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SECTION 2: CONTEXTUAL REVIEW

Introduction

2.1 This section of the report describes the strategic context in which the initiative has developed and is currently operating. It provides a brief overview of the policy and market context, how the demand for small scale renewables has developed and describes the administration and current delivery of the SCHRI.

Policy Context

2.1 The renewables sector is the fastest growing energy sector in the world today. Scotland is extremely well placed to capitalise on the growth of this sector due to its well developed technical and research capabilities as well as its extensive experience in the energy sector over the past fifty years. Scotland pioneered the development of hydro power during the last century, and is currently at the forefront of a number of developing technologies including marine and tidal power, micro-wind generation and hydrogen fuel cells.

2.2 The development of the renewables sector is now firmly established as a key government priority, with the Scottish Executive setting an ambitious target that as much as forty per cent of Scotland's electricity should be generated from renewable sources by 2020 ¹, double the UK target of twenty per cent. Scotland already generates a reasonable proportion of electricity from hydro power and the expansion of onshore wind farms over the next five years mean that the 2010 target of eighteen per cent should be met without too much difficulty.

2.3 However, increasing the proportion by another twenty-two per cent from 2010 to 2020 will be more challenging. This will require significant investment in the development of offshore wind, wave and tidal energy as well as facilitating the development of biomass power. The Partnership for Government stipulates that the Scottish Executive will not support further development of nuclear power stations while waste management issues remain unresolved. There is also likely to be continued upward pressure on the price of oil and natural gas, as global demand increases, fuelled by the rapidly developing economies of China and India. This will increase the political and economic pressure to invest in new types of technology in order to ensure a stable and sustainable energy supply market.

2.4 The UK Energy White Paper published in 2003 ², provides a framework for the development of UK energy policy. It affirms the UK government's commitment to tackling climate change, with a pledge to reduce carbon emissions by sixty per cent by 2060. It is noted that this will require a fundamental shift in energy policy requiring a much greater emphasis on energy efficiency and carbon neutral energy production.

2.5 The paper also sets out a vision of the UK energy system in 2020, which it expects to be much more diverse than today, with a greater mix of energy, especially energy sources and technologies. It underlines that " There will be much more local generation, in part from medium to small local/community power plant, fuelled by locally grown biomass, from locally generated waste, from local wind sources, or possibly from local wave and tidal generators. There will be much more micro-generation, for example from CHP plant, fuel cells in buildings or photovoltaics".

Demand for Small Scale Renewables

2.6 Micro generation is the generation of low-carbon heat and power by households, small businesses and communities to meet their own energy needs. It can include small scale wind and hydro systems, solar heating and photovoltaics, fuel cells, ground and air source heat pumps as well as biomass and energy from waste ( EfW). Micro-systems can be connected to the national grid and sell excess power back to the grid when surplus to requirements, or they can also be completely off-grid.

2.7 The micro generation sector is still a developing market in the UK as many of the technologies underpinning small scale renewables continue to be perceived as expensive and problematic. However, a number of the technologies are already well established across Europe, such as ground source heat pumps in Sweden and biomass systems in Austria, and the development of these technologies and others such as micro-wind and solar systems offer excellent potential to make a significant contribution to carbon displacement and to help the Scottish Executive deliver their 2020 renewable energy target.

2.8 Research commissioned by Powergen ³ regarding consumer's attitude to energy and energy efficiency demonstrates that " although as 'citizens' people are concerned about the environment, as 'consumers' cost becomes the primary concern". Therefore, in order to promote behavioural change and move small scale renewables towards the mainstream, public subsidy remains an important means of stimulating market demand in the sector, facilitating market transformation and allowing these technologies to compete more effectively with high carbon alternatives.

2.9 The Scottish Renewables Forum ( SRF) is in the process of mapping out all of the current small scale non-domestic renewable energy projects currently operational in Scotland. This includes:

• small scale hydro and wind projects
• ground source heat pumps ( GSHPs),
• landfill gas, biomass, energy from waste,
• photovoltaics,
• solar space/air and water heating,
• hydrogen fuel cells.

2.10 Most of the schemes have a generating capacity of under 1 MW with the exception of a small number of hydro schemes. The SRF map demonstrates that a wide range of small scale renewable technologies are being developed across Scotland, which are spread across both rural and urban areas. Many of the projects have only recently been developed, many of which have received funding through the SCHRI. The " Scottish Renewables Small Scale Energy Map" can be obtained by contacting the Scottish Renewables Forum ( www.scottishrenewables.com).

2.11 It is a requirement of the programme that accredited installers are used for the installation of renewable energy devices funded through the initiative. By May 2005, there were just under thirty accredited installers based in Scotland and the location of these companies is illustrated on the following diagram.

Figure 2.1: Location of accredited renewable energy installers in Scotland

2.12 A large number of these companies are clustered around the central belt, which has made the delivery and on-going maintenance of projects in a number of more rural areas more problematic. However, this is an issue that is recognised by SCHRI, which has been working with Inverness College to promote the development of vocational courses in the installation and maintenance of renewable energy heating systems, which will increase the ability of local tradesman to diversify into this market. In addition, there have been a number of installers established in more rural areas, such as Orkney and Shetland, which has been important in developing the sector and stimulating demand in these island communities.

2.13 The number of accredited installers has grown gradually over the last three years, as a result of the support from SCHRI (Figure 2.2). Solar thermal installers account for the largest proportion of installers followed by installers of GSHPs. Three of the wind turbine installers are also accredited to install hydro systems.

2.14 Feedback from installers across these four sectors suggest that the existence of SCHRI funding is " extremely important" to the development of the sector, as a means of stimulating demand among households and community organisations.

Figure 2.2: Number of accredited installers in Scotland. 2003 - May 2005

2.15 Due to the established market for biomass and ground source heat pumps elsewhere in Europe, other countries such as Sweden and Austria have developed a market lead in these sectors. Solar water heating is also a relatively established technology. One manufacturer of this technology is based in Scotland, while a number of other Scottish firms operate an assembly function, importing components from a number of sources in both Europe and Japan.

2.16 The micro-wind market is a developing technology, where Scotland is emerging as a market leader. There are a number of firms based in Scotland that manufacture micro-wind turbines, as well as new building mounted turbines.

Administration of SCHRI

2.17 SCHRI was established in 2002 and is managed jointly by the Energy Saving Trust ( EST) and Highlands and Islands Enterprise ( HIE), with funding from the Scottish Executive. It provides a one-stop shop offering grants, advice and project support to assist the development of new community and household renewable schemes in Scotland. The initiative has three main stated objectives:

• to support the development of community scale renewable projects
• to support the installation of household renewables
• to raise awareness of renewable technologies and their benefits to Scotland

2.18 In order to achieve these objectives, there are two main elements to the initiative:

• a scheme of capital grants available for both householders and communities.
• an advisory service to provide expertise, advice and development support to community organisations, including councils, schools, housing associations and voluntary groups.

2.19 The householder scheme is run on an all-Scotland basis by EST. A telephone helpdesk is operated for household enquiries, complemented by further information on the SCHRI website. The household scheme provides a flat rate thirty per cent grant towards the costs of installation of a renewable energy system up to a maximum of £4,000. Eligible technologies include

• solar water heating
• small scale wind turbines
• small-scale hydro
• automated wood pellet stoves and wood fuelled boilers
• ground source heat pumps

2.20 Air source heat pumps were added to the list of eligible technologies earlier this year. Photovoltaic systems are not eligible for funding as this technology is funded through the Department for Trade and Industry ( DTI) Major Photovoltaic Demonstration Programme. Systems need to be installed by an accredited installer, which are accredited for the programme via the DTI Clear Skies initiative, which is the equivalent programme to SCHRI operating in the rest of the UK.

2.21 The advisory service is composed of twelve geographically specific development officers who provide the focus of support for the community stream. They act as the main point of contact for community organisations interested in developing renewable energy projects. They will assist in capacity building within community groups, provide advice on the eligibility of projects for funding and other technical matters, and support the community group in developing an application for funding.

2.22 In order for an organisation to be eligible for the community stream, it must be a constituted body, which is community based and is operated on a not-for-profit basis. Such organisations include:

• charitable organisations
• local development trusts
• local authorities
• housing associations

2.23 The funding available to community groups is divided into two main types. Technical funding, which primarily funds independent consultancy research regarding the feasibility of renewable projects. Funding of total costs, up to a maximum of £10,000 is available. This is complemented by a much larger fund for capital projects which can fund up to 100% of costs, up to a maximum of £100,000. Compared to the household stream, there is greater flexibility and discretion regarding the type of technology and project that can be funded. Generally projects that are able to demonstrate high levels of community involvement and increase awareness of renewable technologies in the wider community are looked upon more favourably.

2.24 The communities stream is administered by EST in the Lowlands and by HIE in the Highlands and Islands. The differing structure of the programme between the Lowlands and Highlands reflects the differing circumstances between the two areas. There are five development officers located in the lowlands each based in each of the Energy Efficiency Advice Centres ( EEACs). These are:

• Edinburgh, Lothians, Fife and Borders (Edinburgh)
• Tayside (Dundee)
• Grampian (Aberdeen)
• Strathclyde and Central Scotland (Glasgow)
• South West Scotland (Ayr)

2.25 There are a further seven development officers based in the Highlands and Islands. The funding of these positions is split between SCHRI (60%) and HIE (40%). Most of the development officers are based in local enterprise companies, while several are based in local development trusts. These are:

• North and West Highlands (Caithness and Sutherland Enterprise, Golspie)
• Inverness, Nairn, Moray, Badenoch and Strathspey (Inverness and Nairn Enterprise, Inverness)
• Lochaber, Skye and Lochalsh (Lochaber Enterprise, Fort William)
• Argyll and the Islands (Argyll, Lomond and the Islands Energy Agency, Oban)
• Western Isles (Western Isles Enterprise, Stornoway)
• Orkney (Westray Development Trust, Westray)
• Shetland (Baltasound, Unst)

2.26 In the Highlands and Islands, the SCHRI is now delivered through the Community Energy Company, which was established earlier this year. This is a wholly owned subsidiary of HIE, which will be the main mechanism through which HIE will support community scale renewable projects in the Highlands and Islands. HIE's strategic objective of "Strengthening Communities" underlines the commitment to developing small scale renewable projects at the community level. These projects are seen as an important mechanism to assist community capacity building, reduce fuel costs for community facilities, and support community confidence.

2.27 The particular circumstance in the Highlands and Islands, where many communities are not connected to the main gas and electricity grids, means that the development of renewable energy has a particular role to play in community economic development.

Development of Projects

Community Stream

2.28 The community stream has allocated over £3.5 million in SCHRI funding to provide capital support to nearly 150 projects since 2003. By May 2005, two thirds of these projects had been completed, while the remainder were still under development.

2.29 Investment in wind turbines accounted for nearly thirty per cent of all funded projects followed by solar heating (19%) and biomass, biofuel and energy from waste (18%) (Figure 2.3). Biomass, biofuel and EfW accounted for the greatest proportion of total funding (28%) followed by heat pumps (24%) and wind (20%). The total value of all projects was £9.5 million, with SCHRI contributing just under forty per cent of total project costs. This means that for every £1 of SHCRI funding, £1.64 was leveraged from other sources.

Figure 2.3: Allocation of community capital grants by technology

2.30 The average size of grant was around £24,000, which was highest for heat pump and biomass projects at around £37,000 (Figure 2.4). Average total project value was highest for these two technologies, at around £112,000 and £92,000 respectively. Solar heating and wind projects were both significantly lower in value at under £40,000, due to the lower equipment and installation costs involved.

Figure 2.4: Average size of community capital grant and project cost by technology

2.31 In order to assist the development of capital projects, the community stream has also provided funding for technical feasibility projects. A total of £585,000 has been allocated for this purpose, supporting 109 projects across a range of technologies. Over ninety per cent of these technical studies had been completed by May 2005.

2.32 A third of all technical grants supported studies which assessed a range of technologies (Figure 2.5). In many cases, this was to provide a community group with greater clarity regarding the feasibility of developing various technologies, and which systems would be best suited to their needs. The technical grants attracted a lower level of match funding compared to the capital grants, with every £1 of SCHRI grant, attracting £0.66 from other sources.

2.33 The average size of the technical grant was around £5,000, with the average project costing just under £9,000 (Figure 2.6). The total project cost was highest for biomass related projects at over £12,000 and lowest for solar heating at under £5,000.

Figure 2.5: Allocation of community technical grants by technology

Figure 2.6: Average size of community technical grant and project by technology

2.34 One other aspect to the SCHRI community stream has been support for community capacity building projects. These projects are designed to assist local communities in developing confidence to bring forward renewable technology projects. A total of 28 have been supported by May 2005, with funds of around £140,000, the vast majority (92%) located in the Highlands and Islands. The well established community networks which HIE has developed over a number of years, have facilitated further community capacity building in relation to community renewable energy development.

2.35 In addition, the importance of "strengthening communities" as a strategic objective for HIE, underlines the central importance accorded to community development to the future success of the Highlands and Islands. The further development of community level renewable energy projects is identified as a key priority for action, which will be focused on " enabling communities to harness the area's renewable energy potential through technical assistance and financial investment" ⁴

2.35 The range of capacity building projects supported include funding for the development of regional renewable energy forums in Caithness, Ross-shire, Shetland, and Mull & Iona, and information dissemination seminars in a range of subjects such as district heating systems, wood fuel sustainability and the use of Renewable Obligation Certificates ( ROCs) by community organisations.

Table 2.5: Community stream capacity building allocation, May 2005

Household Stream

2.36 The household stream supports the installation of small scale renewables in domestic owner-occupied properties. Almost 380 grants had been allocated by May 2005, amounting to funding of £673,000. Of these, around half of the projects had been completed and the remainder were still under development. The most popular technology assisted by the initiative has been solar heating systems, which accounted for half of all allocated grants, followed by ground source heat pumps ( GSHPs) (26%) (Figure 2.7). The average grant size for GSHPs was over three times that for solar heating, which meant that this technology accounted for the highest proportion of funding (46% compared to 29% for solar heating).

Figure 2.7: Allocation of household capital grants by technology

2.37 Overall, the average size of grant was just under £1,800. This was highest for wind projects (£3,606) and lowest for the Lerwick district heating system (£863) (Figure 2.8). Assistance to households to connect to the Lerwick district heating system accounted for the third largest number of grants at ten per cent of all projects, but accounted for just five per cent of total funding, due to the lower level of associated grant.

Figure 2.8: Average size of household capital grants by technology

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