Local authority models for developing renewable energy

The Climate Change Committee has indicated that a fourfold increase in renewable generation deployment will be needed to meet net zero by 2050. This generation will be needed at all scales, from transmission to lower voltages.

Local authorities, cities and regions have a key role in the development of renewable generation as planning authorities. However, they can also play a more direct role as landowners, developers or purchasers of power in enabling renewable energy project development. Within many net zero action plans, local authorities, cities and regions have been asking themselves how they can encourage more renewable energy to be built, whilst maximising the local benefits from this clean energy.

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Local leadership: filling the gaps in support for new renewables

Despite their relative absence in the recent Net Zero Strategy, we know that smaller and medium-sized onshore renewables are going to be a crucial part of delivering the fourfold increase in renewable generation we need. Importantly for communities and local government, it is this plethora of small renewable, wind and solar sites across the UK that have a huge potential to contribute to the local economy through new skills, jobs and investment – and ultimately decarbonising, decentralising AND democratising our energy system.

What gets these projects built is long term power price certainty. However, at present there is little certainty and at the same time little associated policy that can support these smaller, local and community-owned projects. Though very welcome, the Contracts for Difference Round 4, Pot 1 auction will be the preserve of the big guys with the capacity to bid.

Rising electricity wholesale prices have also focused minds on the need for more home grown energy, as well as on the need to hedge against future price rises. The good news is that, for the UK government, these rises have an upside – their existing CfD contracts are now starting to pay back to the public purse.

So what is the solution? Within many net zero action plans, local authorities, cities and regions have been asking themselves how they can encourage more renewable energy to be built, whilst maximising the local benefits from this clean energy.

There is a key role for these organisations as planning authorities, but they can also play a more direct role as landowners, developers and purchasers of power, using this leverage to enable local renewable energy project development. To support this, Regen has developed a guide for local authorities and other local actors who are looking at how they can fill the current policy gap, get local projects built, save energy costs, as well as hedge against their exposure to future energy price rises.

The guide covers the pros and cons of existing direct ownership, private wires and sleeving as well as exploring some emerging models including local CfDs, sleeving pools and local electricity tariffs.

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Insight from local authorities

The publication was launched in a webinar where we heard from Bristol City Council, Devon County Council and Greater Manchester about their approaches to getting new renewable generation built in their areas.

There was particular interest in the emerging structure known as a Synthetic Power Purchase Agreement (SPPA). It has a lot of different names, but is essentially a local version of the UK government’s Contracts for Difference scheme. Contracts for Difference are the key policy for UK government to support renewable and low-carbon electricity generation. In these agreements, the customer does not purchase power directly but instead obtains price protection for projects, ensuring a minimum price for the power that the project generates. In return, if the price goes above the ‘strike price’, then the excess is repaid to the government or guarantor.  

With the unprecedented price rises in the energy markets, this approach has now started to pay back millions of pounds into the UK government coffers.  

The fourth round of UK Contracts for Difference opens in December and the allocations highlight the value for money that these structures could potentially provide to the taxpayer. Pot 1 allocation for onshore wind and solar PV is expected to cost only £10m to achieve a huge 5GW of capacity. As a comparison, £200m has been allocated to support around 12GW of offshore wind. In Pot 1, it is expected that these relatively low cost technologies will involve significant repayments to government, rather than the other way round.

But, unfortunately, the national scheme is not something that small and medium sized projects can access. This national process is for the big projects, who have the time and resource to bid into to something that they may not win. This means that the projects with the most potential to provide local benefits lack any policy support. The good news is that a number of local authorities are now exploring their own local versions of this national scheme. Devon County Council, who were among the speakers at our event, is one of the first to explore this model and the South West Energy Hub have has  produced a short guide on how to take this approach forward.

Regen’s report explores the pros and cons of an SPPA (see page 15 of the guide), the key pros being that the contract provides electricity price certainty (hedging against future price rises) but, unlike a sleeving PPA (see page 13), does not impact the electricity procurement processes within the council which are likely to be embedded and need to be renegotiated regularly. There are of course cons to the SPPA model, particularly around the complexities of holding a financial derivative and implications for finance departments and balance sheets.  

But, once these hurdles can be passed and the model normalised, we think there is significant potential that local Contracts for Difference could be a viable process to support new local renewable projects – and maybe generate some welcome additional money for the council at the same time. A win-win.  

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