Energy Matters Spring 2015

Energy

matters

ISSUE 8 SPRING 2015

Making a success of anaerobic digestion Using biomass to heat a village Why windfarms are going for expansion The supermarket that turns waste into power

Degression takes a bite out of wind-power profits Renewable energy market update The rising trade in renewable assets A9 and A96 progress

www.galbraithgroup.com

WELCOME

Viking Wind Farm clears major hurdle

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he Viking Wind Farm, a joint venture between the Shetland community and utility company SSE, has had a rocky ride since Scottish Ministers granted planning permission in 2012.

The Shetland isles have an outstanding wind resource, and the 103-turbine site has the potential to be the most productive onshore wind farm in the world.

Viking Energy has been working with land­owners and crofting interests to ensure they are properly recognised, and CKD Galbraith is instructed by Viking to advise on compensation and valuation.

Viking consulted widely over the potential impact on wildlife, in particular the whimbrel and red-throated diver. A detailed habitat management plan was prepared and substantial areas of moorland outwith the site were secured to provide alternative habitat.

Despite this, in 2013 Sustainable Shetland won an argument in the Court of Session that the potential impact on whimbrel meant the Minister had breached the European Birds Directive and the planning consent was therefore unlawful. This was overturned last July, but an appeal was taken to the Supreme Court.

This was rejected on February 9 and the development now has an unequivocal planning “green light”.

The cost and delay are significant burdens, but we can be proud of the open and accountable nature of our planning and legal process. Developable sites are becoming harder to find and prove but there are still wins to be had.

When built, the Viking Wind Farm will create 35 full time jobs, deliver £1.85m a year in community benefit and generate enough power for 335,000 homes.

Tim Kirkwood, Chief Executive, CKD Galbraith

CKD Galbraith is Scotland’s leading

independent property consultancy. Drawing on a century of experience in land and property management, the firm is progressive and dynamic, employing more than 200 people in offices throughout Scotland.

The firm provides a full range of property consulting services across the commercial, residential, rural and energy sectors.

CKD Galbraith provides a personal service, listening to clients and delivering advice to suit their particular opportunities and circumstances.

CONTENTS

4 Planning for the end

of life of a windfarm.

5 Windfarms are

going for growth.

6 A creative approach to heating a village.

7 On the road with

a wayleave officer.

8 Harnessing the tides in the Pentland Firth.

10 Electricity from

supermarket waste.

11 Renewable energy market update.

12 Degression takes a

big bite out of wind power profitability.

New rules for non‑domestic EPCs.

14 The rising trade in renewable assets.

15 A9 and A96 update.

Our associate, CKD Kennedy Macpherson, is based in London.

E

arly in 2013 Charlesfield First, an operator of renewable energy projects, submitted a planning application for an anaerobic digester plant at Charlesfield, St Boswells, midway between Selkirk and Kelso in the Scottish Borders.

Consent was granted last May for the development of a plant to produce biomethane from arable crops and grass at the rate of 350m3/hr, which, once “scrubbed”, would be injected directly into the main gas grid. The annual income was projected to be about £3.8 million.

While planning consent was being sought, Charlesfield First sourced funding of £9 million from a specialist investor in renewable projects, Iona Capital, which had invested about £28 million in 14 renewable projects throughout the UK. To secure the funding Charlesfield First had to satisfy Iona that there was an adequate security of feedstock supply to fuel the plant.

The planned life of the plant is 20 years, but the funders dictated that, for the first 10 years, a minimum percentage of the feedstock would be available so that the operators of the plant could not be held to ransom.

With both planning and funding ­provisionally in place, Charlesfield First now had to find farmers within about six miles of the plant who, together, would be prepared to commit the production from no less than 850 acres of arable land, and ideally more than 1,000 acres, to the plant. CKD Galbraith were instructed to fit this final piece into the jigsaw.

Initial canvassing of farmers soon established leasing would not work, so

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Anaerobic digestion is being quietly taken up on farms across Scotland, and professional negotiation of crop supply is crucial to success. James Galbraith reviews progress on one scheme in the Borders.

Energy Matters is produced by ­ llerton Communications, London, A UK, and designed by George Gray Media & Design, St Andeux, France. © CKD Galbraith LLP.

Page 2 | Energy Matters Spring 2015 | www.ckdgalbraith.co.uk | Twitter: @CKDGEnergy

Making sure supply can meet demand “

The key to success was the development of a contract which offered farmers flexibility and at the same time provided security of supply.

The deadline for signing off agreements to release funding was September.

Cropping agreements for the minimum acreage were in place by the deadline, and contracts subsequently agreed mean a total of more than 1,100 acres have now been committed to the plant.

a 10-year contract was developed. Farmers would commit to grow crops for the plant on a minimum acreage of their farms each year and would receive payment based on the cost of production plus a margin of £150 per acre.

The key to success was the development

The plant operator takes possession of the standing crop in early summer. This gives it control over the timing of cutting and transporting it to the plant for storing in silos until required.

CKD Galbraith became involved because of our knowledge and experience of cutting through to the essentials to ensure the renewable energy projects we’re involved with produce the results expected and that progress goes according to plan.

of a contract which offered farmers flexibility and at the same time provided security of supply to the plant.

There was no template to copy, but original thinking and engagement with prospective suppliers enabled us to find a solution which secured the land, the funding and the project.

James Galbraith, a partner and former chairman of CKD Galbraith, is based in the Edinburgh office. james.galbraith@ckdgalbraith.co.uk 0131 240 6960

Contract for Difference (CfD) – round one allocation results The UK Government announced on February 26 the results of the first competitive allocation for low carbon generation support mechanism (CfD). In total £325 million of contracts were allocated between established technologies (onshore wind and solar) and less established technologies (wave, tidal and offshore wind). Successful projects have until March 27 to accept the contracts.

Further information is available at www.gov.uk/government/collections/ electricity-market-reform-contracts-for-difference#cfd-auction-results Those projects which were unsuccessful will be able to bid again at the next round which is expected to begin in October. With a total budget of £1 billion to be allocated up to 2020/2021 there is much to play for. It is hoped that the budget for the next round will emerge in late summer, following the General Election.

A new chapter for renewables: Page 11

www.ckdgalbraith.co.uk | Twitter: @CKDGEnergy | Energy Matters Spring 2015 | Page 3

D-day: When the time comes to dismantle the turbines The end of life of a windfarm may seem a distant distraction, but it’s essential to plan for the inevitable, says Calum Innes.

D

ecommissioning a windfarm may appear to be a distraction during the planning and commissioning stages of a project but it is a matter which is increasingly relevant to developers and landowners of on-shore energy developments as they consider the future.

Windfarms generally have a planning permission that restricts their life to a maximum of 25 years, and there is a requirement for the site to be decommissioned and reinstated to its original state at the end of the operational period.

Many early permissions had vague requirements on decommissioning, both in obligations imposed by planning authorities and in provisions stipulated in leases and other agreements between parties. More recently, authorities have often insisted upon Restoration and

Decommissioning Plans (RDP) as part of the planning process. For principal stakeholders it is important to have a robust means of quantifying the likely cost, if only at current money values.

Parties should provide for an acceptable structure for holding the required funds to ensure the requirements of the RDP can be fulfilled, together with a mechanism for periodic review to take account of inflation, policy and other changes.

Recent experience, such as the demise of Scottish Coal and the apparent lack of adequate restoration funds, has focused the attention of both planning authorities and landowners on the quantum of any ‘bond’.

Often a very broad-brush approach is taken at the outset of the development in quantifying the allocation for such obligations by applying an arbitrary amount of money per MW of installed capacity. This

approach is often inadequate as it takes no real account of the physical circumstances of the development, and could easily result in a big disparity between actual and forecast costs.

Of course, the aim of the RDP is to mitigate the environmental impact of the decommissioning works and seek to ensure that the best practicable environmental option is achieved. ‘Best practice’ is not a fixed standard and evolves over time. Furthermore, as there is no UK windfarm that has reached the 25 year milestone, the relevant knowledge base is at best scant as there are few examples anywhere of projects that have been decommissioned.

One aspect that is difficult to quantify is the value attributable to the assets being removed. There is presently an embryonic market in second-hand wind turbines and this will likely develop as supply increases. There is political momentum to encourage re-use of materials and it is likely that markets and facilities for constituent parts will develop to service the sector.

Many windfarms will be considered suitable for repowering, with the replacement of original turbines with newer, bigger and more efficient models. However, there are no guarantees that this will be achievable as planning, ecological, environmental and visual considerations must all be addressed, so decommissioning will not necessarily be avoided or postponed.

While future obligations may seem somewhat irrelevant when all efforts are focused on facilitating developments, decommissioning will require careful and diligent consideration sooner rather than later.

Calum Innes, based in Perth, is head of CKD’s energy team.

A copy of this article first appeared in Low Carbon Energy Investor. calum.innes@ckdgalbraith.co.uk 0131 240 6989

Page 4 | Energy Matters Spring 2015 | www.ckdgalbraith.co.uk | Twitter: @CKDGEnergy

Why windfarms are going for growth Planning approval for windfarms is tough to get, so extensions to existing projects are in favour. Harry Lukas reports.

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he limitations to achieving planning consent for a wind farm in 2015 are far greater than five years ago.

It has been shown that about 57Â per cent of projects now fail at the planning stage, leaving a minority of sites that satisfy the rigorous requirements of planners and the Scottish Government. But where there is an extension to an existing wind project proposed, there is a significantly better chance of achieving consent.

An example of the extension trend can be seen in the Scottish Borders, where almost all the main applications submitted in the past year have been for extensions to existing windfarms.

If environmental constraints are minimal and infrastructure such as access and grid connection are already in place, an extension in most cases can be achieved at planning. There are, of course, some sites that for capacity reasons cannot be extended.

The upgrading of grid connections can create capacity. This has seen a cascade of applications in south-west Scotland, with more than 20 significant applications for new projects in the past two years. Of these, two are extension applica-

A greater number of projects initially refused by local authorities are now put in for appeal to the Scotland Office. These projects are now seeing increasing opposition for environmental and landscape reasons or due to concern about noise and shadow flicker, often in the face of scientific research suggesting acceptable levels.

The political climate has hardened, with government policy appearing to be at odds with local feeling by favouring wind projects and continuing doubts over subsidies for renewable power production.

Interestingly, some applications have been for extensions or additions to wind farms currently in planning but not yet consented. This suggests that where constraints are less significant, it may be worth submitting an application early as the cost may be justified.

“

The political climate has hardened, with government policy appearing to be at odds with local feeling by favouring wind projects.

tions for the relatively few existing wind farms in that region. Most of the original, established windfarms are now looking at expansion, some adding one or more turbines, some using adjoining property and occasionally requiring alternative access routes.

The acceptance of additional turbines by local communities is often made easier because the threat of development is nearly always worse than the reality. This, coupled with significant communitybenefit income channelled into numerous local projects, means there is often little local objection, and even enthusiasm from some quarters.

It is notable that there are a number of projects envisaged within the general area of existing windfarms which are not extensions. These are assessed in planning terms on their impact on the area, taking into account existing developments. Far fewer such applications are succeeding and greater numbers have been failing to achieve consent through the Section 36 Scottish Office route, for projects over 50Mw, particularly where local authorities have been against the project.

It seems that an extension of an existing project has a much better chance in the planning race, and that there are now fewer good developable sites left that will achieve planning consent.

Harry Lukas is a chartered surveyor working with renewable energy projects from the Galashiels office of CKD Galbraith. harry.lukas@ckdgalbraith.co.uk 01896 662 829

www.ckdgalbraith.co.uk | Twitter: @CKDGEnergy | Energy Matters Spring 2015 | Page 5

Where there’s a wood, there’s a way...

The owners of a large estate got creative when considering options for providing renewable heating to their village. Dougal Lindsay reports.

O

ur client, who owns a sporting estate in remote, rural Sutherland, asked us to consider how we might more efficiently supply heat to a small village complex about two hours’ drive from Inverness.

The estate, which has also d ­ iversified into hydro power production, has some 3,500 acres of woodland which is being restructured over 25 years to move from unproductive softwoods to native broadleaves.

The distance from the market and the difficulty of harvesting mean this operation is being conducted at an often considerable loss, so the opportunity to add value by using some of the harvested timber as wood fuel was appealing.

The village complex comprises a modest sporting lodge – used by the owner’s family and also let on a weekly basis – as well as nine cottages, a farmhouse, a modern estate office complex and a school, currently mothballed due to low pupil numbers.

The properties, all owned by the estate, house a mix of employees and former

employee pensioners and are currently heated by individual oil-fired boilers of varying age and efficiency.

The location means heating oil is possibly among the most costly in mainland Scotland and the area’s high-rainfall means heating tends to be switched on in early autumn and stay on until late spring.

Our client’s aim was to ensure the occupants had proper, affordable heating throughout the year. The village was too far from the estate’s hydro schemes to benefit from them. A woodchip boiler system was considered, but the cost was prohibitive until the introduction of the Renewable Heat Incentive.

Several proposals were considered and once the RHI came to the fore, the estate opted to install a 199kW woodchip boiler with large, 8,000 litre buffer tanks to smooth out demand in a bespoke, timber-built boiler room. The system is linked to an underground district heating distribution network that’s plumbed into the existing wet heating system of each property, with consumption monitored individually by meter.

Page 6 | Energy Matters Spring 2015 | www.ckdgalbraith.co.uk | Twitter: @CKDGEnergy

The existing oil boilers will be removed and heat and hot water will be sold to occupants at a discount to the equivalent heating-oil cost.

A woodchip storage unit has been built at the estate’s sawmill yard in order to process and store estate-grown wood fuel, as the system is projected to require some 200 tonnes annually. As part of the eligibility for the RHI process, the estate has had to register as a self-supplier for biomass fuels.

As well as heat sales, the estate will receive the RHI, and all of this comes at a considerable investment. The system

A day in the life of a wayleave officer On the road with Nick Morgan.

Left: Final electrical fit-out of the boiler room.

Below: The timber-built boiler room and woodchip delivery store was designed by CKD Galbraith’s Inverness building department.

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hether you are looking to connect your windfarm to the electricity grid or a new housing development to the water main, if third party interests stand to be affected there will be times where permission to cross their land might initially be refused.

Route design is typically influenced by a multitude of considerations such as engineering and environment.

It is vital, however, that a wayleave officer is involved at an early stage in order to provide effective communication of the proposed route with any third parties involved to ensure that it works in the context of how they use and enjoy their land...

My instruction as acting wayleave officer was clear: I needed to get the utility infrastructure from supply point A to connection point B. First I’d have to identify who owns the land between these points. I opened my laptop, logged into our land ownership layer on WebGIS and printed off the known ownerships we had mapped from various previous involvements.

This contained a good number, but the route was incomplete so I got in the car, turned on the radio and set cruise control. I arrived at Farm A and quickly made inroads as Mr Smith was very helpful. He didn’t even mind the idea of putting the infrastructure across his fields, so long as it hugged the ditch.

isn’t yet complete and the jury is still out.

However, in spite of the current lower oil prices and the 10 per cent cut in RHI that took effect at the turn of the year – both of which clearly affect the investment return – the system should ensure that the estate’s aims are achievable in the longer term.

Dougal Lindsay is a partner in the Inverness office of CKD Galbraith. dougal.lindsay@ckdgalbraith.co.uk 01463 245 380

I frantically scribbled names he reeled off within each field boundary as he pressed his finger on to the page: “He owns this field, that field but not those fields.”

I drove off, carefully navigating the dizzying network of single‑track roads, leapfrogging between lay‑bys, to ­double and triple check the information I’d gathered – I wanted to make sure this trip into the wilds was successful. Darkness came, but by then I had identified all but one relevant ownership. I didn’t stop for lunch and got to the B&B at 6pm.

Next morning, breakfast-fuelled, I met the last landowner before head-

ing back to the office, where I filled in the details of each landowner on our WebGIS and e-mailed electronic copies to the client.

Now that I had contact details I arranged a few meetings and refilled the car with diesel. Before I knew it I was tapping on the door of Farm Cottage. The only signs of life were a few Rhode Island Reds scratching in the yard, but I found Mr Green round the back in his tractor.

When I’d met him the other day we’d sat at the table, cup of tea in hand, putting the world to rights. Today his demeanour was frosty, so I told him a joke about Common Agricultural Policy reform.

It broke the ice. He still had minor concerns but would discuss it with his agent with a view to signing an

“

I told him a joke about Common Agricultural Policy. it broke the ice.

agreement on the basis of appropriate compensation and reinstatement.

I arrived five minutes early for my next meeting at Estate X. Initially I got a really rough ride from the factor, who went on to tell me in no uncertain terms that the estate would not accommodate any more utilities.

However, I left on the understanding that we would have a discussion in the future about where might provide the least intrusive route for the infrastructure and, given enough notice, my environmental survey team would be allowed to start survey work too!

I figured that I’d better follow this up with a friendly letter to summarise our discussions…

Nick Morgan is a wayleave officer and registered valuer at the Perth office of CKD Galbraith. nick.morgan@ckdgalbraith.co.uk 01738 456 063

www.ckdgalbraith.co.uk | Twitter: @CKDGEnergy | Energy Matters Spring 2015 | Page 7

Turning the tide on under-sea power Harnessing the power of the tides could provide abundant and reliable source of energy.

Toby Kirkwood reports on a major Scottish initiative.

T

idal power has the ­potential to meet a significant proportion of the UK’s electricity demand, boosting security of supply, reducing our ­reliance on foreign imports and cutting carbon emissions. At the same time, because the turbines are installed out at sea, their visual impact is minimal.

The UK’s potential energy resource from tidal currents is estimated at 29 terawatt hours (TWh) per year, of which 11TWh is found in the tidal flows of the Pentland Firth in the far north of Scotland.

In 2010, the Crown Estate awarded MeyGen an agreement to lease the Inner Sound of the Pentland Firth for up to 398MW of tidal stream energy generation.

MeyGen is a consortium led by Atlantis Resources, an AIM-quoted turbine supplier and project owner, and also comprising International Power GDF Suez and Morgan Stanley.

When it is finished, the 398MW array of underwater turbines will provide clean, sustainable, predictable power for 175,000 homes in Scotland.

CKD Galbraith has been heavily involved in the project by helping to secure wayleave consents on behalf of Scottish and Southern Energy, who were tasked with providing a 20km underground grid connection from the landfall site at Ness of Quoys to the substation at Hastigrow.

A number of different landowners had to be approached, and it was vital to have agreements in place with each of them before the project came to financial closure last August. By providing a professional service with a good knowledge of agricultural compensation, CKD Galbraith was able to obtain all the access and installation agreements needed for this connection where it was possible to reach an agreement with the landowners along the length of the route.

MeyGen announced last August that it had agreed terms for a funding package of about £51 million to finance the first phase of its ground-breaking 398MW tidal array. This will include the construction of infrastructure such as the onshore substation, as well as the purchase and installation of the first four 1.5MW turbines and their foundations.

The funding syndicate includes the Department of Energy and Climate Change, Scottish Enterprise via the Renewable Energy Investment Fund (delivered by the Scottish Investment Bank), Highlands and Islands Enterprise, the Crown Estate, and Atlantis.

The construction of the tidal array is due to take place in three stages: • Phase 1A: the first 6MW (four turbines) • Phase 1: the first 86MW (61 turbines) • The complete 398 MW (269 turbines)

Page 8 | Energy Matters Spring 2015 | www.ckdgalbraith.co.uk | Twitter: @CKDGEnergy

A turbine is lowered into the Pentland Firth.

Construction of Phase 1A and testing is expected to take place throughout this year and the first half of next, with first power being delivered to the grid in 2016.

Work has started on the access road, which is expected to be finished in three months’ time, and all onshore construction should be completed in the next 12 months.

The project is set to create jobs locally and through the supply chain. During the peak construction works, there will be between 20 and 40 personnel on site.

When Phase 1 becomes operational, about 50 direct jobs will be created, plus a further 70 indirect roles throughout the supply chain.

Toby Kirkwood is based in the Stirling office of CKD Galbraith. toby.kirkwood@ckdgalbraith.co.uk 01786 434 635

how tidal power works

The tidal current movement rotates the blades of the turbine Rotor blades rotate very slowly – between 7 and 15 RPM Minimum depth 30 metres

The turbine is mounted on a foundation structure and set on the seabed. No drilling is necessary as its weight secures it in place.

Electrical substation

The substation is connected to the National Grid, which distributes the electricity.

Tidal currents cause the blades to rotate, powering a generator that produces electricity. The output varies with the tides and is predictable.

Why underwater? n Space-saving, no visual pollution An underwater turbine with nine-metre blades can generate the same power as an onshore wind turbine with 30-metre blades. Slow rotor speed means low environmental impact. n Steel turbine nacelle with composite rotor blade n Each turbine can generate enough electricity to power about 1,400 homes

Underwater cables carry the electricity to an onshore substation.

n Each nacelle takes about 90 mins to install on a preinstalled foundation, offshore

Foundation structure weighs up to 1,000 tonnes

Note: Graphic not to scale 3-D images of turbine: Atlantis Resources Ltd

Heavy foundations keep the structure in place

n More reliable Unlike wind and solar, tidal energy is predictable as tidal currents can be accurately forecast years in advance.

n Possible sites for tidal energy use

n large untapped resouRces Water covers about 70% of the world’s surface and every continent has potential sites for harnessing the power of tidal currents.

www.ckdgalbraith.co.uk | Twitter: @CKDGEnergy | Energy Matters Spring 2015 | Page 9

Supermarket generates power from its own waste Unsold food doesn’t go to waste at Sainsbury’s, says Paul Crewe, the retailer’s Head of Sustainability, Energy and Engineering.

how it works Sainsbury’s supermarkets sends absolutely zero operational waste to landfill.

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e take waste extremely seriously at Sainsbury’s, and we achieved our ‘zero waste to landfill’ goal well ahead of target back in the spring of 2012. Waste generated in our own operations is a key focus for our teams, and we all aspire to put our waste to the best positive use.

Food is a major area, and we strictly follow our hierarchy of firstly ensuring that all suitable unsold food is offered for charitable donations or processed into animal feed, followed by everything that is not fit for consumption being sent to anaerobic digestion to ­generate energy.

We also had a burning desire to truly close the waste loop by powering one of our stores with energy directly produced by our own food waste. So, last year, after careful consideration, we engaged with one of our partners at Biffa to help make this a reality, and now our supermarket in Cannock is powered entirely by our unsold food.

A private-use cable connects Biffa’s anaerobic digestion (AD) facility about 1.5km away with our store, which now runs solely on electricity generated from food waste from Sainsbury’s stores across the UK. This ground-breaking project helps to close the loop on food recycling and ensures that we continue to send zero operational waste to landfill and also continue to push our resources as high up the waste hierarchy as possible.

Extensive liaison was required between Biffa and our own store colleagues in Cannock to ensure a smooth switch over and prevent any disruption to our customers, our operations and power supply. Complex arrangements were also successfully worked through closely with Staffordshire District Council in relation to the land between the two sites, in particular relating to instances where the cable passed along public pathways and roads.

Since the link was opened on the July 21, 2014, we have had no failures of power supply and we envisage drawing 3,500,000 kWh per annum less from the already stretched National Grid. The ability to take the store off grid also enables us to significantly reduce electricity transmission losses too.

This project has nothing to do with ‘green wash’. The investments we make in the sustainability division have to be delivered within strict financial criteria set by the Investment Board. We are currently exploring opportunities for similar schemes across the Sainsbury’s estate.

If it’s still not bought, a couple of different things happen next...

At the end of the day, if a product on the shelf is not bought, we mark it down to a lower price for customers.

Any food waste that is suitable for charitable donation is collected by charity partners, who come to the store to get it.

If it’s not suitable for any of that, it is picked up by the empty Sainsbury’s lorry that has just delivered our food to the store. By using the same lorry we save carbon because Biffa don’t have to come to get food waste from every store.

The same thing happens to remaining food waste collected from Sainsbury’s supermarkets around the UK, using Sainsbury’s delivery lorries.

The food waste is sent to big silos that act like a human stomach to break down the food into biomethane gas.

That gas generates electricity at the AD plant. A by-product of the process is called digestate, which is a great fertiliser and used by local farms.

The new power supply – built in partnership with Biffa – means the Cannock store will come off the National Grid for day-to-day electricity consumption.

Page 10 | Energy Matters Spring 2015 | www.ckdgalbraith.co.uk | Twitter: @CKDGEnergy

If it’s not OK for humans, certain products, including bread, go to make animal feed. Some stores also send fruit to feed the animals at safari parks.

That waste is then picked up by a Biffa lorry from our depot and taken to the Biffa anaerobic digestion plant at Cannock.

Electricity for Sainsbury’s Cannock store is supplied to the supermarket via a 1.5km cable that runs directly from the AD plant. If more electricity than the store needs is generated, the surplus goes into the National Grid.

Sainsbury’s is already the UK’s largest retail user of anaerobic digestion, generating enough energy to power 2,500 homes each year.

Renewable energy market update Amid growth concerns over subsidy rates and looming changes to incentives across the board, Anneka Fraser throws some light on developments.

A new chapter for renewables

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ince 2007 the total installed capacity of renewable electricity in Scotland has increased by 265 per cent to 7,114MW*. This increase has been assisted by what have been generous subsidies and, more recently, the race to beat degression and the end of the Renewable Obligation Certificate (ROC) scheme in March 2017.

Onshore wind continues to take the lead, providing almost 70 per cent of the total installed capacity with hydropower coming a distant second providing 21 per cent, miles ahead of offshore wind, solar and biomass which together total around nine per cent of installed capacity.

According to our research, of the 691 UK onshore and offshore wind developments, 260 lie north of the Border and provide 42 per cent of the UK’s total output.

With reference to Scottish operational onshore wind projects specifically (now totalling 5,048 MW), Highland and Islands continues to provide the greatest output at 1,137MW, with output in Dumfries and Galloway doubling since 2007 to 507MW. On the face of it, the renewables market is looking strong, but in reality the future is uncertain.

Changes to the Feed-in Tariff (FIT) have been effective for nearly three years and in the last issue of Energy ­Matters we highlighted the effect subsidy degression is having on the feasibility of new small to medium wind projects. Now, the subsidy scheme for large-scale wind projects is changing with the introduction of Contracts for Difference in March 2017, which may render many projects unviable.

As part of its Energy Market Reform, the UK Government is phasing out ROCs over the next two years and introducing a subsidy mechanism called Contracts for Difference (CfDs) to provide ‘long-term price stabilisation to low carbon plant, allowing investment to come forward at a lower cost of capital and therefore at a lower cost to consumers’.

From March 31, 2017 the ROC scheme will end and CfDs will be the only subsidy option for schemes greater than 5MW.

Anneka Fraser is an associate in CKD Galbraith’s Edinburgh office. anneka.fraser@ ckdgalbraith.co.uk 0131 240 2280

CfDs are 15-year contracts between the generator (developer) and the Government-backed counterparty known as the Low Carbon Contracts Company. The CfD will work to stabilise revenues to generators at a ‘strike price’. Developers will continue to receive a payment for the sale of the electricity they produce (through the power purchase agreement) and will also receive a top-up payment for the difference between the reference price and the strike price. The reference

price will fluctuate daily and may exceed the strike price, in which case developers will have to pay back the difference.

Generators with proposed projects will be invited to bid for contracts in – at least – annual allocation rounds. Each round will have a specified budget split into three ‘pots’: established technologies (onshore and offshore wind), less-established technologies, and biomass conversions.

Each year the Government will set the budget for each ‘pot’. Looking at the 2014 budget, with the largest proportion of funding reserved for emerging technologies, we are all questioning the future of onshore wind, solar, energy from waste, hydro and landfill gas.

Concerns aside, developers will be invited to submit sealed bids stating the strike price they are willing to accept. Developers can submit up to 10 bids for any one project (capped at three bids in any delivery year) provided planning consent, a countersigned grid connection offer,

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we predict that some risk-averse developers may abandon projects.

a supply chain plan and finance are all in place.

Bids will be assessed, and contracts will be awarded to the proposed schemes within budget.

Simple? Not exactly. Given the costs a developer will incur in meeting the eligibility criteria for bidding, coupled with the risk that a contract may not be awarded, we predict that some riskaverse developers may abandon projects.

This sounds like bad news for the energy market, but, actually, competition is healthy. The UK Government introduced subsidies to kick-start the quest to meet its renewable energy targets.

They were never intended to be a cash cow – the days of generous subsidies were always going to be short-lived. It is very early days for CfDs. We are still eagerly awaiting the outcome of the first allocation round, and we predict it could take another two or three rounds before we see any market adjustments.

This is by no means the end of the renewable energy market. It is merely a new chapter. In the meantime the ROC scheme is open and the renewable energy market as a whole is quite clearly buoyant. * Source: Scottish Renewables

www.ckdgalbraith.co.uk | Twitter: @CKDGEnergy | Energy Matters Spring 2015 | Page 11

This year’s 20 per cent cut in the Generation Tariff will have a big effect on wind turbine deployment.

Mike Reid crunches the numbers.

Insulation and cladding being fitted to a factory building.

Getting tough on commercial EPCs New rules will soon be enforcing the energy credentials of nondomestic property.

Harry Stott reports.

ing can be improved and CO2 emissions reduced. Owners must either carry out the works detailed in the action plan – expected to be within three and a half years – or implement an annual reporting option to record the energy use of the property over time with a view to reducing energy consumption.

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Compliance with the requirements will be enforced by local authorities and it is anticipated that substantial penalties will be enforced for non-compliance.

he requirement for Energy Performance Certificates (EPCs) has become a familiar part of the sale and letting process for nondomestic property in Scotland since they became mandatory in 2009.

Whilst they are a legal requirement for the majority of transactions, many recipients of EPCs have perhaps taken little time to review or even consider implementing the energy efficiency recommendations.

Details due to be issued by the Scottish Government in April this year under Section 63 of the Climate Change (Scotland) Act provide for improvements to the energy efficiency of non-domestic building in Scotland over 1,000 square metres that do not meet 2002 building standards.

The trigger for implementing the energy efficiency measures will be when an owner puts a property on the market for sale or lease, a provision proposed to become effective in October this year.

Lease renewals are not subject to the new regulations.

It will become a requirement for the owner to produce an EPC and an Action on Carbon and Energy Performance plan (ACEP). The action plan will set out how the energy performance of the build-

Similar legislation will apply to nondomestic property in England and Wales for rental properties only. Here the minimum EPC rating is to be set at level E from April 2018, which could result in properties becoming unmarketable if energy efficiency requirements cannot be met.

The initial implementation of the legislation will affect a relatively small proportion of commercial property transactions.

However, for those it does concern, it is an important consideration for owners and landlords, and could have an impact on the value of their property and its future marketability.

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he main subsidy for wind turbines less than 5MW is the Feed-in Tariff. The subsidy level is determined by the turbine commissioning date although projects can be pre-accredited to “lock-in” to the current subsidy. In order to be eligible for the current tariff rates any project needs to be commissioned by March 31, 2015 or to be pre-accredited

by December 31, 2014.

The Generation Tariff rates for 2015/16 are determined by the level of deployment in 2014. Deployment in 2014 exceeded the maximum deployment level for wind power, resulting in a 20 per cent degression of the Generation Tariff with effect from April 1, 2015.

Although wind turbines generate other sources of income the Generation Tariff is the majority of the subsidy support for any project.

Some wind turbine projects missed their pre-accreditation deadline for commissioning in 2014 and will receive a lower subsidy rate, costing millions of pounds in lost revenue.

Some of these projects may never be developed as a result. There are many reasons why a project might not make the pre-accreditation deadline, but the most likely issue is grid connection.

No two projects are the same as sites will have differing wind speeds, construction costs, grid connection costs, and so on. However, in the table below we have shown an example of

Please contact CKD Galbraith for further details on the new EPC requirements and how they may affect the future sales and lettings of commercial property.

Harry Stott is a commercial and development specialist at CKD Galbraith’s Perth and Edinburgh offices. harry.stott@ckdgalbraith.co.uk 01738 465 065

Page 12 | Energy Matters Spring 2015 | www.ckdgalbraith.co.uk | Twitter: @CKDGEnergy

The degression of the Generation Tariff is likely to put an end to single-turbine developments in the forseeable future.

Wind power: what price degression? the effects of degression on two different sizes of turbine qualifying for the 2013/14 Generation Tariff compared to the 2015/16 Generation Tariff.

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degression is having a crippling effect on the viability of some projects over very short time­scales compared with the length of time from project conception to commissioning.

A project commissioned under the 2015/16 Generation Tariff will now only receive 64 per cent of the Generation Tariff received by the identical turbine commissioned under the 2013/14 Tariff rates. Over the 20 years of the Feed-in Tariff the cumulative reduction in income will be in excess of £480,000 for the 100kW turbine and more than £2 million for the 500kW turbine.

Should this rate of degression continue, without any cost savings, the majority of smaller wind turbine projects may be unviable within three years. Turbines will become more efficient and costs may reduce as a reaction to reduced subsidy levels.

Some will say the original subsidy level was too high, but there had to be an incentive for developers to take the risk in an embryonic industry. However, degression is having a crippling effect on the viability of some projects over very short time­scales compared with the length of time from project conception to commissioning.

Unless savings can be made, the degression of the Generation Tariff will

mean an end to single wind turbine developments in the foreseeable future.

There are still viable projects out there, particularly at higher wind speeds, but action needs to be taken now to maximise development opportunities.

Mike Reid heads up CKD ­Galbraith’s utilities department, with particular expertise in ­telecoms and windfarms. He is based in Cupar. mike.reid@ckdgalbraith.co.uk 01334 659 984

Generation Tariff Comparison 100kW turbine

500kW turbine

Commissioning year

2013/14

2015/16

2013/14

2015/16

2015/16 Generation Tariff rate*

22.59p/kWhr

14.45p/kWhr

18.83p/kWhr

12.05p/kWhr

Estimated annual output (kWhr)

300,000

300,000

1,500,000

1,500,000

£43,350

£282,450

£180,750

2015/16 Generation Tariff turnover £67,770 Difference

£24,420pa

£101,700pa * Source: Ofgem

www.ckdgalbraith.co.uk | Twitter: @CKDGEnergy | Energy Matters Spring 2015 | Page 13

A simple route to project funding

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btaining suitable funding for renewable projects can often be an arduous task. However, CKD Galbraith can arrange long-term funding through its agency agreement with the Agricultural Mortgage Corporation plc (AMC). The AMC is recognised as having a straightforward and simple route to funding.

Where some renewable projects such as biomass boilers can be funded on a hire-purchase basis, quite often the term of the loan is restricted to only six or seven years, the AMC can provide loans for up to 20 years on certain renewable projects, which allows cash to be diverted to other uses rather than solely to repay a loan.

Where a business can prove serviceability of the loan without taking into consideration any of the Feed-in Tariff or Renewable Heat Incentive income, then there is limited requirement for extensive due diligence to be undertaken.

Should this income need to be considered, and the proposal is well supported with all the necessary documentation, an appraisal is undertaken by an independent assessor and decisions can be made quickly and at a considerably lower cost than with the high-street banks.

The AMC provides loans which can be taken either on a fixed or variable rate or a mixture of both and the margin is guaranteed not to be reviewed at any time during the term of the loan.

It has a “lend and leave” policy, which means that once the loan has been drawn down there is no requirement to provide ongoing information or annual accounts.

To discuss a potential scheme and obtain a quote for funding, please use the contact details below.

Robert Taylor, based in CKD Galbraith’s Ayr office, is partner in charge of rural valuations and AMC agency. robert.taylor@ckdgalbraith.co.uk 01292 292 545

Trade is rising in renewable assets Michael Fletcher reports on a growing market.

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andowners and developers are looking to unlock the value of their renewable assets and trade in this form of property is on the increase. We have in the past year been instructed by a number of landowners and developers to sell their renewable projects (wind farms, hydro schemes and solar farms) both on and off market with prospective purchasers being found from both institutional and private investors.

Investors are attracted by the secure long-term income stream of renewables projects, with operational assets attracting wider investment market interest than consented sites due to their additional construction risks. There is however a very strong demand for both, due to a lack of supply of these assets currently on the market.

Like any other sale, to achieve best value for a project it is essential that the asset is marketed correctly. Projects will need to meet an investor’s due diligence requirements, which are becoming increasingly onerous as their knowledge of renewables projects has increased in recent years.

Due diligence for a consented project will include:

• Grid connection: cost and connection date; • Subsidies: pre-accreditation; • Turbine supply agreements (TSA): costs, warranties and delivery date; • Generation: power purchase agreements (PPA) and energy yield.

There are a large number of pitfalls which can have a significant impact on the value and in turn viability of a site. As reported

by Mike Reid in Energy Matters Summer 2014, small and medium sized Feed-in Tariff (FIT) schemes are being affected by degression (by April 2015 the actual reduction of wind turbine FIT rates is likely to be 36 per cent compared with 2013) and it is important to realise that sites can be pre-accredited for up to one year in advance of first generation.

At CKD Galbraith we offer our clients planning, valuation, project management and sales advice to help them achieve best value from their renewables projects.

If you are interested in investigating the renewables potential on your land, please don’t hesitate to contact me or another member of the Energy Team. We would be happy to review the options available to you.

Michael Fletcher is a registered valuer in the Stirling office of CKD Galbraith.

• Legal documents: title, leases, access and servitudes/wayleaves; • Planning: consent, planning conditions and Section 75 agreements;

michael.fletcher@ckdgalbraith.co.uk 01786 434 600

First turbine planning application submitted CKD Galbraith has submitted the first application for a single 400kW turbine for a site at the former Durnhill Quarry near Portsoy, Aberdeenshire.

responsible for instructing third party consultants to carry out ecological reports, noise impact studies and grid connection assessments.

As previously reported in Energy Matters, we are ­acting on behalf of Aberdeenshire Council for the development of planning applications for wind turbines on council-owned sites.

We have also been able to use our inhouse GIS mapping information system to great effect in preparing a detailed landscape and visual impact assessment, incorporating ‘zone of theoretical ­visibility’ studies and wireframe visuals of the turbine. The planning application is currently awaiting determination and we anticipate a decision in the next two months.

We have undertaken a planning consultancy and co-ordination role, conducting a thorough review of the relevant planning policies together with consideration and mitigation of heritage and environmental constraints. The firm has also been

Page 14 | Energy Matters Spring 2015 | www.ckdgalbraith.co.uk | Twitter: @CKDGEnergy

Harry Stott 01738 465 065

A9 and A96 upgrading What landowners need to know Two major road schemes are pushing ahead.

Nick Morgan and Dougal Lindsay report on progress.

Parties within the Glengarry to Dalraddy section should have received a letter last November from CH2M Hill/Fairhurst introducing themselves as the contractors and inviting interested parties to meet them.

Interests on other sections of the route should also meet the appointed contractors or Transport Scotland as soon as possible to voice any concerns.

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he multi-million pound upgrading of the A9 between Inverness and Perth is moving up a gear. Average speed cameras have gone live between Stirling and Inverness, and negotiations recently gathered speed on the Luncarty to Pass of Birnam section, where CKD Galbraith is reviewing draft Compulsory Purchase Orders.

The Scottish Government has also committed to improving the A96 linking Inverness and Aberdeen. The aim is to make the whole road a dual carriageway by 2030.

Sections of the A9 have been subject to investigative work, including trial pits in the Glengarry to Dalraddy section last September. These trial pits typically disturb four to nine square metres of ground, and this, coupled with crop damage on access routes, lost time dealing with contractors or any other substantiated disturbance can be claimed for and potentially compensated.

The 99-mile road from the Raigmore interchange at Inverness to Haudagain roundabout at Aberdeen at present has only 11 miles of dual carriageway. The route passes through a number of towns and villages and has several notorious bottlenecks, including Nairn and Elgin.

Moving from single to dual carriageway will improve journey times, reliability, and connectivity and reduce the rate and severity of accidents.

Transport Scotland aims to begin by dualling the section between Inverness

and Nairn. The preferred option features a bypass. It has been through an assessment process and was presented to the public last October. The process for this stretch has now entered phase three, which comprises a detailed assessment and definition of the preferred dualling option, including an environmental statement and considering the land required for the project.

Landowners and occupiers may soon be approached for access to carry out survey work and it’s important at that point to consider employing a land agent to represent you. The cost is usually met by the project sponsors.

CKD Galbraith has experience of dealing with all compensation matters relating to road schemes and with offices in Inverness, Elgin and Aberdeen is well placed to assist landowners and occupiers who may be affected by the scheme.

Dougal Lindsay is a partner in CKD ­Galbraith’s ­Inverness office, and Nick Morgan is a registered valuer in the Perth office. dougal.lindsay@ckdgalbraith.co.uk 01463 245 380 nick.morgan@ckdgalbraith.co.uk 01738 456 063

www.ckdgalbraith.co.uk | Twitter: @CKDGEnergy | Energy Matters Spring 2015 | Page 15

www.galbraithgroup.com

our expertise l Valuations l Investment

in ­renewables/

l Planning

l Wind power

l Land referencing

l Biomass

l Telecoms

l Solar energy

financial incentives l Utilities

l Hydro power

RENEWABLE PROJECTS

get in touch

CKD Galbraith’s extensive experience in renewables stretches across Scotland, including the islands, and into the north of England.

Our energy experts can be contacted in the following 8 of our 11 offices:

KEY to map Wind

Biomass

Hydro

Solar

Aberdeen Tom Stewart 01224 860 714 tom.stewart@ckdgalbraith.co.uk Ayr Caroline Campbell

01292 292 305

Cupar Mike Reid

01334 659 984

Edinburgh Anneka Fraser

0131 240 2280

Inverness Dougal Lindsay

01463 245 380

Perth Calum Innes

01738 456 075

caroline.campbell@ckdgalbraith.co.uk

mike.reid@ckdgalbraith.co.uk

anneka.fraser@ckdgalbraith.co.uk

dougal.lindsay@ckdgalbraith.co.uk

calum.innes@ckdgalbraith.co.uk

GALASHIELS Harry Lukas 01896 662 829 harry.lukas@ckdgalbraith.co.uk Stirling Richard Higgins

01786 434 625

richard.higgins@ckdgalbraith.co.uk

For a full list of our energy experts go to our website or see our guide to Who’s Who in our Energy team.

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