Uncertainty Still Holding Back Renewable Energy In Scotland

Despite challenges, Scottish landowners can still benefit significantly from renewables investments.
Published: Tue 09 Sep 2014

Although Scottish local authority planning statistics show that the time taken to determine renewable applications has improved, delays in securing grid connections and uncertainty over future funding continue to slow development. This is according to Nick Green, head of Savills Energy, a Scottish based real estate and capital advisory service which has been created to assist the inception, planning, development and continued operation of assets and infrastructure connected to the energy production and storage sector.

Developers holding off investment into renewables

The scheduled 10% decrease in Feed-in Tariff rates in October 2014 for all non-solar renewable technologies could catch-out land owners and developers that have not yet secured preliminary accreditation, the pre-build approval which hedges against changing tariff rates.

Green points out that clarity in policy and subsidy regimes is essential for land owners, developers and the rural supply chain to secure and support future investment. However, the complexity of the Contracts for Difference (CfD) mechanism and Feed-in Tariff (FIT) means that small and medium-sized projects could be placed at a disadvantage.

Coupled with the wider political context and ongoing challenge to secure grid connections in a timely and cost-effective manner, a number of renewable projects throughout Scotland have been shelved indefinitely or killed off entirely, explains Green.

The latest statistics show that Scotland now produces in excess of 50% of its electricity consumption from renewable energy. [Engerati-Scotland Steams Ahead in Renewable Energy Pledge.] However, uncertainty over who will fund the CfD regime after the Scottish Independence Referendum in September has prompted many developers to hold off.

While caution is understandable, it is important that the industry does not lose momentum. For land owners who are already on the renewable project journey, it is vital for them to follow through in order to lock in to the higher FiT rates.

“The longer farmers and estate managers wait, the greater the chance of reductions in subsidies and the higher the potential for the project to lose viability. Indeed, significant sums can be outlaid in the preparation and planning phases, and having to re-run the figures part way through the process can prove particularly costly,” explains Green.

He says that there is already evidence of the predicted reduction in rental income from developers as a result of the transition from Renewables Obligation Certificates (ROC) to CfD. “The degression mechanism will also continue, with further reductions expected in Spring 2015, assuming we meet required deployment levels in the latter half of 2014.”

Opportunities for Renewable energy

Despite the time pressures, Green explains that there are still considerable opportunities for land owners who want to diversify their income streams, manage costs and deliver a positive environmental impact through investing in renewables.

“The landscape is constantly shifting,” he concludes. “But the long-term need to manage costs, reduce emissions and meet the energy capacity gap will not go away. Investment in renewables is a powerful consideration for all farmers and land owners across Scotland and it is important to get professional advice to make the right choice to deliver return on the investment.”

Industry trade body Scottish Renewables demonstrated late last year that renewable energy generation is providing almost US$33 million (£20 million) of annual revenue to businesses, farmers, landowners, public sector organisations and homeowners across the country. Revenue is being produced by generating electricity on site and then feeding it into the national grid. Precisely US$32 million (£19.3 million) was earned in this way during 2013.

Landowners’ returns from large scale wind farms have been increasing since their inception in Scotland, according to a recent report compiled by property management firm CKD Galbraith’s dedicated renewable energy department.

According to the firm, between 2002 and 2008, rents under new leases increased on average by 200%. In addition, from 2009 to 2010, rents rose by more than 10%. This figure is expected to grow further as demand for available sites increase.

Scotland currently has 110 operational wind farms. Most of the farms are concentrated in Aberdeenshire, the Highlands and Islands.