot access either Contracts for Difference or Feed in Tariffs.
9We are concerned that the current definition of “community organisation” under the Feed in Tariff...
Recommended (the committee's words)
We are concerned that the current definition of “community organisation” under the Feed in Tariff Order 2012 risks excluding community energy projects which operate under a “trading and subsidiary” model. We recommend that DECC amend the definition to ensure that these projects are eligible. We also recommend that DECC consider introducing a minimum level of local ownership or membership within the definition of “community organisation”.
10Community-owned energy projects have to rely on the goodwill of volunteers to get projects up...
Recommended (the committee's words)
Community-owned energy projects have to rely on the goodwill of volunteers to get projects up and running. However, not all projects are able to access the expertise and specialist knowledge that is needed to get projects off the ground. The Government should introduce an advice service that can provide support to community groups on issues such as how to finance a project, ownership structure, the planning process, energy technologies, the energy market and the various support mechanisms that are available. Community Energy Scotland could provide a useful model for how such a service might operate. The appetite and capability for local authorities to undertake local energy projects varies across the country. Government should introduce guidance and support for authorities, which sets out the pros and cons of investing in energy projects, in addition to national planning guidance as recommended in paragraph 37. It should also develop “best practice” guidance for those that would like to go down this route.
11We have recommended ways in which Government could help to improve access to finance (paragraph...
Recommended (the committee's words)
We have recommended ways in which Government could help to improve access to finance (paragraph 50), develop appropriate support mechanisms (paragraphs 61 and 62), reduce risk in the planning process (paragraph 37) and improve access to support and guidance (paragraph 68). If the Government is serious about supporting community-owned energy projects, it needs to develop a package of measures that will help to address all of these barriers simultaneously. Addressing only one or two will not be sufficient. The Government should also set out its expectations in terms of what such a package of measures could deliver in the form of an indicative target.
12We welcome DECC’s proposals in conjunction with DCLG to introduce best practice guidance on community...
Concluded (the committee's words)
We welcome DECC’s proposals in conjunction with DCLG to introduce best practice guidance on community engagement and compulsory pre-application consultation for larger wind farms. These measures should help to encourage earlier and better quality consultation with communities, leading to greater public acceptance. DECC should consider extending these guidelines to cover other local energy projects in addition to wind.
13There are strong indications that some level of local ownership can help to boost support...
Recommended (the committee's words)
There are strong indications that some level of local ownership can help to boost support and reduce opposition to energy infrastructure projects. We welcome the fact that DECC is seeking to develop a more robust evidence base on this issue. If the evidence shows that local ownership does indeed improve acceptability, we recommend that the Government encourages the industry to offer a stake to local residents for all new developments (perhaps by revising industry guidelines such as the Community Benefit Protocol). If the industry does not respond, the Government should consider the option of making a community ownership offer mandatory for all new developments.
14The idea of providing cheaper electricity to the communities living close to energy infrastructure projects...
Concluded (the committee's words)
The idea of providing cheaper electricity to the communities living close to energy infrastructure projects has merit. It would provide a tangible and visible benefit to people living near to development sites, which could act as compensation for any negative impacts associated with the project (such as aesthetic impacts). We encourage the Government to monitor the various initiatives that are emerging in this vein so that it can assess which approaches are most successful. This includes discounted tariffs, discounted bills and any projects going forward with a ‘Licence Lite’ derogation. DECC should also investigate whether the Licence Lite route is accessible to community-owned projects and, if it is not, should consider exercising the powers that have been proposed in the Energy Bill to amend electricity licence conditions.
15Medium-scale energy projects could contribute a significant amount to UK energy supply, but because DECC...
Concluded (the committee's words)
Medium-scale energy projects could contribute a significant amount to UK energy supply, but because DECC policy has focused either on very large or very small (<5MW) schemes, the evidence to quantify this is not available. We think there is room for medium-scale projects to contribute to the UK’s energy mix.
16While the Government has been explicit about its support for community energy projects, it has...
Concluded (the committee's words)
While the Government has been explicit about its support for community energy projects, it has neglected some other options, including projects owned by local authorities and projects owned by private sector (commercial) organisations. This means potential for new capacity and new sources of finance is being missed.
17There is a need for a comprehensive package of measures addressing planning, grid access, support...
Concluded (the committee's words)
There is a need for a comprehensive package of measures addressing planning, grid access, support mechanisms, finance and advice. Addressing only one or two of these issues will not be enough to create the right conditions for local energy projects to flourish.
18Joint ventures are beneficial: community groups benefit by accessing expertise and finance from commercial partners,...
Concluded (the committee's words)
Joint ventures are beneficial: community groups benefit by accessing expertise and finance from commercial partners, and commercial partners benefit from increased local support. Government should do more to promote this approach and to provide more central guidance. It is notable that the new Office of Unconventional Gas and Oil is examining community benefits from shale gas as a priority, and perhaps such an approach could be adopted for medium-scale energy projects.
19In a system geared toward large-scale generation, medium-sized local energy projects are struggling to gain...
Recommended (the committee's words)
In a system geared toward large-scale generation, medium-sized local energy projects are struggling to gain a foothold. However, it is these smaller local schemes that have the best hope of engaging communities, raising energy awareness and increasing public acceptability of new low-carbon infrastructure. The Government must do more to encourage medium-sized projects, particularly in the 10-50 MW range, if we are to realise the full benefits and potential of local energy.