Community Ownership and Renewable Energy in Scotland

1. Community Ownership and Renewable Energy in Scotland Mike Danson, Professor of Enterprise Policy Heriot Watt University CRED Seminar, Carlisle, 20th March 2013

2. Introduction • Rationale • Literature Review • Externalities • Methodology – critical discourse analysis • Case Studies • Findings • Conclusion

3. Rationale • Commitment to renewables at EU, UK and Scottish levels • Community Buy-Outs tend to develop alternative energy schemes • But different forms of asset ownership do not utilise alternative energy schemes in the same way • Need to analyse impacts of these differing ownership structures • Under- explored area is the power relationships which exist in establishing alternative energy schemes

4. New poll suggests Scots twice as favourable to wind power than nuclear or shale gas 18/3/13   Findings of a YouGov poll suggest 62 per cent of Scots would be generally for large scale wind projects in their local council area, more than double the number (24 per cent) who said they would support shale gas, and almost twice as much as nuclear (32 per cent). It was an even more positive outcome for hydro power which scored top with 80 per cent of those surveyed saying they would be generally for a large scale hydro project in their area, considerably more than other forms of generation such as gas (42 per cent), oil (37 per cent) and coal (34 per cent).

5. Literature Review Main form of alternative energy - wind farms Opposition as planning applications grow and scale increases 60% refusal rate for planning applications in England and Wales (Cass et al., 2010) Recent press reports in Herald, Guardian, Shetland Times etc. would suggest this is not diminishing Suggested that ownership in the UK impacts on refusals (Khan, 2003; Brunt and Spooner, 1998; Toke and Elliot, 2000)

6. Literature Review Khan (2003) identifies three ‘conflict dimensions’ • Conflict between private and public interests • Conflict between national and local interests • Conflict between economic growth and environmental protection ‘Conflict Dimensions’ aka externalities

7. Externalities Loosely defined as ‘costs or benefits of an activity which are not reflected in the price’ Positive and negative externalities exist through wind farm production Usual way of dealing with externalities - attempt to ‘internalise the externality’ Encourage the positive (e.g. subsidy), reduce the negative (e.g. taxation)

8. Methodology Three research questions: • which renewables projects are chosen and how are they structured and managed; • what revenue flows are generated and how are these distributed; • how are ‘public’ perceptions both constructed and managed across media forms in relation to renewable energy and island communities in Scotland?

9. Methodology • To date, insufficient examples of renewable schemes across the different forms to address these research questions in a formal quantitative way. So, • Case study approach, secondary data supplemented with primary data collection • Critical discourse analysis - examining media accounts as indicators of power identities, institutions and relationships (work in progress)

10. Four Main Types of Ownership • Community ownership: land and renewable energy projects owned by the community • Shared ownership: where the equity is split between a commercial operator and community trust • Co-operative ownerships: partial community share in commercial operation • Commercial ownership: no direct community ownership

11. Community ownership project structure • Relatively small scale • Driven by community • Fewer planning problems • Finance problems • Example: Gigha (3 turbines, 800kW) Only a small number of wind projects are running. Gigha; Udny 800kw community wind turbine in Aberdeenshire Relatively small scale

12. Shared ownership project structure • Commercially driven • Financial risk and profits shared • Land is privately owned • Management through LLP • Example: Neilston Development Trust (4 Turbines, 10MW) Neilston Development Trust’s community windfarm – in planning. (49.9% / 50.1%) with, Carbon Free Development Ltd, four turbines installed capacity of 10 MW. commercial company undertakes all technical aspects including obtaining finance.

13. Co-op ownership project structure • Commercially driven • Larger scale • Fewer finance problems • Land is privately owned • Example: Isle of Skye Co-op (10 turbines, 23MW) Limited ownership: owns 6%

14. Commercial ownership project structure • Commercially driven • Significantly larger scale • Finance less of an issue • More planning difficulties • Example: Whitelees wind farm (140 turbines; 322MW)

15. Community ownership: revenue flow, distribution and externalities • Revenue flows back to communities • Negative externalities are internalised • Positive externalities associated with local economic development • Minimal positive externalities associated with CO2reduction In other words, those who are paying the visual "price" of having the construction of wind turbines are receiving the benefits of the revenues they generate. Stimulates and supports social capital

16. Shared ownership: revenue flow, distribution and externalities • Negotiate operational risk and reward • Negative externalities are partially internalised • Some positive externalities associated with local economic development • Higher positive externalities associated with CO2reduction In the case of Neilston, the plan is for profits to be shared almost 50/50. This would lead to a revenue flow of £2.4 million over the first 10 years and a total of £10.5 million (before tax) over 25 years.

17. Co-operative ownership: revenue flow, distribution and externalities • Negative externalities are marginally internalised • Limited revenue flow through community fund and co-op profits • Land owners receive rental • Modest positive externalities associated with local economic development • More positive externalities associated with CO2 reduction Internalisation of negative externalities is constrained - an individual or household must have income to invest - and even this is limited to 5% of the project value. Also a disconnect between those bearing the brunt of the negative externalities and those who profit from co-operative membership. There is the community fund, but this represents only a small proportion of the total project revenue.

18. Commercial ownership: revenue flow, distribution and externalities • Surplus revenue flows to commercial company • Negative externalities are minimally internalised • Community fund small in proportion to revenue • Limited expenditure in the local community • Modest positive externalities associated with local economic development • Land owners receive rental • Largest positive externalities linked to CO2reduction

19. Isle of Gigha • “We have now created a new normality, when people take control of their own destiny, run their own affairs, build their own future, create the opportunities for their children instead of having a big house which dominates proceedings over all who live under it.” (Isle of Gigha Trust, chairman)

20. Isle of Skye • Isle of Skye renewables cooperative holdings vary from £250-£20000, with in total 520 members raising £800k, or some 5% of the project’s value. Profits are proportionate to membership share, with those individuals and organisations who could afford to purchase the maximum amount (£20,000 in the case of Isle of Skye renewables cooperative) receiving the maximum amount of profit

21. Isle of Skye II • “… we’ve got 520 members and we raised I think about £800k and then more importantly because the return is very good … with interest rates anything between 0.5 and 1% so it’s not a surprise that everybody was attracted to it, you get that for 25 years guaranteed 6.5% and the capital back – so it’s an incredibly good investment if you’ve got some money” • “the returns and dividends in the first year were 9% and 12% in the second year, now your best ISA at the moment is 3% so that’s an incredible return, it’s the minimum share of £250 investment and a maximum of £20,000”

22. Isle of Skye III • So even in cooperatives : revenue flow to individuals, how profit spent, saved or invested also up to individuals. • Community: a direct financial flow from the commercial energy company and the co-operative. In the case of Skye, Falck Renewables agree to pay £30,000 pa to local community fund; each year co-op provides some money to the local community, currently around £4-£5000 a year • Debate within the co-operative about whether the amount provided to the local community should be increased.

23. Individual v community • “There was a bit of a furore at our AGM about giving community benefit as a percentage of their overall dividend, there was quite a few people who didn’t want that to happen, they see it as their financial income and anything that gets hived off at even 10% or 1% of the end dividend, a lot of them aren’t in this investment for that, they see it as an investment for themselves, as individuals.”

24. Constraints on positive externalities • Individual or household must have the necessary income to invest - and even this is limited to 5% of the project value. • Likely to be a disconnection between those bearing the brunt of the negative externalities and those who profit from co-operative membership (location, noise pollution, etc.) • Community fund to compensate ~ but represents only a small proportion of the total project revenue (which would be around £2.3 million at a rate of hundred thousand pounds net profit per megawatt)

25. Who is the community? • The Sealladh na Beinne Moire company operates in the name of the islands South Uist, Benbecula and Eriskay as formally held under the ownership and management of South Uist estates. The conflation of the term Sealladh na Beinne Moire and the community, or the ‘local community’ is noted here as exemplifying the slippage between the discursive constructions of ‘identity’ and institutional and ideological frames of reference. Whilst reasonably distinct as geographic islands the nature of community identity is not so easily detailed and in fact is invariably conflated in local relations and articulations of both identity references and resource claims (Burnett, 1997).

26. Experiences in Denmark • Oil crisis - shift to renewables • Develop new model of economic governance around decentralisation and localised forms of collective ownership • Partnerships between local neighbours or cooperative forms - ‘critical’ (Cumbers, 2012) • Electricity distribution system • democratic, cooperative and heavily decentralised (contrasts with most other countries, including UK) >100 local distribution companies (primarily cooperative and municipally owned) • Acceptability and internalising negative externalities v economies of scale

27. Conclusions I Different ownership models of renewable schemes (esp. wind) Focus on how the revenue produced is distributed Smaller schemes internalise the externalities Smaller schemes also increase positive externalities However, positive externalities from reduction of CO2 lower so the impact is much less. CBOs and Danish experiences – more equitable, build popular participation, spread ownership and decision-making rights Supportive state institutional and regulatory mechanisms to promote and foster more decentralised forms of collective and public ownership

28. Conclusions II • Contribution of renewable schemes to sustainability of local rural communities but there is a cost. Need for learning processes so that such communities with limited resources can learn from each other (KE) and maximise shares from externally owned schemes. But beware of rhetoric: ‘alternative energy’ is good but for whom?

29. Professor Mike Danson, DLitt, AcSS, FIED, FeRSASchool of Management and Languages Heriot-Watt University Edinburgh, EH14 4ASScotland +44 (0)131 451 3840 t+44 (0)7948 276398 m m.danson@hw.ac.uk http://www.sml.hw.ac.uk/staff-directory/michael-danson.htm Scottish Centre for Island Studies: http://scotcis.wordpress.com/about/ CHECK OUT www.pemabo.net A PLACE WHERE YOU MEET COLLEAGUES WHO ARE INVOLVED IN PERIPHERAL, MARGINAL AND BORDER REGIONS