Green with energy

Updated August 2010

According to recent government statistics, only 0.01% of electricity in England is generated by local authorities from renewable sources.

Yet with significant land and building stock, local and other public authorities are well placed to install, and benefit from, renewable technologies. Financial incentives, in the form of the Feed-In Tariff (FIT) and the Renewables Obligation (RO), already exist. The abolition of the ban on local authorities selling renewable energy directly to the National Grid provides further encouragement to install renewable energy generation schemes.

Breaking the gridlock

Since 1989, local authorities have been prevented from selling any excess renewable electricity they generate (other than that generated from combined heat and power) into the grid. However, this restriction was lifted on 18 August 2010 and the government estimates that sales to the grid could allow local authorities across England and Wales to raise up to £100 million a year in income. With budget cuts looming, this new source of revenue will be welcome news.

FITs and starts

Income from electricity sales is not the only financial driver for public authorities who might also benefit from reduced energy bills by using the power generated themselves, rather than having to purchase it from a third party. Eligible renewable energy generators will also be entitled to receive payments for the electricity they produce under the FIT regime or incentives under the RO regime. The FIT supports small scale technologies with a maximum generating capacity of 5MW, whilst the RO supports large scale generation over 5MW.

The FIT was introduced on 1 April 2010 and provides a fixed, guaranteed payment to eligible generators. It applies to various technologies including solar photovoltaic, wind, hydro and anaerobic digestion and gives public authorities wide scope for implementation across their property portfolios (from offices, houses and flats to leisure centres and depots).

Under the FIT regime, two revenue streams are available:

• a generation tariff, payable whether or not electricity is exported to the grid; and
• an export tariff, for electricity that is exported to the grid.

Local authorities were previously unable to benefit from the export tariff but, from 18 August 2010, this has changed and the FIT will now be increasingly attractive to them.

The main barrier to the exploitation of renewable energy generation is often the up-front cost of installation. However, with specialist operators prepared to develop and lease sites from landowners (paying a rent and/or offering the landowner the ability to purchase the electricity generated, hopefully at a discounted rate to that available from the grid), public authorities do not need to develop and operate renewables schemes themselves.

Alternatively, the FIT regime permits generators to transfer their rights to FIT payments and innovative market solutions are emerging with third parties (such as banks or specialist installers) funding some or all of the installation in return for an assignment of future FIT payments. This may offer an alternative way for public authorities to participate in renewable energy generation schemes.

Turning up the heat

If the government sticks to current plans, a further renewables incentive will be introduced in April 2011. The renewable heat incentive (RHI) would potentially apply to heat generating systems installed on a retro-fit basis as well as systems installed in new buildings and offer long-term, fixed payments for heat generated from eligible renewables sources (such as ground-source heat pumps, solar thermal and biomass boilers).

The RHI is designed to subsidise the costs associated with fitting renewable heating technologies and, under existing proposals, it will be available to public bodies. Given the extent of building stock held by many public authorities, they are likely to have significant potential for on-site renewables. In particular, the RHI could enable local authorities to implement a wide programme of refurbishment in social housing and, consequently, the RHI's progress through Parliament will be followed with interest.

Further information

Over the last decade, TLT has acted for both developers and funders in relation to a wide range of renewable energy projects and is currently advising a number of clients on installations with the support of the FIT.

TLT's public sector team acts for a wide range of local authorities and other public bodies. Amongst others, we supply services in relation to large scale developments and general estate management, public procurement and outsourcing.

Contributor: Kerri Ashworth

This publication is intended for general guidance and represents our understanding of the relevant law and practice as at August 2010. Specific advice should be sought for specific cases; we cannot be held responsible for any action (or decision not to take action) made in reliance upon the content of this publication.

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