Scottish energy strategy consultation: the future of energy in Scotland

Chapter 5: Delivering Smart, Local Energy Systems

2050 Vision

• Scotland is a leader in the development of local energy systems, providing local solutions to local needs with improved consumer benefit.
• Expertise in the management of local energy systems, coordinating the supply, storage and use of many devices, has developed to become a significant Scottish export industry.
• Local communities play an active part in the delivery of innovative, low carbon energy systems, have the opportunity to influence energy planning from the outset, and receive community benefit from renewable energy generation.
• Local energy plans, drawing on the best data on energy supply and use, are drawn-up in collaboration with local authorities in every area of Scotland, acting as a commercial investment prospectus and coordinating an area-based approach to public investment.

Key Facts

We Have Already Exceeded Our 2020 Target For 500 Mw Of Community And Locally-Owned Energy Which Has Been Independently Estimated To Be Worth Up To £2.2 Billion Over The Operational Lifetime Of Those Projects.

£35 Million Has Been Made Available Through Community And Renewable Energy Scheme (Cares) Since 2013 To Support Community And Local Energy.

Cares Has Supported Nearly 600 Operational Community And Locally Owned Projects Since 2013, Of Which 265 Were Community Schemes.

Smart, Local Energy Systems

179. The Scottish Government is committed to supporting the development of local energy economies as part of a varied and proportionate response to the challenges brought by the transformation of Scotland's energy system.

180. For more than a decade we have supported communities in Scotland to develop their own renewables schemes, resulting in nearly 600 operating installations across Scotland, with active projects ranging from small scale hydro schemes of under 100 kW to wind farms of up to 9 MW. As well as contributing positively to our targets for renewable electricity and heat, these projects bring valuable local revenue to support a wide range of local needs.

181. The erosion of support at a UK level has made the future development of 'standard' standalone community energy schemes much more challenging. We are looking at how to adapt CARES to meet this challenge, for instance through the aggregation of demand, whilst also applying other levers - such as targeted non-domestic rates relief - to facilitate development. We also need to maximise the opportunity for community stakes in larger commercial schemes - and the new CARES contract due to be in place from April 2017 will reflect this priority.

182. While we have a proud legacy of community energy projects in Scotland, what we think of as community energy is now shifting towards new models designed to be viable in a more difficult market. Not only does this mean a shift towards shared ownership (of commercial schemes), but also a broadening of policy scope towards smart local energy systems using non-traditional business models - and innovation in energy tariffs to offer different kinds of value to consumers of locally generated energy.

183. With a focus on local energy, we can help tackle some of our most pressing issues, from security of supply, to demand reduction, making energy supplies more affordable for households and businesses, and to stimulate regeneration and local economic renewal.

184. Our priorities for supporting the developing of Smart, Local Energy Systems are:

• directly supporting the demonstration and growth of new innovative projects; and
• developing a strategic approach to future energy systems in partnership between communities, the private and public sectors.

Directly Supporting The Demonstration And Growth Of New Innovative Projects

185. The Scottish Government already supports a number of initiatives that enable local and community projects to be developed including:

• Low Carbon Infrastructure Transition Programme ( LCITP);
• CARES Local Energy Challenge Fund ( LECF);
• CARES Infrastructure and Innovation Fund ( IIF);
• Renewable Energy Investment Fund ( REIF); and
• District Heating Loan Fund ( DHLF).

186. Although at an early stage, using support from these schemes many areas of Scotland are already implementing local energy projects, utilising the funding opportunities available, and acting as standard bearers for other Scottish communities.

187. The Low Carbon Infrastructure Transition Programme ( LCITP) has been specifically designed to drive investment in and delivery of low carbon infrastructure projects across Scotland. The intervention focuses on supporting the acceleration of low carbon infrastructure projects across the public, private and community sectors to develop investment grade business cases to assist projects to secure private capital finance.

188. It also allows for the demonstration of low carbon projects through open funding invitations and widens the opportunity for these Scottish solutions to be replicated and marketed both nationally and internationally. To date LCITP has supported over 40 low carbon projects towards investment grade business cases through the £76 million fund.

189. These projects are at the cutting edge of innovation, and provide a basis for learning as we seek to mainstream a local energy approach.

190. However, as these schemes are new and innovative, not all schemes will succeed. It is only in testing new models of local energy economies that we will create learning and identify solutions. To ensure wider learning is captured from these projects, we have put in place, via ClimateXChange, two long-term independent research programmes to monitor and evaluate both social and economic impacts from Scottish local energy projects.

Projects funded through Scottish Government schemes

Levenmouth Community Energy Project in Fife uses electricity produced locally by a 750kW wind turbine, supplemented by solar, to produce green hydrogen by electrolysis. The hydrogen it produces will fuel one of the largest fleets of dual fuel hydrogen-powered vehicles in Europe. Powered at site and by an additional dispenser at Bankhead, the system is utilised by the councils own fleet of hydrogen vehicles.

Sunamp's East Heat project has installed innovative heat batteries that utilises renewable energy and off-peak tariffs to store heat in housing association properties helping tenants to access lower cost heating and hot water.

Biomass district heating in Wick

Ignis Wick Ltd (the operating subsidiary of Ignis Biomass Ltd), with assistance from the Scottish Government's District Heating Loan Fund has invested over £2.5 million in the Wick District Heating Scheme.

The heat network now supplies over 200 domestic customers (of which over 90% is social housing) with low cost heat, as well as a care home, the Highland Council's Assembly Room and the distillery.

In March 2016, the Green Investment Bank and Equitix announced their acquisition of Ignis Biomass Ltd. Plans are in place to upgrade existing infrastructure as wells as commission a number of smaller-scale stand-alone CHP systems for major users in and around Wick.

Actions:

The Scottish Government will:

• continue to support low carbon investors through a variety of existing Scottish Government grant and loan support schemes - including REIF - carefully assessing projects in order to maximise the wider system benefits of low carbon investment; and
• under CARES continue to support community and local renewable energy schemes.
• Develop Future Energy Systems In Partnership Between Communities, The Private And Public Sectors

Develop Future Energy Systems In Partnership Between Communities, The Private And Public Sectors

191. To help to manage the decentralisation of energy provision and maximise the opportunities from our whole system approach, we are seeking views on a requirement for a more coordinated approach to the local planning of energy and heat solutions.

192. This approach could provide opportunities for communities to not only develop their own energy projects, but also to have their voices heard in the processes by which energy projects are planned.

193. The Scottish Government already supports local authorities to develop strategies for district heating infrastructure through the Heat Network Partnership Strategy Support Programme, and through Scotland's Heat Map. Complementing this draft Energy Strategy is our consultation on the development of regulation for local authorities to produce Local Heat and Energy Efficiency Strategies that will support area-based energy efficiency and heat programmes.

Strategic Approaches To Energy Systems

Scotland's Heat Map ^[27] is an interactive web map that allows users to identify where there are opportunities for decentralised energy projects across Scotland, for example for heat networks, to assess heat density and proximity to heat sources. The tool can help to visualise heat demand and sources, and how these can be connected in an efficient way to reduce the cost of heat supply and the carbon intensity of heat generation.

Energy Masterplanning is an existing strategic approach to bring forward energy projects. Scottish Enterprise has developed an energy masterplanning approach, providing a good model of effective local energy planning. The approach sets out an evidence-based method, by which communities, and public and private bodies can collaborate on planning for decentralised energy networks. Outputs include spatial maps that allow stakeholders to identify energy opportunities at the earliest possible stage and can assist the commissioning of projects in consideration of the wider energy context.

194. The effectiveness of a strategic approach to planning for energy and heat at a local level is tied to the success of SEEP and the efficiency of our new building stock, changes to local transport systems, and the opportunities that smart technology and flexible grids will enable. These all provide options and direction to how local energy strategies can be effectively implemented.

195. There will be an enhanced role for local authorities and city regions in this strategic approach, which will help to deliver new investment and to manage the local challenges of decarbonisation. Collaboration between a variety of organisations and levels of government, communities, and private sector partners is essential to its success.

196. There may also be a role for new institutions and delivery agencies. In the 2016 Programme for Government, two proposals were made, which seek to support the growth of renewables in Scotland, and in particular support our ambitions around community and locally owned energy, these are:

• explore the potential to create a government owned energy company ( GOEC) to help the growth of local and community projects. This will include empowering communities to use the income from energy development to support other communities develop their energy potential; and
• explore the creation of a Scottish Renewable Energy bond in order to allow savers to invest in and support Scotland's renewable energy sector.

197. In this consultation we are seeking your views on what form a new organisation might take and what might be the extent of its responsibilities.

Government owned energy company and Scottish Renewable Energy bonds

Government-owned energy company ( GOEC)

• A GOEC should address specific market failure or add value through accelerating progress towards relevant policy aims and goals, and could take on a number of potential roles:
• deliver/support existing and new schemes and initiatives;
• deliver energy infrastructure including district heating;
• coordinate the procurement of energy efficiency and heat technology measures;
• act as an energy supplier, delivering on a not-for-profit basis; or
• administer a Scottish Renewable Energy Bond (see below).
• There are a number of existing local, UK and international examples of publicly-owned energy companies:
• Aberdeen Heat and Power - established in 2002 by Aberdeen City Council as a not-for-profit independent company limited by guarantee to develop heat and power scheme for the city;
• Bristol Energy - established in 2014 as a private company limited by shares, wholly owned by Bristol City Council. The company is a licensed supplier of electricity and gas. The municipal energy company aims to offer fair and transparent electricity and gas tariffs for domestic and business customers. Surpluses are reinvested in local services. Although the company is owned by Bristol City Council, anyone is Great Britain can become a customer;
• Danish Energy Agency (Denmark) - established in 1976 and now forms part of the Ministry of Energy, Utilities and Climate. The Agency administers energy and supply in Denmark, as well as climate initiatives. It is responsible for tasks linked to energy production, supply, transportation and consumption, including energy efficiency and savings, national CO ₂ targets and initiatives to limit emissions of greenhouse gases. The Agency supports building-policy initiatives, with a focus on sustainable building. The Agency employs around 400 people.
• We recognise that there may be other options to consider which are not highlighted above and would welcome all views on the potential role and impact(s) of a GOEC.

Scottish Renewable Energy Bonds

• In recent years 'green bonds' have become a growing source of finance for low carbon projects, for example the 'World Bank Green Bond' ^[28] . Bonds offer a route for investors to receive a pre-determined and regular return on their investment by loaning money to a fund for a fixed period.
• The role for 'green bonds' and alternative financial models for supporting low carbon technologies and services is also an area of interest to the Scottish Government and this draft Energy Strategy seeks views on the role for additional financial mechanisms in Scotland.
• Scottish Renewables have published a discussion paper ^[29] on how Scotland could widen the benefits of renewable energy by creating an energy fund. This could raise investment capital through a bond scheme. This is a helpful starting point but there are other options that could be pursued. For example, there are wider examples of successful bonds issued by Scottish Government and others, in relation to raising capital, for example to build social housing. These could be further explored to assess their compatibility with renewable energy projects.

Actions:

The Scottish Government will:

• explore the potential to create a Government-owned energy company ( GOEC) to help the growth of local and community energy projects; and
• explore the development of a regulatory framework for Local Heat and Energy Efficiency Strategies that will support area-based energy efficiency programmes, in conjunction with COSLA and local authorities.

Consultation questions

• What are your views on the priorities presented in this chapter for developing smart, local energy systems over the coming decades? In answering, please consider whether the priorities are the right ones for delivering our vision.
• What are your views on the actions for Scottish Government set out in this chapter regarding smart, local energy systems? In answering, please consider whether the actions are both necessary and sufficient for delivering our vision.
• What are your views on the idea of a Government-owned energy company to support the development of local energy? In answering, please consider how a Government-owned company could address specific market failure or add value.
• What are your views on the idea of a Scottish Renewable Energy Bond to allow savers to invest in and support Scotland's renewable energy sector? In answering, please consider the possible roles of both the public and private sectors in such an arrangement.