Onshore wind: policy statement 2022

Chapter 4: Benefits to Local Communities and Financial Mechanisms

4.1. Introduction

4.1.1. The Scottish Government remains committed to the principles of a just transition to a net zero economy, and that means ensuring that communities across Scotland feel the benefits of this transition. Community benefit and shared ownership can be transformational for the communities who host renewable developments, and we must ensure that industry continue to deliver on these expectations.

4.2. Community Benefit and Shared Ownership

4.2.1. The Scottish Government is committed to putting communities front and centre when it comes to the development of renewable projects in Scotland – an approach which has led the way across the UK. Community benefit from, and shared ownership of, renewable energy developments have a key role to play in engaging communities and securing Scotland's just transition to net zero, supporting the delivery of lasting economic and social benefits.

4.2.2. We have commissioned research in this vitally important area, due to complete next year. The outputs from this work will help build our evidence base for future policy development and provide insights on how we can maximise the benefits flowing to communities across Scotland, in line with Just Transition Outcomes.

4.2.3. To secure a just transition that benefits all of Scotland's communities, we must take steps to ensure that our national, regional and local energy economies are thriving and that the transition to net zero delivers for all parts of Scotland.

4.2.4. We are committed to increasing access to affordable energy, maximising community benefits from, and ownership of, energy projects, and providing regional and local opportunities to participate in our net zero energy future. We are encouraging developers to offer shared ownership opportunities to communities as standard on all new renewable energy projects, including repowering and extension to existing projects.

Community Engagement and Community Benefits

4.2.5. In collaboration with renewable energy developers and local communities, the Scottish Government first published the Good Practice Principles (GPPs) for Community Benefits from Onshore Renewable Energy Developments in 2014. These longstanding principles, which were updated in May 2019, have been widely adopted across the renewables industry, providing a benchmark for the sector.

4.2.6. We continue to encourage all renewable energy businesses, regardless of technology type, to offer community benefits packages – including in relation to the repowering of existing sites and extensions to existing projects.

4.2.7. The GPPs for onshore renewable energy developments continue to promote the provision of community benefits at a national level equivalent to £5,000 per installed megawatt per annum, index linked for the operational lifetime of the project.

4.2.8. The GPPs place a strong emphasis on the importance of communities and renewable energy businesses considering all community benefits options openly and fully. In some cases, these payments will take the form of a fund, whereas other communities may prefer more flexible benefits. It is vital that communities are strongly engaged and involved in agreeing the best approach for their area, one which fits their long term needs and aspirations.

4.2.9. The process should always be conducted in a way that allows both renewable energy businesses and communities to identify clearly the best and most meaningful community benefits options and packages, with a focus on creating tangible benefits and achieving a lasting legacy for local communities. The Scottish Government expects developers and community groups to consider how they can address longer term community needs, consistent with the Just Transition Outcomes.

4.2.10. Our Community and Renewable Energy Scheme (CARES), delivered by Local Energy Scotland on behalf of the Scottish Government, provides funding and support to help communities identify their needs, aspirations and associated outcomes in relation to community benefits, and can provide advice and support for securing and setting up community funds. CARES has supported Community Action Plans, which help to provide communities with a clear vision for their area and identify their priorities for community benefit funding. Local Energy Scotland's Community Benefit Toolkit also guides community groups through the process, from initial discussions with a developer through to creating a lasting legacy.

4.2.11. Local Energy Scotland also hosts and administers a register of community benefits which showcases community benefits provision across Scotland. TheCommunity Benefits Register shows that over £22.8 million had been paid out in community benefits in the 12 months between August 2021 and August 2022. Renewable energy businesses should submit community benefit fund data to Local Energy Scotland annually to ensure the impact of the sector is recognised. A number of community benefits case studies, which can help share knowledge and best practice, can be found in Annex 4 and at Local Energy Scotland.

4.2.12. We are also currently reviewing and updating our GPPs for Community Benefit from Offshore Renewable Energy Developments. When we formally consult on the draft guidance next year, we will ensure that we build any relevant lessons from this process into future updates to the GPPs for onshore renewables.

Shared Ownership

4.2.13. Shared ownership of renewable developments supports a just, inclusive transition as well as our ambition for more local ownership, and provides a chance for all stakeholders to benefit from greater partnership working. It will also help us realise our community and local energy target of 2 GW of community and locally owned energy by 2030. However, we want to make clear to industry that we see this as the minimum and we encourage them to consider shared ownership opportunities in all of their projects.

4.2.14. The latest Community and locally owned energy in Scotland report from the Energy Saving Trust shows that, as of end December 2021, 270 projects either had shared ownership or were under discussion for shared ownership, out of which 47 were operational, accounting for 67 MW of community and locally owned capacity. The remaining 223 projects were in various stages of development and account for 1,003 MW of the in-development capacity.

4.2.15. Our Good Practice Principles for Shared Ownership of Onshore Renewable Energy Developmentsunderline our determination to continue supporting shared ownership. We are working to support the pipeline of such projects, including through engaging with the Scottish National Investment Bank.

4.2.16. CARES offers support to communities and developers interested in shared ownership of a renewable project. Local Energy Scotland provides impartial support and advice, including guidance on the Financial Services and Markets Act and Financial Conduct Authority requirements. It can also help communities to access funding and contractors for project management, financial matters, and legal matters, enabling those communities to decide if shared ownership is right for them.

4.2.17. We continue to encourage the renewables industry to consider, explore and offer shared ownership opportunities as standard on all new renewable energy projects, including repowering and extensions to existing projects.

4.2.18. We also encourage innovative approaches to ensuring local communities can benefit directly from the afforable electricity being produced on their doorstep, in the form of local community tariffs/discounts or other similar approaches. We understand that this is being considered by members of the onshore wind industry and would encourage the progression of these discussions and arrangements.

Community Engagement and the Repowering Process

4.2.19. Given the lifespan of renewable development, most wind farm sites, and their surrounding communities, may have changed markedly since the wind farm was originally considered through the planning and consenting system.

4.2.20. End of life provides decision makers, developers, operators and local communities with an opportunity to reconsider the development's potential impact, including issues such as shadow flicker, landscape and visual impact, noise, community benefit and community empowerment and engagement, while recognising that the development has been in place for a significant period.

4.2.21. Most communities have thus far been either ambivalent towards, or supportive of, the repowering of wind farms in their locality. A study from 2019 suggested that local communities are more likely to be supportive of an application to repower or extend the life of an existing local wind farm, rather than an application for new onshore wind development in an entirely new location. This community acceptance, engagement and support can play a part in the smooth transition of proposals through the planning and consenting system, but it must also give communities a new opportunity to engage with developers and maximise opportunities for community benefit and shared ownership. The study can be found here.

4.2.22. It remains vital that developers act as 'good neighbours', working in tandem with local communities, communicating over the course of a wind farm's life and building good relationships. This should allow concerns to be addressed as they emerge, empower communities to engage positively with the development, and secure community enhancements.

4.2.23. As repowering gains momentum over the coming decade, we will be looking to all renewable energy businesses and communities to use the national standards set out within the Good Practice Principles for Community Benefits from Onshore Renewable Energy Developments.

4.3. Financial Mechanisms

4.3.1. Scotland's onshore wind industry has a long history of delivering wind farms, even in the face of financial adversity, such as the closure of the ROC scheme, by embracing alternative mechanisms such as Power Purchase Agreements (PPAs), merchant projects and private finance. However, in order to meet our 2030 and 2045 emissions reduction targets, Scottish onshore wind projects must minimise costs and risk, while maximising investment opportunities.

4.3.2. We know that development costs such as fabrication and installation have generally been reducing over time as the industry matures, making investment more effective.

4.3.3. However, in order to maximise cost reductions, the Scottish Government believes that better collaboration between developers, agencies and local authorities is essential. This is more significant now given the cost crisis being experienced by energy consumers across Great Britain. As noted earlier, energy remains a reserved matter, with the UK Government responsible for decisions relating to financial support for the onshore wind industry and other renewable technologies.

Corporate Power Purchase Agreements (PPAs)

4.3.4. The emergence of PPAs has provided an alternative for many developers, in addition to giving organisations with a base in Scotland an avenue through which to fulfil their renewable electricity corporate and social responsibilities.

4.3.5. This use of an innovative financial solution to achieve mutual benefits across sectors, supporting the transition to a net zero economy, aligns well with Scottish Government ambitions. However, finding suitable corporations in Scotland with sufficient long-term buying power can be difficult, which can limit the use of this financial mechanism.

4.3.6. PPAs can be mutually beneficial and commercially viable, supporting developers in the construction of new green infrastructure and bringing clean energy to the market without a government support scheme. They can provide certainty for partners on future energy costs and align with net zero targets in generating additional renewable energy.

4.3.7. Two examples of where PPAs are being used in practice are:

• Beinn nan Tuirc

This wind farm on the Kintyre Peninsula is a 14 turbine (50MW) development whose entire output will be purchased by Amazon to power its data centres, corporate offices and fulfilment centres.

• Halsary Wind Farm

The 15 turbine (30MW) in Caithness was built by ScottishPower Renewables to support the energy needs of Tesco, as part of Tesco’s commitment to becoming a net-zero business in the UK by 2035. Halsary windfarm generates enough clean energy to power the equivalent of almost 20,000 homes a year and will now help power Tesco’s stores and operations.

Over the lifetime of this agreement more power will be put back into the grid than Tesco’s operations take out, meaning there is more renewable energy on the market that did not exist before.

Up to a hundred new jobs will be created in each of the sites over the lifetime of the projects with around £400,000 of community benefit generated per annum between the two sites.

4.3.8. We are aware of industry's ask of UK Government and, within currently available powers, Scottish Government to take supportive actions such as: establishing an accessible PPA market, adopting an aggregator role, investigating the use of PPAs for domestic consumption at scale and considering renewable PPAs in public procurement. The proposed Strategic Leadership Group, and subsequent sector deal, provides an opportunity to explore these options in more detail.

Contracts for Difference

4.3.9. In 2021, onshore wind was reintroduced into Pot 1 of the Contracts for Difference (CfD) auction process, alongside other established technologies such as solar. The Scottish Government welcomed this.

4.3.10. Allocation Round 4 (AR4) of the CfD opened in December 2021, and results were published in July 2022. The Scottish Government was encouraged to see that several projects were successful in this round:

• Nearly 888MW of Scottish onshore wind was supported through pot 1, including a repowered site and;
• Around 600MW of remote island wind projects supported through pot 2.

4.3.11. The success of AR4, and that of future rounds, plays a critical role in the ability to achieve our onshore wind ambition in Scotland and we expect more repowered sites to be able to compete in the coming years.

4.3.12. The Scottish Government strongly supports the continued availability of the CfD scheme and recognises this financial mechanism as being the most secure investment option for onshore wind developers right now.

Consultation on Contracts for Difference (CfD) and Supply Chain Plans

4.3.13. The CfD mechanism has helped drive down the cost of renewable electricity support for consumers in recent years. However, the dramatic reductions in support achieved at recent CfD rounds have also increased the pressure to slash the capital costs of renewable electricity projects.

4.3.14. Whilst the CfD is critical for delivering support to deployment at low cost to consumers, the pressure to reduce capital costs has had significant impacts on the domestic supply chain, with suppliers greatly reducing margins or losing contracts altogether. This is a result of the CfD scheme's effectiveness in reducing developer bids and technology costs. The Scottish Government recognises that this pressure has had some negative effects on the domestic supply chain and investor confidence.

4.3.15. The Supply Chain Plans element of the CfD mechanism provides an opportunity for applicants seeking to construct projects of 300 MW and over to provide key information around their project's scope and associated packages of work. We believe that this information should be shared with the domestic supply chain at the earliest opportunity so that companies can prepare their bids for upcoming contracts.

4.3.16. Moreover, it is crucial that developers make every reasonable effort to meet their supply chain plan commitments, which is why we support BEIS' proposal to introduce a termination right for the most egregious breaches in supply chain plan commitments. BEIS' proposal can be found here.

4.3.17. The Scottish Government supports its agencies in identifying opportunities to work with supply chain companies to ensure suppliers are competitive. We expect developers to make every effort to support the domestic supply chain and support the UK Government's decision to ask developers to provide UK content estimates for their projects as part of the Supply Chain Plan questionnaire.