The Community Energy Strategy published 27 January 2014 sets out an expectation that all commercial renewables projects will offer the local community a share in ownership of projects. The draft Infrastructure Bill published on 6 June 2014 introduces the ‘backstop powers’ which DECC had indicated it would introduce as soon as Parliamentary process allowed, in addition to the voluntary approach which Government had indicated it would prefer. 

The Industry Task Force, including community and developer representatives is due to issue its final report, but not until the end of this summer. This is expected to set out some key principles and a range of models for ‘shared ownership’ approaches that developers should be offering to local communities. It is expected that the report’s findings may feed into any secondary legislation. In the meantime Government is clearly pushing ahead with getting the enabling power on the statute book by including this in the draft Infrastructure Bill. 

Background

DECC launched the UK’s first Community Energy Strategy (endnote 1) on 27 January 2014. The Strategy is the first of its kind ever to be published in the UK and it sets out the role of communities in the UK’s energy and climate response. It sets out the Government’s vision for how communities can get more involved in energy and climate change issues. This includes both community-led projects and partnerships between communities and commercial developers. 

The Strategy announced the aim that by 2015 it should be the norm for communities to be offered the  opportunity of some level of ownership of new, commercially developed onshore renewables projects. 

The Secretary of State DECC asked an industry and community taskforce to develop a plan for  implementation of this commitment and report back to him by summer 2014. Progress of this voluntary  process is due to be reviewed in mid-2015.

The Strategy also indicated that DECC would ‘consider requiring all developers to offer the opportunity  of a shared ownership element to communities’ as a ‘backstop’ in case the voluntary process does not  deliver. 

Intended scope of the Community Right to Buy In

The enabling powers would allow a broad range of options on what is caught and would restrict the scope to renewable electricity generation, new developments above a minimum size and expansions  above a minimum size of existing developments in Great Britain. The powers are not intended to replace  any existing community benefit schemes, such as the voluntary agreement for onshore wind in  England.

Implementation

A voluntary approach was the Government’s stated preference at the beginning of 2014. At the same time DECC confirmed the intention, as soon as Parliamentary process would allow, to set up a broad and  flexible enabling framework for a ‘Community Right to Buy In’ which could apply to a broad range of  renewable electricity generation technologies (offshore and onshore wind, solar and hydro). The  Government confirmed that if subsequently it wished to activate and enforce this, it would formally  consult on whether to use the power at all, as well as the detailed design, e.g. the definition of the  eligible community and the size of the ownership stake in advance of making such secondary legislation. 

Government would only exercise the legislative powers if the 2015 progress review finds that the  voluntary process has failed to deliver a situation where it is the norm for communities to be offered  the opportunity of some level of ownership of new, commercially developed onshore renewables  projects.

The draft Infrastructure Bill

The draft Infrastructure Bill was published 6 June 2014 and includes provisions for the ‘Community Electricity Right’ in Part 4 and Schedule 5 of the Bill.

Clauses 26 to 28 set out the enabling power for the Secretary of State to make regulations which will give individuals resident in a community or groups connected with a community (or both) the right to buy a stake in a renewable electricity generation facility that is located, in (land based) or adjacent to (offshore), the community. 

As currently drafted the enabling power is broad. The detail of the regulations will be needed to clarify to what extent the right may apply to offshore wind farms and whether there will be a maximum distance offshore for the right to apply.

While the detail of how the right would operate will be contained in secondary legislation the draft  Infrastructure Bill provides that secondary legislation may cover the following:

  • matters relating to the ownership of facility operators;
  • enforcement of any obligations, including in relation to the Electricity Act 1989; 
  • the kind(s) of facilities to which the right will apply which can be both land-based and offshore;
  • that it will only apply to facilities over 5MW of total installed capacity;
  • determination that any facility is an excepted facility;
  • identifying the relevant community;
  • identifying individuals, or groups, entitled to exercise the right to buy;
  • qualifying criteria for groups;
  • the kinds of stake which may be bought through the right to buy;
  • the particular kind of stake which may be bought in particular facility;
  • the price of stakes and the value of the offer; and
  • the procedure for buying a stake and any subsequent disposal of a stake. 

It is intended that when the provisions are implemented they will provide a mechanism for the sale of a stake, and include a mechanism for the pricing of such a stake.

As currently drafted the enabling power is broad. The detail of the regulations will be needed to clarify to what extent the right may apply to offshore wind farms and whether there will be a maximum distance offshore for the right to apply.

What happens next?

The draft Infrastructure Bill will be progressing throughout the Autumn. The 2nd reading in the House of Lords (which is where the bill was introduced), is due to take place on 18 June 2014 and will be a debate on the Bill’s provisions. As already mentioned above, the Industry Taskforce report is due in August and may have some influence in shaping any secondary legislation.

Comment

Until DECC published the Community Energy Strategy, the first ever in the UK, much of its focus has been to help deliver large nationally significant infrastructure projects (NSIPs). With the Strategy DECC set out its aim that it wants that by 2015, “it should be the norm for communities to be offered the opportunity of some level of ownership by commercial developers”. This goes beyond the community benefit model to assure people a stake in the infrastructure in their vicinity.

Some kind of template may well be helpful. However, while both Government and the industry favour a voluntary approach, the ‘backstop’ legislative provisions are being brought forward now, in case they will later be needed.

Only some 60MW of renewables running today are ‘communityowned’. By DECC’s most optimistic projection, this will rise to 3GW in 2020, which still only amounts to 1.4 per cent of forecast electricity demand.

All trends start small. These proposals have the potential to have real impact on project returns and administration, the consenting trajectory, and social acceptance. They will therefore be of significant interest to renewables developers.

In the context of Electricity Market Reform (EMR) it is not clear what mechanism will ensure that the community and developer obtain their respective tariffs under the Contract for Differences (CFD), where the Community Right to Buy In is exercised.

If the right is made to apply to offshore facilities it will be necessary to consider impacts on the OFTO regime and any restrictions on change of ownership on the consents and agreements relating to the offshore facility.

Read our briefing on the draft Infrastructure Bill changes for nationally significant infrastructure projects here.