Letter from Germany – ‘The answer my friend…’

Renewables now account for 25% of German energy

In some European countries community ownership of onshore windfarms has been a main driver for the development of renewable energy and the decentralised generation of electricity. In Britain the process has stalled despite the best efforts in Scotland over recent years and the introduction of the feed in tariff by the UK government. Communities do now get a small slice of the revenue from developers but this is chickenfeed compared to the benefits of ownership. What is the problem and how can it be solved?

Ownership of German Renewable Industry (Craig Morris)
Ownership of German Renewable Industry
(Craig Morris)
Buy-in in Germany or Denmark by individuals and municipalities wanting to profit from the installation of wind turbines has created far greater acceptance of the application of this technology. It is obvious that, if the annual return on your investment is typically between 6% and 10%, then this will positively influence your view on the aesthetic appeal of these monsters. In Denmark community ownership represents 80% of installed onshore wind capacity in the country. In Germany the figure is just over half of the country’s c.30GW capacity (Scotland had 3.8GW installed in 2012). And if your direct ownership of this power supply also reduces the risk of your lights going out then even better. It is unlikely that the communitarian-minded Scots would not be swayed by these arguments given the chance.

However it is not only the profit motive which has created the community wind industry in these countries. The knowhow around electricity supply and distribution has been retained by many municipalities and so there are plenty of individuals and organizations with the knowledge to put these deals together. It helps too that the fund market in Germany is not fully regulated and that there is a tradition of private investment in speculative ventures. And, of course, the turbines themselves are usually German or Danish eg Enercon, Siemens and Vestas. The result is that the financial models and the necessary infrastructure develop naturally to support these initiatives and a virtuous loop is created.

Green Mountain Wind Ranch in Texas
Green Mountain Wind Ranch in Texas
Exactly this is now happening in the US where community wind has taken off and is growing at a faster pace than commercial wind. The local advantages are very clear both in terms of employment and wealth creation. Although commercial wind farms undoubtedly also bring benefits it is estimated that 2 community-owned 20 MW windparks bring will bring $4m in local revenue while a single commercial 40MW windpark generates only $1.3m for the locality. Investors include farmers, schools, municipalities and rural cooperatives.

The Scottish Government, in combination with its agencies and local governments, has been trying to help promote this type of development. Funding is made available for pre-planning costs and it is possible to secure debt financing for completed projects. There is also a scheme to make Forestry Commission land available for such ventures. However, there are very few examples of communities owning generating assets and the benefit accruing to communities from onshore wind development has been commuted to a modest revenue share. This is granted by the developers basically to ease the planning process and to get some local acceptance, some see it as a bribe.

Wind turbines in Findhorn  A community-based resource
Wind turbines in Findhorn
A community-based resource
The fundamental problem is that wind energy projects in the UK have become very big business and are either owned by utilities or, increasingly, by cleantech funds. Landowners can make substantial returns very easily and without risk by simply leasing land to a developer whereas a local group, even with grant support, must still find a way to finance the planning and construction phases. The UK banks are usually only interested in projects north of £30 million. There are some exceptions including the Co-operative Bank which has been the main debt provider for community wind projects (their current troubles has dealt the sector a body blow and the Green Investment Bank is now planning to step in where running projects are at risk).

In contrast to other countries the UK is clearly experiencing market failure in this area and so government intervention is essential. As the Scottish Government has committed to very ambitious climate change targets and to combating fuel poverty this would seem to be an ideal opportunity to give power to the people. By building on the successes of initiatives – such as “Local Energy Scotland”and the CARES fund – to provide guarantees and other forms of support the Government could launch this blindingly obvious good thing on to a more profitable trajectory. Literally everybody wins.