How The Growth Of Renewable Energy In Scotland Is Being Financed

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Originally published on Lapsed Physicist.
By Allan R. Hoffman

This is a follow-up to my previous blog post ‘The Exciting Changes Taking Place in Scotland’s Energy System’ that discusses how Scotland’s already impressive and steadily increasing deployment of renewable energy systems is being financed. While technology costs will always be an important part of the total cost of deploying renewable energy systems, as these costs come down with technological advances, large scale manufacturing, and increased deployment experience, financing costs imposed by lending institutions, whether private or public, take on increasing  importance.  Financing of emerging technology options has always been recognized as a critical barrier, and demonstrating the ‘bankability’ of proposed projects requires careful attention in the planning phases. Finance issues are a major focus of the annual meeting of Scottish Renewables, the representative body of the Scottish renewable energy industry since 1996. It has over 300 members and member organisations, ranging across all technologies and supply chains.

As reported in the previous blog post, Scotland now generates enough wind energy to meet its entire residential electricity demand, and renewables are Scotland’s largest source of electrical power, with much more to come. How this came about is a case study in the importance of national policy in support of renewable generation, a policy still needing implementation in the United States.

Scotland, a separate country with its own parliament even though formally a part of the United Kingdom, has set two important energy goals: to achieve 100% renewable electricity generation by 2020 and achieve zero carbon emissions from all power generation by 2030. In support of these goals the Scottish Government has set up several financing programs that offer assistance to renewable energy projects in both the planning and deployment phases. These include the Scottish Government Community and Renewable Energy Scheme (CARES), Scottish Investment Bank’s Renewable Energy Investment Fund (REIF), and Home Energy Scotland. Community Energy Scotland is a registered charity that provides practical help for communities on green energy development and energy conservation. It is supported separately by local communities. Each program is described briefly below.

CARES is a loan fund established in 2011 “ provide loans toward the high risk, pre-planning consent stage of renewable energy projects which have significant community engagement and benefit.” It is managed by on behalf of the Scottish Government. A part of CARES, the Local Energy Challenge Fund, was established more recently “ demonstrate the value and benefit of local low-carbon energy economies.”

CARES financing is designed to to support high-risk early planning stages widely recognized as principal barriers for resource-limited small businesses and community groups. Its key features include:

  • financing of initial planning of any renewable energy project up to 5MW in size in a competitive process
  • unsecured loans of up to £150,000 (£1 = $1.55) for up to 90% of project costs
  • a fixed interest rate of 10%

Phase 1 of the Local Energy Challenge Fund attracted 114 applications and 17 were funded. Phase 2 is currently underway. Phase 1 projects include a community district heating scheme, community use of hydrogen, ground source heat pump projects, and development of community microgrids.

The Renewable Energy Investment Fund, established in 2012, supports projects at the demonstration and commercialization stage that:

  • Deliver energy from a renewable source, reduce the cost of renewable energy or provide key solutions for renewable energy generation
  • Provide benefit to the economy of Scotland
  • Have a demonstrable funding gap for REIF to consider
  • Be at a sufficient stage of development to require REIF funding before March 2016

Some of the project types that REIF can support include marine energy, community owned renewables, and renewable district heating. The REIF team also provides technical advice and assistance in finding other funding sources. Its £103 million fund is available to provide commercially priced loans, equity investments, and loan guarantees. Initial projects include:

  • a £735,000 loan to the Islay Energy Community Benefit Society to install a community owned, 330KW wind turbine on the island,
  • a £615,000 loan to a village in Stirlingshire in support of their efforts to become a zero-carbon, zero-waste community,
  • a £700,000 loan to support the first phase of the 0.5MW Shetland Tidal Array, and
  • a £250,000 loan to support development of the AWS-III wave energy device.

Home Energy Scotland provides up to 75% of the total cost of installing a renewable energy system up to £10,000, and up to 100% of the total cost of connecting to a district heating scheme up to £5,000. Loans are available to owner occupiers in Scotland for existing and new residential buildings. Loan amounts and repayment schedules vary by technology – e.g., the maximum loan amount for installation of a PV system is £2,500 and a maximum loan repayment period of 5 years, while the maximums for installation of a ground source to water heat pump are £10,000 and 12 years. In all cases a Green Deal Assessment of the proposed project is required and installers must be certified.

Community Energy Scotland supports community-owned projects by providing funding for feasibility studies, planning, community consultation, and help in finding funding sources. Supported projects include energy audits, energy efficiency improvements, micro-renewables installations, and installation of wind turbines.

All of the above paints a clear and exciting picture of a country committed to a clean energy future that is willing to back up its words with substantial and ongoing budgets. Scotland may thus prove to be an example to the rest of the world as we leave the fossil fuel era and move into the new era of renewable energy.

Reprinted with permission.

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