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ADEPT and CIPFA webinar - building the business case for renewable energy

The third in a series of webinars run in partnership by ADEPT & CIPFA focused on how place directors, finance directors and their teams can build a case for local authority investment in renewable energy and storage. Hannah Bartram explains…

First up was Sheryl French, Assistant Director, Climate Change and Energy Services for Cambridgeshire County Council who set out the context for local authorities and our key role in addressing climate change. The Climate Change Committee underlined how by 2035, we need a 78% reduction in carbon from the 1990 baseline. The Energy White Paper ‘Powering our Net Zero Future’ set out that by 2035, all UK electricity generation must be clean. The market has to change substantially over the next 10-15 years to keep pace with vastly increased demand. A conversation is happening around additional powers to benefit local government, but we already have enough to get projects moving. In 2010, local authorities were given the power to sell electricity, while The Local Government Act (1976) allowed us to generate, distribute and sell heat to communities. 

We can use these powers and economic incentives to shape the market and develop local supply chains, but we have to find answers to important questions. How do we use public sector assets to create key schemes to build a new smart energy future? How do we ensure our teams - including finance, legal and procurement - have enough understanding around carbon pricing and energy markets to be able to talk to elected Members about managing risk? Coming out of the pandemic, how do we as place-makers, bring forward the green recovery that reflects the climate emergency that many of our organisations have declared?

Dr Daire Casey, Energy Services Manager for West Sussex County Council, set out key points for assessing your organisation’s potential for generating renewable energy. An asset register audit will help you understand the type, location and scale of possibilities, and whether buildings are third-party occupation (eg. schools) or used by the council. It will also provide information on wayleaves or tenancies, as well as the geographic proximity to electrical infrastructure. The estates team will know when an asset might be ready for transformation into an energy project, from which point you can assess different options, such as rooftop solar or a solar farm. You will also need to become familiar with electricity pricing, inflation, in-house capability and capacity and whether you will need to procure private sector expertise. 

Your approach will depend on whether you have a programme of work or a series of individual projects. Engage early with colleagues in finance, legal and procurement as you will need their support, particularly when bringing the case before Members. You need to be clear from the outset about how you will monetise and realise the value of the investment and understand the risk. If it’s a series of single projects, develop an internal concept note to review who’s on site, who’s adjacent and whether you will feed power into the grid or a building. Create a strategic outline case for a programme, developed before individual outline and full business cases for individual projects. Spend money on pre-feasibility studies, developing and understanding outline business cases with external support, if required. Later feasibility studies will require energy market advisory reports and expertise from planning teams to meet planning conditions for the preferred option, and of course, how to finance.

Alastair Mumford, Corporate Energy Manager for Devon County Council (DCC) and Regional Programme Manager for the South West Energy Partnership, provided one answer to that finance question. DCC has been exploring how to stimulate the community energy sector and support local generation.

The Devon Energy Collective (DEC) comprises a number of community energy groups across the county and works on larger scale energy projects. Through discussion, it emerged that if the council guaranteed the strike price (the amount the DEC would get for its energy) for seven years, the collective could secure finance and build a generation site. Therefore, DCC has been looking at entering into a Synthetic Power Purchase Agreement (SPPA) with the DEC. Through that, the council will get the renewable certificates (RIGOs) for carbon offsetting and continue to purchase energy from existing suppliers via the LASER framework. As the site cannot be built without DCC involvement, it is hoped the SPPA can be used to deliver carbon offsetting for Devon. Under the agreement, DCC will meet the strike price if the market price is under, and get the saving if it is over. Using BEIS forecast energy pricing data, the council concluded that the outcomes would range between cost neutral and an annual saving of £37,000, with cost neutral being the most likely.

The social economic assessment of the SPPA found that using a community organisation rather than a commercial provider would generate an additional £15.27m in economic value for DCC. The council will require the provider to deliver community ownership and reinvest profits into community carbon saving projects to secure the added value. Currently, DCC is waiting for a legal opinion on subsidy, but is confident of compliance. It is also working out the reference price – the mechanism for setting and reconciling against strike price. 

The final speaker, Joseph Holmes, Executive Director (Resources) West Berkshire Council, explained the authority’s use of Community Municipal Investment (CMI) as an alternative to the Public Works Loan Board (PWLB). West Berkshire explored whether a CMI could offer more certainty for medium-term financial strategies and enable investment in their environmental strategy. The council contracted Abundance to administer a pilot scheme launched in July 2020. Investors invest a minimum of £5 in the council, which pays a return of 1.2% over 5 years. Aiming to get £1m over 3 months, it achieved this in early October and generated a lot of interest from residents and both local and national media. 

Many residents were interested in new schemes, but the council wanted to fund schemes already on the capital programme, such as urban tree planting, solar, capital improvements with the local Wildlife Trust, flood alleviation, and energy efficiency upgrades for traffic and streetlighting. One in six investors donated their returns to the Wildflower Verge Project, supporting the creation of a network of wildlife and pollinator friendly habitats alongside roadsides, and giving the overall scheme additionality. Local investors invested more, but they came from across the UK. Joseph emphasised that CMI works better for shorter term borrowing and is a longer process than PWLB, but also that it gave West Berkshire a strong narrative and a much greater level of conversation and engagement with residents.

So, plenty of food for thought. Local authorities have the powers, mechanisms and flexibility to set up energy regeneration projects, support net zero targets and engage more meaningfully with their communities. Watch a recording of the webinar here and view the presentation slides here.

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