Wales Climate Week – What role for community energy projects?

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Community energy brings many social and economic benefits

Community energy is energy that is generated, managed, or purchased by a community, for its local use. As well as resulting in cheaper energy and improved energy efficiency, community-led energy projects bring social and economic benefits.

Socially, the benefits of being involved in a community energy project are harder to measure as they can spread beyond the initiative itself – but are nonetheless important. It can for example enhance community cohesion and confidence in the ability to achieve a common project, and the benefits can be invested into other local priorities.

But their own economic viability is uncertain

Despite these obvious benefits and being as relevant as ever, community energy projects receive little government support, and policy changes relating to renewable tariffs have jeopardized their economic viability.

Once upon a time, community energy groups used to be able to rely on the availability of feed-in-tariff (FIT) payments, to receive a set level of income over a defined period. This meant that community groups could model the financial viability of a proposed community energy project, build it out, then use the proceeds of the payments to benefit their local community and pay back loans.

Unfortunately, this is no longer the case since the Smart Export Guarantee (SEG) Scheme has partially replaced the support for small low-carbon generators from FIT.

The SEG scheme is a mandatory supplier-led scheme, which is supposed to remunerate small-scale low-carbon generators for the electricity they export to the National Grid. Although SEG tariffs must be offered, suppliers retain control over the tariff structure they provide, the duration of the contract, and the level of tariff offered. This does not promote certainty for long term financial modelling.

In addition to this, the likelihood of making money from a SEG tariff is relatively low, given that the SEG only pays for the excess electricity put into the National Grid, rather than all the electricity that is generated.

So how, in Wales, can we support our community energy groups?

The Welsh Government’s Low carbon delivery plan puts the emphasis on local ownership of energy, public sector decarbonisation and aiding the retention of local economic benefit. I am confident that community energy groups can play a key role in achieving these goals, provided they receive adequate support. My recommendations are as follows:

  1. The Welsh Government Energy Service should continue to invest and expand upon the £60m of zero-interest loans, but also include this offering to community energy groups, to help them cover the costs of buying and installing energy installations up to 5MW in size.
  2. Public sector procurement of energy supply to offices and other public sector spaces should be revisited at the appropriate point, with contracts being entered into between groups and the public sector organization, for the community installation to provide energy to such buildings; for example, electricity provided by private wire from community-owned installations nearby to the location.
  3. Power purchase agreements should be entered into between the public sector body and the community group, in relation to the supply of the energy generated. This would give the community group price certainty over each kW of electricity delivered, and help groups model the financial viability of their project. It would also promote a circular economy and keep money within that region, with money generated by the community, for the use by the community. This would in turn help promote Wales’ circular economy.

We must be radical in our thinking in how we should build back greener, in our post-pandemic world. With Welsh Government limited in powers held over National Grid and grid connections (this is a reserved matter for UK Government), we must think of innovative, but relatively easy wins to reduce Wales’ carbon output.

Giving extra resources to local communities to achieve their energy goals, whilst at the same time helping to decarbonise the public sector (which has an ambition to be carbon neutral by 2030), and feed into the circular economy, is in my eyes a no brainer.