Our Response to the Environmental Audit Committee: Community Energy
The Environmental Audit Committee have been conducting an overarching inquiry looking at technological innovations which could contribute to tackling climate change. Their most recent session in this inquiry was concerning the role of community energy projects in the UK's Energy sector.
Power for People have responded to their Call for Evidence. The full submission can be read below.
Overview and Summary
This submission is made by Ron Bailey on behalf of Power for People, an organisation that aims to accelerate the UK’s transition to renewable energy and ensure that local communities benefit from this. It is currently campaigning to secure the enactment of the Local Electricity Bill – that would create a Right to Local Supply of electricity.
This submission makes the case for the enactment of the Local Electricity Bill [1], which would give small-scale electricity generators the right to become local suppliers – i.e. sell their energy directly to local people – and make it financially viable to do so. We ask that the Committee recommends that the Government supports this Bill.
We highlight:
the potential for local generation of electricity;
the hurdles facing local generation of electricity;
the failures of the current government initiatives;
the benefits of local generation of electricity;
how the Bill would seem to fit in with the policy in the recent Energy White Paper;
and the widespread support for the Bill.
Potential
There is huge potential for more community-scale renewable energy generation infrastructure to be built across the country, and for this growth to bring substantial benefits to local economies and to help achieve the objective of achieving net zero. A government report, [2] published in 2014, stated that the community energy sector could deliver 3,000 megawatts (MW) of generating capacity by 2020 and that the potential for further growth beyond this was even more substantial.
Indeed, as the Committee’s introduction to this Inquiry says ‘by 2030 the community energy sector could grow by 12-20 times, powering 2.2 million homes and saving 2.5 million tonnes of CO2 emissions every year…’[3]
The Actuality
As the Committee’s introduction says, ‘as of 2020, community energy contributes 278 MW of renewable energy and heat to the energy system.’[4] It would be hard to imagine a greater failure of potential.
Why?
This huge potential is being blocked because current energy market and licensing rules lead to local supply costs that are insurmountable. Let’s illustrate this in lay terms: imagine someone setting up a micro-brewery, planning to deliver their beers to local pubs, offices and homes (thus cutting down on transport costs, CO2 emissions and price charged to consumers) and then being told that they have to pay £1 million in road tax for their delivery van because it was using the national road network. The business would never be started. This is the reality for community-scale renewable energy.
A more in-depth report by the Institute for Public Policy Research states that the financial, technical, and operational challenges involved in setting up a licensed energy supply company mean that initial costs exceed £1 million.[5]
But the Government says there is no problem.
In answer to a parliamentary question (PQ) on 1st March 2021 by Caroline Lucas MP, the current Minister, the Rt Hon Anne Marie Trevelyan said ‘the right to local energy supply already exists under the Electricity Act 1989. One of Ofgem’s key strategic priorities is increasing flexibility across the electricity system to support the delivery of net zero and ensuring that consumers benefit from these innovative changes.’[6]
And as the former Minister, the Rt Hon Kwasi Kwarteng said on 1st November in answer to a PQ by Ben Lake MP, 2020 ‘Ofgem can award supply licences that are restricted to a geographical area and has just consulted on how to use this facility more effectively to bring forward innovation. Ofgem’s Licence Lite regime also aims to reduce the cost and complexity of entering and operating in the market for suppliers.’[7]
The Actuality
‘The right to local energy supply already exists under the Electricity Act 1989’ says the Minister. Licence Lite was set up by Ofgem in 2009, says the former Minister. Clearly neither have been able to achieve the potential for 3,000 megawatts of community energy generation, identified in the 2014 government report referred to above. Although the intention behind Licence Lite was commendable, it clearly has not delivered what it intended. Only three such licences have been granted since it was established.[8] The key flaw in Licence Lite is the need for local renewable generators to partner with a willing licensed energy utility.
None of the existing community energy groups in the UK are licenced to sell their electricity directly to local customers. Furthermore, community energy generation has only grown by the derisory amount stated above. This clearly shows that the flexibilities and allowances for local supply that the Ministers referred to have not delivered.
And consider this evidence from 3 case studies:
Take the case of Harborough Energy: “In the early days of our cooperative we had many conversations about how we might sell electricity to local consumers but found entry costs to the supply market to be in the £3-4 million region.
“One of our Directors fully investigated the balancing and settlement rules to fully understand the restrictions. We took great efforts to establish what the market could offer but the market is stacked against the small players at the moment. We are keen to explore options to sell unused energy locally - either from current sites or as part of new projects.”[9]
Or Hertford Energy: “What holds us back and has prevented us from continuing, is that our finances don’t stack up. If we had another source of income such as selling our energy, we might be able to return to our initial plans to put panels on 24 schools. We had agreements from all the schools, and it all fell apart. It has been incredibly frustrating since then not to be able to find reliable sources of income because it wouldn’t take a lot more money to be able to set up more schemes.”[10]
Or Amber Valley and Derwent Community Energy: “When Transition Belper looked to set up a Hydropower project at the former wireworks site in Ambergate, Derbyshire, in 2011, we discovered many issues with effectively delivering hydropower. The project is currently dormant.
“From day one, the landowner of the wireworks site wanted to sell the electricity to businesses on his site and to local people to make the project profitable. If we could only export to the national grid it wouldn’t be as profitable. Absolutely every local person we consulted said that they would buy the electricity directly if they could.”[11]
In short, as the Committee’s introduction put it so well: ‘however, the ability of communities to sell the energy produced locally is limited in the UK’s centralised regulatory system, meaning that projects often have to sell energy directly to the grid, then buy it back at additional cost.’[12]
Clearly, current Government measures are failing to deliver.
The Solution
This can be stated very simply: Parliament should enact the Local Electricity Bill [13] introduced by Peter Aldous MP and supported by 258 MPs. The Bill is a first attempt to lay out a mechanism that will fix the UK’s local supply problem. It is accepted that there may be scope for improvement and refinement, and new ideas are welcome for how that can be done.
Clause 1 states the purpose of the Bill: to enable the local supply of electricity.
Clause 2 states that it is generators of electricity that can become local suppliers. This is intended to achieve the aim of smaller-scale renewable generators being able to supply electricity to a local area. The Bill as currently drafted does not preclude local electricity from being generated by fossil fuels (e.g. diesel generators). A simple amendment to clause 2 along the following lines could deal with that, whilst allowing district heating schemes that may generate electricity to still benefit, by specifying that a local supplier ‘must not emit more than 350 grams of carbon dioxide equivalent for every kilowatt hour of electricity generated provided that this requirement shall not apply to electricity generated by district heating schemes.’
Clause 3 is the heart of the Bill and gives Ofgem the task of setting up the local supplier licence process; it also requires that the process ensures that local suppliers face set-up costs and complexity proportionate to the scale of their operations. The exact details of that process are not laid out in the Bill, meaning that Ofgem should carry out this task. Subsection (1) requires Ofgem to set up the local supply licence mechanism to ensure that the costs and complexity of becoming a local supplier are proportionate to the size of the operation. Subsection (3) allows for the local supplier operation to be flexible in size and designated by Ofgem with subsection (5) allowing this area to differ depending on the supplier. This will give the new local supply process the flexibility it needs as some suppliers will cover smaller areas, such as a collection of neighbouring villages, whilst others may cover larger areas, such as a city or a county.
The Bill and the Energy White Paper
The Bill would seem to achieve exactly what the White Paper [14] wants: -
‘In partnership with the Office of Gas and Electricity Markets (Ofgem), we will: ‘Work to minimise the costs to consumers of getting energy to homes and businesses, by promoting more innovation and competition in networks and in national and local energy markets.’[15]
‘We need the operation of national and local energy markets to be managed impartially, without conflict of interest, ensuring they are fully open to competition. We need a robust process for setting and enforcing system rules, an approach which ensures that the rules promote competition and innovation, not act as a barrier to change.’[16]
Benefits
We estimate that community renewable energy generation, currently accounting for less than 0.5% of UK electricity generation, would increase by at least twenty-fold in 10 years as a result of making new community energy businesses viable.[17] We therefore estimate that 1.5 million tonnes of CO2e emissions will be saved each year if we succeed in seeing the Bill made law, which is equivalent to the emissions (pre-pandemic) of all domestic flights in the UK. This is informed by a WPI Economics January 2020 Report [18] and by our estimation that within 5-years of the Local Electricity Bill being law, community renewable energy generating capacity will have increased from its current 280 MW to 3,000 MW.
The Bill would lead to energy market reforms that would create local economic resilience in communities across the country. By empowering communities to sell local renewable energy directly to local households and businesses, it would make new community renewable energy businesses viable and, by bypassing large utilities, they would keep significant additional value within local economies. More of the money we all pay our electricity bills would circulate in the local economy: more skilled local jobs, more viable local businesses, stronger local economies.
As well as helping to reduce greenhouse gas emissions, lower fuel bills and create local jobs there are other community benefits. Local economies benefitting from local energy has happened before – local facilities across the UK such as parks, swimming baths and libraries were built from revenues of municipal energy companies in the 19th and early 20th centuries.[19] This is happening today, albeit to a limited extent: In 2019, the small number of community energy groups across England, Northern Ireland and Wales generated £4.6 million for local projects.[20] This figure will multiply if the Bill is enacted and communities across the country will be revitalised.
Support
So far 258 MPs have stated their support for the Bill in Parliament, along with 66 County and Local Authorities.[21] Over 300 community groups also support the Bill along with a coalition of 70 national organisations including the Energy Savings Trust, Good Energy, Forum for the Future, the Renewable Energy Association, the New Economics Foundation, ResPublica, the Solar Trade Association, the British Hydropower Association, Triodos Bank, the Transition Network, Community Matters, Locality, UK Community Works, Possible, RSPB, Friends of the Earth, WWF, Greenpeace, ClientEarth, Tearfund and 350.org. Two of the UK’s six Distribution Network Operators – Electricity Northwest and Western Power Distribution - who would make and pay for expected necessary grid upgrades should the Bill become law, have also joined the coalition and publicly backed the Bill.
Request to the Committee
We therefore ask that the Committee recommends that the Government supports the Local Electricity Bill and ensures that it becomes law.
[1] https://powerforpeople.org.uk/read-the-local-electricity-bill
[2] The Department for Energy and Climate Change; Community Renewable Electricity Generation; January 2014
[3] Environmental Audit Committee website
[4] Environmental Audit Committee website
[5] Institute for Public Policy Research; Community and local energy: Challenges and opportunities, June 2016
[6] PQ No 154599
[7] PQ No 119339
[8] Licence Lite section of Ofgem website, accessed 20th November 2020
[9] Evidence provided to Power for People by Harborough Energy a not for profit Co-operative and Community Benefit Society
[10] Evidence provided to Power for People by Hertford Energy a Community Benefit Society
[11] Evidence provided to Power for People by Amber Valley and Derwent Community Energy
[12] Environmental Audit Committee website
[13] https://publications.parliament.uk/pa/bills/cbill/58-01/0135/200135.pdf
[14] Energy White Paper: Powering our New Zero Future, https://www.gov.uk/government/publications/energy-white-paper-powering-our-net-zero-future
[15] Energy White Paper p 64
[16] Energy White Paper p 86
[17] This is based on an extrapolation from the following report - The Department for Energy and Climate Change; Community Renewable Electricity Generation; January 2014
[18] WPI Economics (January 2020), ‘The future of community energy’, http://wpieconomics.com/site/wp-content/uploads/2020/01/Future-of-Community-Energy-20200129-Web-Spreads.pdf
[19] Professor Robert Millward; The Cambridge Economic History of Modern Britain, Volume 2, 1870 to the Present; Chapter 15 – The Growth of the Public Sector
[20] Community Energy England; Community Energy: State of the Sector 2020 - https://communityenergyengland.org/files/document/484/1615989181_CommunityEnergy-StateoftheSector2020Report.pdf
[21] https://powerforpeople.org.uk/the-local-electricity-bill/support/