Community Ownership and Renewable Energy in Scotland

Mike Danson,

Professor of Enterprise Policy

Heriot Watt University

CRED Seminar, Carlisle, 20th March 2013

Introduction

Rationale Literature Review Externalities Methodology – critical discourse analysis Case Studies Findings Conclusion

Rationale Commitment to renewables at EU, UK and Scottish

levels Community Buy-Outs tend to develop alternative

energy schemes But different forms of asset ownership do not utilise

alternative energy schemes in the same way Need to analyse impacts of these differing ownership

structures Under- explored area is the power relationships

which exist in establishing alternative energy schemes

 Findings of a YouGov poll suggest 62 per cent of Scots would be generally for large scale wind projects in their local council area, more than double the number (24 per cent) who said they would support shale gas, and almost twice as much as nuclear (32 per cent).

It was an even more positive outcome for hydro power which scored top with 80 per cent of those surveyed saying they would be generally for a large scale hydro project in their area, considerably more than other forms of generation such as gas (42 per cent), oil (37 per cent) and coal (34 per cent).

New poll suggests Scots twice as favourable to wind power than nuclear or shale gas 18/3/13 

Literature Review

Main form of alternative energy - wind farmsOpposition as planning applications grow and scale

increases60% refusal rate for planning applications in

England and Wales (Cass et al., 2010)Recent press reports in Herald, Guardian, Shetland

Times etc. would suggest this is not diminishingSuggested that ownership in the UK impacts on

refusals (Khan, 2003; Brunt and Spooner, 1998; Toke and Elliot, 2000)

Literature Review

Khan (2003) identifies three ‘conflict dimensions’

1.Conflict between private and public interests

2.Conflict between national and local interests

3.Conflict between economic growth and environmental protection

‘Conflict Dimensions’ aka externalities

Externalities

Loosely defined as ‘costs or benefits of an activity which are not reflected in the price’

Positive and negative externalities exist through wind farm production

Usual way of dealing with externalities - attempt to ‘internalise the externality’

Encourage the positive (e.g. subsidy), reduce the negative (e.g. taxation)

Methodology

Three research questions:

1.which renewables projects are chosen and how are they structured and managed;

2.what revenue flows are generated and how are these distributed;

3.how are ‘public’ perceptions both constructed and managed across media forms in relation to renewable energy and island communities in Scotland?

Methodology

To date, insufficient examples of renewable schemes across the different forms to address these research questions in a formal quantitative way. So,

Case study approach, secondary data supplemented with primary data collection

Critical discourse analysis - examining media accounts as indicators of power identities, institutions and relationships (work in progress)

Four Main Types of Ownership

a) Community ownership: land and renewable energy projects owned by the community

b) Shared ownership: where the equity is split between a commercial operator and community trust

c) Co-operative ownerships: partial community share in commercial operation

d) Commercial ownership: no direct community ownership

Community ownership project structure Relatively small scale Driven by community Fewer planning problems Finance problems Example: Gigha (3 turbines, 800kW)

Only a small number of wind projects are running. Gigha; Udny 800kw community wind turbine in Aberdeenshire

Relatively small scale

Shared ownership project structure Commercially driven Financial risk and profits shared Land is privately owned Management through LLP Example: Neilston Development Trust (4

Turbines, 10MW)

Neilston Development Trust’s community windfarm – in planning. (49.9% / 50.1%) with, Carbon Free Development Ltd, four turbines installed capacity of 10 MW. commercial company undertakes all technical aspects including obtaining finance.

Co-op ownership project structure Commercially driven Larger scale Fewer finance problems Land is privately owned Example: Isle of Skye Co-op (10 turbines,

23MW)

Limited ownership: owns 6%

Commercial ownership project structure

Commercially driven Significantly larger scale Finance less of an issue More planning difficulties Example: Whitelees wind farm (140 turbines;

322MW)

Community ownership: revenue flow, distribution and externalities Revenue flows back to communities Negative externalities are internalised Positive externalities associated with local

economic development Minimal positive externalities associated with

CO2 reduction

In other words, those who are paying the visual "price" of having the construction of wind turbines are receiving the benefits of the revenues they generate.

Stimulates and supports social capital

Shared ownership: revenue flow, distribution and externalities Negotiate operational risk and reward Negative externalities are partially internalised Some positive externalities associated with local

economic development Higher positive externalities associated with CO2

reduction

In the case of Neilston, the plan is for profits to be shared almost 50/50. This would lead to a revenue flow of £2.4 million over the first 10 years and a total of £10.5 million (before tax) over 25 years.

Co-operative ownership: revenue flow, distribution and externalities Negative externalities are marginally internalised Limited revenue flow through community fund

and co-op profits Land owners receive rental Modest positive externalities associated with

local economic development More positive externalities associated with CO2

reduction

Internalisation of negative externalities is constrained - an individual or household must have income to invest - and even this is limited to 5% of the project value. Also a disconnect between those bearing the brunt of the negative externalities and those who profit from co-operative membership. There is the community fund, but this represents only a small proportion of the total project revenue.

Commercial ownership: revenue flow, distribution and externalities

Surplus revenue flows to commercial company Negative externalities are minimally internalised Community fund small in proportion to revenue Limited expenditure in the local community Modest positive externalities associated with

local economic development Land owners receive rental Largest positive externalities linked to CO2

reduction

Isle of Gigha

“We have now created a new normality, when people take control of their own destiny, run their own affairs, build their own future, create the opportunities for their children instead of having a big house which dominates proceedings over all who live under it.” (Isle of Gigha Trust, chairman)

Isle of Skye

Isle of Skye renewables cooperative holdings vary from £250-£20000, with in total 520 members raising £800k, or some 5% of the project’s value. Profits are proportionate to membership share, with those individuals and organisations who could afford to purchase the maximum amount (£20,000 in the case of Isle of Skye renewables cooperative) receiving the maximum amount of profit

Isle of Skye II

“… we’ve got 520 members and we raised I think about £800k and then more importantly because the return is very good … with interest rates anything between 0.5 and 1% so it’s not a surprise that everybody was attracted to it, you get that for 25 years guaranteed 6.5% and the capital back – so it’s an incredibly good investment if you’ve got some money”

“the returns and dividends in the first year were 9% and 12% in the second year, now your best ISA at the moment is 3% so that’s an incredible return, it’s the minimum share of £250 investment and a maximum of £20,000”

Isle of Skye III

So even in cooperatives : revenue flow to individuals, how profit spent, saved or invested also up to individuals.

Community: a direct financial flow from the commercial energy company and the co-operative. In the case of Skye, Falck Renewables agree to pay £30,000 pa to local community fund; each year co-op provides some money to the local community, currently around £4-£5000 a year

Debate within the co-operative about whether the amount provided to the local community should be increased.

Individual v community

“There was a bit of a furore at our AGM about giving community benefit as a percentage of their overall dividend, there was quite a few people who didn’t want that to happen, they see it as their financial income and anything that gets hived off at even 10% or 1% of the end dividend, a lot of them aren’t in this investment for that, they see it as an investment for themselves, as individuals.”

Constraints on positive externalities

Individual or household must have the necessary income to invest - and even this is limited to 5% of the project value.

Likely to be a disconnection between those bearing the brunt of the negative externalities and those who profit from co-operative membership (location, noise pollution, etc.)

Community fund to compensate ~ but represents only a small proportion of the total project revenue (which would be around £2.3 million at a rate of hundred thousand pounds net profit per megawatt)

Who is the community?

The Sealladh na Beinne Moire company operates in the name of the islands South Uist, Benbecula and Eriskay as formally held under the ownership and management of South Uist estates. The conflation of the term Sealladh na Beinne Moire and the community, or the ‘local community’ is noted here as exemplifying the slippage between the discursive constructions of ‘identity’ and institutional and ideological frames of reference. Whilst reasonably distinct as geographic islands the nature of community identity is not so easily detailed and in fact is invariably conflated in local relations and articulations of both identity references and resource claims (Burnett, 1997).

Experiences in Denmark

Oil crisis - shift to renewables Develop new model of economic governance around

decentralisation and localised forms of collective ownership Partnerships between local neighbours or cooperative forms -

‘critical’ (Cumbers, 2012) Electricity distribution system

democratic, cooperative and heavily decentralised (contrasts with most other countries, including UK) >100 local distribution companies (primarily cooperative and municipally owned)

Acceptability and internalising negative externalities v economies of scale

Conclusions I

Different ownership models of renewable schemes (esp. wind)

Focus on how the revenue produced is distributedSmaller schemes internalise the externalitiesSmaller schemes also increase positive externalitiesHowever, positive externalities from reduction of CO2

lower so the impact is much less.CBOs and Danish experiences – more equitable, build

popular participation, spread ownership and decision-making rights

Supportive state institutional and regulatory mechanisms to promote and foster more decentralised forms of collective and public ownership

Conclusions II

Contribution of renewable schemes to sustainability of local rural communities but there is a cost. Need for learning processes so that such communities with limited resources can learn from each other (KE) and maximise shares from externally owned schemes. But beware of rhetoric: ‘alternative energy’ is good but for whom?

Professor Mike Danson, DLitt, AcSS, FIED, FeRSASchool of Management and Languages

Heriot-Watt University Edinburgh, EH14 4AS

Scotland+44 (0)131 451 3840 t+44 (0)7948 276398 m

m.danson@hw.ac.uk

http://www.sml.hw.ac.uk/staff-directory/michael-danson.htm

Scottish Centre for Island Studies: http://scotcis.wordpress.com/about/

CHECK OUT www.pemabo.net A PLACE WHERE YOU MEET COLLEAGUES WHO ARE INVOLVED IN PERIPHERAL, MARGINAL

AND BORDER REGIONS