Shared ownership of renewable energy developments - good practice principles: consultation

2. Overview

This sections sets out:

• Rationale
• Six Key Principles
• Role and Responsibilities
• Key Investment Risks
• Extending shared ownership to a wider geographic area
• Community Capacity

2.1 Rationale

The Scottish Government's Energy Strategy sets out a vision for a flourishing, competitive local and national energy sector, delivering secure affordable, clean energy for Scotland's households, communities and businesses.

Shared ownership projects support our ambition for increased levels of local ownership where all stakeholders stand to benefit from greater partnership working and other additional benefits, including creating a lasting legacy, building community capacity, and strengthening corporate social responsibility, as outlined in the diagram below.

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Rationale

Engage communities in Scotland's transition to a low carbon future
Generate income to create a real and lasting legacy
Progress Scottish Government's targets for community and locally owned renewable energy
Build stronger relationships between industry and the communities
Assist the renewable industry to understand local needs and create greater positive feeling and support for the project
Including a community group as a project partner could make your scheme eligible for rates relief
Strengthens corporate social responsibility
Build capacity and empower community members, and give control or input into local energy generation

2.2 Key Principles

The Scottish Government would like to see shared ownership projects being considered, explored, and offered as standard on all new renewable energy projects, which includes repowering and extensions to existing projects, and welcomes the progress made since the Good Practice Principles were published in 2015.

A community should not necessarily wait for an offer to be made. The Scottish Government would also encourage communities themselves to make a direct approach to a renewable energy business to participate with them.

Shared ownership projects are based on building successful working relationships, key to that is creating an environment of trust and respect from the start. There are likely to be differing views expressed as part of the process, as in all commercial negotiations, but if all parties agree high level principles of engagement then this can prevent misunderstandings and manage the expectations of all involved.

It is important for all sides to be aware that an offer of shared ownership is not a proxy for community participation in the decision making process. Communities have the right to object to a development on basis of land use, but still participate in discussions about commercial arrangements to be pursued in the event that planning permission is granted.

In summary, the renewable energy businesses should make it clear to the community that they can consider any shared ownership offer and still take an independent view of the development in planning.

We would encourage all parties to adopt the following six high level principles:

6 Principles of Engagement

Must be on a commercial basis
Flexibility incorporated by all parties
Inclusive, to all relevant stake holders
Timing should be reasonable and workable for all parties
Transparent communications, particularly around cost and finance
Distinct and separate from community benefit funds

2.3 Roles and Responsibilities

At a quick glance, the roles and responsibilities of communities and renewable energy businesses are as follows:

Community

• Engage constructively with renewable energy businesses.
• Recognise the complexity of energy projects.
• Appoint a lead organisation, which can be a community council or other representative group.
• Keep local people apprised.
• Utilise the support provided through Local Energy Scotland.
• Engage specialist, independent, professional commercial advice as required.
• Develop a community action plan (dependent on shared ownership model).
• Explore potential funding options, both Local Energy Scotland, and Scottish Enterprise can sign post as necessary.

Renewables Industry

• Establish geographical boundary and applicable community.
• Recognise local level capacity.
• Engage in early discussion openly.
• Participate in effective local consultation.
• Appoint a single, key point of contact.
• Continue discussions post-consultation with community, as required.
• Utilise the support provided through Local Energy Scotland or other body, as necessary.

We encourage the renewables industry and communities to conduct their business in a friendly but professional manner, and would highlight in particular the following:

• The opportunity to set out the options for ownership should be raised as early as possible, likely to be the point at which the project is launched publicly.
• However, communities should be aware that some of the detail may not be available pre-consent.
• Each shared ownership project will be different and the renewable energy business should review likely timings and actions with the community.
• Ensure a note of public meetings is taken and circulate to those in attendance. Where possible, publish on a website in order that the wider community can access.
• Draw up a signed agreement once an initial arrangement has been agreed. All parties, however, should seek independent professional advice prior to signing.
• A community, on reviewing the advice, may decide not to pursue the shared ownership option and should advise the renewable energy business of its decision.

There is no standard structure/model for shared ownership, it will vary by renewable energy business and community - and new models are also expected to develop in the future. See section 5 for more details.

Irrespective of the structure, the key issue for the renewable energy business and the community is to assess the offer on a commercial basis, and independent commercial advice should be taken before reaching a decision. Part of the decision making process will include:

• Evidence that the debt facility (where there is one) needs to be sufficiently sculpted/flexible to ensure it dovetails with expected project returns.
• Recognition that ownership comes with a level of risk, which can result in losses.
• Any surplus income will be used by the community to support its local economic and social projects as outlined in its community action plan.

As such, the level/structure of investment will be tailored for each project and should take into account a range of factors, such as:

• The costs involved with establishing the arrangement.
• The renewable energy business' own preference.
• The community's appetite for risk.
• The community's capacity to support and deliver.
• The ability of the community to raise the necessary finance.

The above issues are explored further in this document.

2.4 Key Investment Risks

While the expectation is that an investment in a renewable energy project will provide a regular income for a community over the lifetime of the project, there are a number of investment risk factors which might result in losses or lower than expected profits. It is essential that a community takes its own independent commercial advice and other professional advice before making a decision.

Key risk factors include:

• The return from the investment can go up as well as down.
• The investment should not be regarded as a short term venture and community group must be prepared to take a long term view of their investment.
• Renewable energy generation projects can have significant construction risks including, delayed operation and commissioning, and costs escalation during the construction period.
• Changes in economic conditions and legislation can adversely affect investment.
• The community may not have voting rights - therefore, will have no control over the direction or decision about the project.
• The project may be adversely impacted by external events such as fire, and floods.

2.5 Extending shared ownership to a wider geographic area

Shared ownership opportunities could be made available to communities geographically further than the immediate project area, particularly where a local community does not have the capacity to take up the offer or where there is strong appetite to co-invest from a wider area or other community interest group.

The scale of the project might also determine whether to widen out to a larger geographic area or, where the shared ownership package is limited in size, it would be good practice to give priority to local communities first.

The Scottish Government would encourage all options to be explored accepting that this may be different depending on the renewable energy business and should, therefore, not be seen as an obligation on the renewable industry to offer this.

2.6 Community Capacity

Support is available through the Scottish Government's CARES programme, delivered by Local Energy Scotland, to discuss a potential shared ownership project at any stage of the process.

Developing a shared ownership proposal can take a considerable amount of time for both parties and it is important for a community to understand from the outset the level of commitment required to deliver a successful project.

A key issue for a community is to consider its capacity (skills and expertise) to support and manage the process. This will be different for each community - for example, some may have paid development staff, while others will be reliant solely on volunteers.

Irrespective of the level of capacity within a community, Local Energy Scotland can assess a community's overall requirement and, in discussion with them, can outline what support will be available as well as signpost to other organisations who can help. Further information on the type of support available is at section 6.

Some renewable energy businesses also offer support to communities at the early development stage. Communities should, therefore, seek to discuss with the renewable energy business what support they may offer to the process.