« Previous | Contents | Next »
Listen
SECTION 6: SUMMARY AND CONCLUSIONS
Introduction
6.1 This interim evaluation has provided an opportunity to inform the future development of the SCHRI and evaluate the performance of the programme over its first three years of funding. The main focus has been the performance of the initiative in Value for Money ( VfM) terms, which has required an assessment of key issues such as leverage, displacement, additionality and deadweight, in order to assess what would have happened without the initiative (assessment of the counterfactual).
6.2 In addition, the interim stage of evaluation has had a strong process led element, and so the secondary focus of the study has been on the effectiveness of the SCHRI process, with an emphasis placed on an evaluation of the advisory service.
Contextual review
6.3 The market for small scale renewables in Scotland is still very small, although the potential for future growth is strong, given the growing profile of a number of micro-generation technologies. By May 2005, there were just under thirty accredited installers based in Scotland, having grown steadily over the last three years.
6.4 A large number of these companies are clustered around the central belt, which has made the delivery and on-going maintenance of renewable projects in a number of more rural areas, primarily the West Highlands, Western Isles and South West Scotland, more problematic due to time and cost implications. Work currently being undertaken to develop vocational courses in the installation and maintenance of renewable energy heating systems, delivered though FE colleges, will be important in extending the coverage of accredited installers across Scotland.
6.5 Consultations with installers suggest that the existence of SCHRI funding has been very important to the development of the small scale renewables sector in Scotland. However, net employment impact is currently very low, and concentrated in sectors which have a manufacturing presence in Scotland or support local procurement, primarily micro-wind and biomass. SCHRI is principally a demand side measure, which interfaces with communities rather than the private sector.
6.6 Generally, government programmes which support employment are focussed on the supply rather than demand side, and provide direct support to businesses. Ensuring that SCHRI is aware of and engages with supply side measures (such as the development of the micro-generation testing centre in Lanarkshire), will be important in supporting the longer term development of the sector and thus maximising future net employment gains.
6.7 The main focus of the programme in its first three years has been on delivery - ensuring that a large number of small scale renewable energy projects have been developed across a range of technologies in Scotland. In this regard, the interim evaluation recognises that the programme has been successful in stimulating demand for small scale renewables, and engaging with a wide range of community organisations including local authorities, housing associations, development trusts and local community groups.
6.8 The potential for the further development of small scale renewables in community and public sector organisations is extensive. The initiative has already been very successful in generating a high level of leverage, with every £1 of SCHRI funding attracting a further £1.64 in community and £2.30 in household renewable projects. Encouraging greater leverage of loan and equity finance in community projects as well as further bending of mainstream resources within local authorities and housing associations where possible, will ensure that SCHRI is able to support these projects at a lower level of total capital costs, while providing advice and guidance on the most effective means of delivery.
Process Evaluation
6.9 The development officer is central to the application procedure for community organisations, and they have a significant level of autonomy in terms of what projects are supported. This in-built flexibility has been one of the key strengths of the programme in developing links with communities and assisting delivery. However, as demand has increased, this bottom-up approach has in some instances led to greater tension between the development officer's role as both an advocate for projects and as a representative of the funding body. Feedback from installers and a number of beneficiaries suggests that, given that the initiative is no longer able to fund all potential projects, consideration needs to be given to the inclusion of more measurable and quantitative criteria against which it is clear which projects are better able to meet the objectives of community stream funding.
6.10 It is suggested that consideration be given to developing targets on outcomes. SMARTer objectives will make for better performance measures and allow the final evaluation to assess the success of the initiative in terms of meeting objectives, milestones and targets. In this context, the outcomes could relate to the amount and/or proportion of energy output produced by small scale renewable energy systems and the cost of capital of micro-power systems.
6.11 The progress reporting to the Scottish Executive consists mainly of reporting on inputs and activities. Thus, level of spend and leverage as well as number of projects completed and under development by type of technology are the main indicators of progress. Consideration needs to be given to reporting on outputs and outcomes in relation to funded projects, as this provides a much clearer picture of how the initiative is developing in a wider context. In this sense specific indicators could relate to:
- installed MW power capacity (output)
- kWh renewable energy output (outcome)
- cost of capital (£/kW) by technology (outcome)
- carbon displacement (outcome)
- employment in micro-power sector (outcome)
6.12 This approach would necessitate better analysis of the baseline position and more robust ongoing monitoring systems, potentially involving closer links between SCHRI, installers and the Scottish Renewables Forum in order to provide a systematic way of measuring small scale renewable energy production and employment across Scotland. This will be very important in evaluating the success of the initiative at the final evaluation stage.
6.13 There is potential for a much greater level of alignment between SCHRI and wider energy objectives relating to energy efficiency and fuel poverty. For example, Scottish Executive funding to alleviate fuel poverty delivered through the Energy Action Grants Agency ( EAGA) could be better aligned with wider sustainable development goals within the Executive, with a higher priority given to the development of renewable energy alternatives such as solar water heating, biomass and ground source heat pumps. In addition, making energy efficiency measures a compulsory aspect of SCHRI funding would result in a much greater impact in terms of carbon displacement and fuel savings arising as a result of the programme.
Value for Money Assessment
6.14 By May 2005, 146 community renewable energy projects had received capital funding worth £3.6 million. Investment in wind turbines accounted for just under thirty percent of all funded projects followed by solar heating (19%) and biomass, biofuel and energy from waste (18%). The survey findings suggest that over 90 projects would not have proceeded without SCHRI funding, while the remaining 54 would have either been delayed, or been of a smaller scale or lower quality.
6.15 During the same period, 378 grants worth £673,000 were issued to households to support the installation of renewable energy systems. 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%). A total of 170 projects would not have proceeded without SCHRI funding, although nearly 100 would have gone ahead with no funding.
6.16 This underlines one of the key findings that community projects exhibit much higher levels of additionality compared to the household stream. Over one quarter of projects in the household stream would have taken place in any case, compared to none of the community projects. Moreover, the level of deadweight for community projects is only one per cent, compared to nearly forty per cent of funding for the household stream. The ability of development officers to vary the level of grant in the community stream to minimise deadweight, underlines the value of this approach for community projects.
Forward Look Analysis
6.17 The funding of the programme is now a critical issue, due to the increase in demand for capital grants through the initiative. This has been a particular issue for EST as they have had to divert funds from the community to household stream to ensure domestic grants applications are funded. The introduction of a three year funding cycle would provide the initiative with greater capacity to plan funding allocations over the whole period and greater flexibility in responding to increasing market demand.
6.18 The non-discretionary nature of the household stream, effectively means that this takes priority over funding community projects where funding is discretionary. However, this is less than satisfactory, and so it would be appropriate to ensure that the community stream is safeguarded at a specific level of funding.
6.19 Overall, a strong case can be made for increasing the level of funding for capital grants across all technologies. Biomass requires particular consideration as the predicted excess supply of harvested timber in Scotland over the next twenty years, provides a strong incentive to accelerate the use of biomass, with small scale community level biomass heating projects being a very efficient method of utilising this resource compared to other options (such as co-firing in existing electricity power stations).
6.20 Biomass projects are more suited to particular areas of Scotland with considerably less opportunities for development outside mainland Scotland. If biomass projects were to receive a higher priority within the programme, the effects of such as strategy would need to be considered carefully, and take account of the recommendations that will arise from the DTIUK Heat Review, which will be published shortly.
6.21 Consideration should also be given to how SCHRI can best support the bulk buying of renewable energy systems for the household sector, in order to further heighten the profile of domestic small scale renewables, encourage a greater reduction in the cost of capital and move the market towards the mainstream.
6.22 One means by which bulk purchases could develop would be for SCHRI to act as a broker negotiating a discount for the bulk purchase of systems for installation in social housing developments. This could be coupled with greater alignment of funds available through EAGA and Communities Scotland to assist small scale renewable energy development in social housing. This would also lead to greater alignment with the wider fuel poverty agenda, and further promote a green procurement policy within the public sector.
6.23 In terms of the issue of PPP schools, a greater understanding of the financial risks and effect of grants on renewable energy outputs is required. However at present there appears to be reluctance for PPP developers to embrace renewable technologies due to the 'risk premium' and impact on cost in financial investment decisions. Including clear carbon targets as part of the output specifications provides a clear signal to the market that the private sector needs to engage more fully in the development of renewable technologies and energy efficiency, taking account of these factors in the design of new buildings.
6.24 The nature of PPP contracts means that the risk of the development should fall solely on the developer rather than the public sector. However, renewable energy systems are deemed to increase the level of risk of the development and so if a subsidy was made available through SCHRI, a higher compensation would be needed for this perceived risk as well as the increased cost compared to conventional systems.
6.25 One of the main means of encouraging investment in renewable technologies in PPP projects would be to include an obligation on the part of the contractor to include renewable technologies in the development. However, the nature of PPP contracts means that it is best to specify an environmental output rather than the means of achieving this (such as through a renewable energy system). Given that carbon reduction is now a principal objective of the Scottish Executive, establishing carbon targets as an output specification is the most cost-effective means of developing sustainable low carbon buildings in PPP public procurement. For these reasons, it is not felt that the incentive of a subsidy through SCHRI is the most effective means of encouraging the inclusion of renewable energy systems in PPP contracts.
6.26 By including carbon targets as an output measure, all potential developers are exposed to the same risk, and so will compete for the contract on this basis. This allows the private sector to provide the most innovative and cost-effective means of achieving the output objective. More challenging carbon targets are more likely to encourage the use of renewable energy systems.
« Previous | Contents | Next »