The SE24 story so far – an accompaniment to our response to the BEIS consultation

Introduction

We responded to the 2015 DECC consultations on both Pre-accreditation and the Review of the Feed-In tariff (FiT) scheme. This response contains some repeat information from those prior responses. There is also some updated information to inform you of recent developments, what your 2015 proposals meant for us and what your proposed abolition of the FIT regime threatens to do.

This sets out:

  1. Who we are, our objectives and rationale;
  2. Our current portfolio and its impact;
  3. What underpinned our success to date;
  4. Future plans;
  5. The negative impacts of recent changes to the FiT regime and the potential damage of the up-coming changes;
  6. The case for a continued FiT Regime or some replica including a re-introduction of pre-registration and the special “allowances” for Community Benefit Societies (CBS) and school circumstances.

1. Who we are, our objectives and rationale

SE24 was established as a CBS in 2015 and aims to install rooftop solar PV panels on community buildings in South London.  It appeals to investors to fund the installation and operation of the solar facilities, it offers roof-owners/tenants discounted electricity prices while cutting carbon emissions in the process, and it uses any surplus revenue to establish a community fund.  A stable and viable FiT regime is crucial to its growth as this will reduce SE24’s unit costs by providing economies of scale in administration, operation, accounting, reporting and project development.

The FiT is also key to unlocking the potential for community building owners and their tenants through participating with organisations like ours, to become aware of where their power comes from, getting engaged in confronting Climate Change factors and putting energy efficiency and environmental care closer to the heart of local decision-making.  We understand that a key objective of the FiT scheme is to give people a direct stake in the movement towards a low-carbon economy through democratised and decentralised renewable generation. We fully support that objective, which aligns with our own vision.  But people are also running budgets, often tight budgets, and they need to be sure of the future economics.

We have found the best engagement in our area with schools, churches and community buildings like sports clubs and hospital facilities. In July 2015 and in subsequent presentations to the public (such as St Christopher’s Hospice on 23rd July 2018, when we asked our community for its views on locally-backed projects to address climate change and raise awareness of the importance of energy efficiency) we received fulsome support.  It is not just the panels that make a difference – it’s the increased level of engagement with meeting the challenge of Climate Change through local community involvement. In our plans, this includes working with schools and so engaging the next generation.

In the same vein, over the last 3 years SE24 has supported Dulwich and West Norwood Climate Coalition (DaWN CC) hold open meetings in our area supported by Helen Hayes (MP for Dulwich and West Norwood) addressing Climate Change and the importance of adapting to a low carbon economy and changes in behaviour that can reduce carbon footprints.

 

2. Our current portfolio and its impact

SE24 and our partners and investors have succeeded in installing some 200kWp of solar energy in the last 2 years, producing some 168 MWhs annually (enough to power 40 homes), principally because volunteers, local communities, and sympathetic and hard-working building owners could see the environmental benefit of installing renewable energy and reducing carbon emissions.

This 168 MWhs displaces some 60 tonnes of CO2 per year which would otherwise be produced by gas-fired generation. Further, from the portfolio to-date we plan to build up a Community Benefit Fund of £60k over 20 years to enable projects which would lead more directly to reduced consumption of energy and reduction of fuel poverty.

SE24 are extremely glad that the original owners of the roofs at Herne Hill United Church and Herne Hill Methodist Church Hall, our Phase 1 projects, had faith in SE24 for our first installations.  This paved the way for our latest Phase 2 success at St Christopher’s Hospice and Dulwich College.  These two phases of projects together create a portfolio and platform of churches, schools and hospitals which we hope to build on.

The Community Fund component of what these projects enable is important. We intend to support projects impacting communities in the vicinity of our project sites to: a) help alleviate fuel poverty through encouraging actions to improve energy efficiency and facilitating switching suppliers, and b) through education to directly impact the behaviours of individuals and organisations in reducing their carbon footprints and the contributions these make to climate change.

 

3. What underpinned our success to date

We got here for a combination of reasons:

  • We were able to fund the installation of solar panels and associated equipment and cover on-going operations and maintenance costs through a combination of a community share offer, revenue from electricity sales to the site and the FITs for generation and 50% deemed export. In the Phase 1 projects we covered all the building owners/tenants up-front costs, while in our Phase 2 projects, we asked for a contribution towards these up-front costs, including their own legal and S118 (charity value for money assessments). We were able to attract investors offering a 4% return, though for our Phase 2 projects we were unable to pre-register to lock in rates for a year to underpin our confidence in revenues.
  • We could offer our roof-owning partners Power Purchase terms at rates which were less than grid supplied rates and in terms that the building owners/tenants could understand and rationalise to their governing bodies as an offset to the costs, time and effort (legal, administrative and operational) they would incur in making the project happen themselves.
  • Our Partner building owners/tenants shared our enthusiasm for engaging in these projects to achieve a lower carbon solution to their power requirements.

 

4. Future Plans.

We’ve engaged several community building site owners in the past 18 months with whom we’ve marketed the reasons above as part of the process to install solar PV systems on their roofs. This growth trajectory was based on the platform of intellectual property and learning built up in SE24 and our broader support team in the community (spanning the capability to write leases, to negotiate terms with installers and system maintenance providers and in finance-raising – now close to £250k) AND CONTINUATION OF THE FIT REGIME.  From the responses we received we were hopeful of lifting our portfolio to 500kW by 2020.

 

5. The negative impacts of recent changes to the FiT regime and the potential damage of the up-coming changes

The FiT Regime changes introduced following the 2015 consultation meant we were unable to consider projects and sites below 30kWs. The economics did not work for us.  With the big fall in the FiT rate, lots of churches and schools in our area fell out of scope of our project pipeline and it drove away many organisations from participating in community energy schemes.

Even for projects on the border line of viability, the inability to lock in tariffs through pre-accreditation (a facility taken away) dissuaded several potential partners from committing to the effort to work with us to install solar panel systems on their roofs.

Thus, our Phase 2 projects are all on big roofs with strong long-term credit worthy tenant off-takers. As we understand it, the proposed changes eliminate both the Generation and Export FIT. The implications of these changes for organisations like SE24 are that we must rely on project partners to be able to pay a power purchase price for the volume of their on-site consumption which is sufficient to repay our investors, cover operating and maintenance costs and provide enough commercial incentive (less than grid cost power prices) to provide a rationale for their participation in such an installation.

The outcomes of this proposition for SE24 are that;

  • Only big sites with large and reliable long-term onsite consumption will be potential targets. This will mean a further reductions in the range and number of small to medium-size community sites that we’ll be able to deal with in the future.
  • We’ll have to size our installations based on onsite consumption, rather than on the optimum potential area and generation capacity of the roofs, unless we can deal with businesses which can capture value from exports, which is difficult to arrange in advance.
  • All/most of our pre-arranged pipeline, and our growth potential) are now at severe risk.

We are particularly dissatisfied that there is a proposal to move away from export tariffs. The electricity market benefits from generation exports. It makes sense to recognise this benefit and the current wholesale price for such exports seems fair.  As mentioned above, systems will be sized based on on-site consumption when optimal sizing of potential systems should give appropriate economic consideration to the value of exports to the system.

We can accept the principle of indexed tariffs grandfathered for the 20-year period of the tariff with starting points adjusted to reflect the prospective levels of wholesale prices.  But any shift in what is paid out in a 20-year tariff to reflect actual movements in wholesale market prices would add an unwelcome level of uncertainty and further increase the costs of capital.

 

6. The case for a continued FiT regime (or an alternative with the same beneficial features);

There are several benefits attached to the current FiT regime that we want to preserve. These are:

  • Clarity on long-term payments for generation and export with a long-term credit-worthy counterparty. This is very important for finance raising.
  • Levels of payment which are enough to support variety of smaller and larger projects to enable community participation.
  • Allowances for community energy groups and school participants which set aside the need for higher rated Energy Performance Certificates (EPCs). Changes to the current EPC criteria could severely undermine the application of the scheme because much existing housing and building stock would need to undergo serious capital expenditure to upgrade EPC standards. This is particularly true of schools and churches, especially those built some time ago.
  • The ‘deemed 50% export’ regime which avoids need for managed export metering and the associated involvement of Meter Operators at a cost per site of some £300 per year.

 

Final Observations

The Directors of SE24 have invested a huge amount of volunteer time and energy since when we were founded. We have stepped up our community engagement, harnessing support from local churches, schools, hospices and sports clubs as well as local organisations like the Herne Hill Forum (which gives us a stall at Sunday markets from time to time) and through the various DaWN CC open-house engagements with the community on the subject of Climate Change.

This broad church of participants and supporters expects us to grow. We can only do this viably if the main components of the current FiT regime continue including a generation FiT and an export FiT reflecting the value of exports in the wholesale market. Combine this with pre-accreditation then we, and organisations like us, can make a serious difference.

 

From the SE24 team