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Environmental compensation

In his speech to the British Wind Energy Association’s Annual conference earlier this year, Conservative Shadow Energy Minister, Charles Hendry, said that renewable-energy companies should be encouraged to offer greater benefits to the local communities who agree to host wind farms. He said that the Conservatives: “…want to see communities benefiting from new wind development in their area. This is why I would encourage renewable energy companies to offer discount rates or shares in commercial projects to the local community so they can shares in the profit. We will also look at changing licence obligations to allow companies to offer discounts to those living near to a facility. Of course, more and different innovations should be expected from private industry. Whilst this will never take away the local community’s ability to say no to a development, it sets out clearly that there can be benefits to hosting a facility, which is the right approach to increasing the number of wind turbines in the UK.”

The Local Government Association had already come up with a similar idea – residents should be offered discounts on their energy bills and free energy efficiency measures when wind farms are built in their community, with a “community tariff” to share the financial benefits of renewable energy generation with local communities The ideal of offering compensation to win local approval for projects perceived to have negative local impacts is not new – the nuclear industry has been doing it for decades. Some wind farm developers have also provided grants for community projects, or other inducements to smooth the way to acceptance – though nothing yet as ambitious as the current plan to provide very large incentives and local benefits to any community willing to accept a nuclear waste repository in their area. Perhaps worth £1 billion or more. By contrast, the going rate for wind farms is evidently only in the ten to hundred thousand range!

Charles Hendry’s approach is a bit more radical – he suggests offering continuing income via shares, or even discounted prices for electricity locally. It’s hard to see exactly how that would work – where do you draw the local boundary? Just for those in sight of the wind farm? As with other forms of compensation, it could backfire – it may be perceived as being an attempt at bribery to win local acceptance. A much more direct option is of course for local communities to club together and invest in their own wind farm, or some other such scheme, to be run as a partly or wholly locally owned co-op project. Then, after they have paid back any loans, they get all the cash benefits.

This is very common in Denmark, where about 80% of the wind projects are owned either by local farmers or local wind co-ops (the “Wind Guilds”). One result has been very much less opposition to wind power. As the Danes say “your own pigs don’t smell”. As a consequence, Denmark now gets around 20% its power from the wind – with local people even owning shares in large offshore wind farms like the one off Copenhagen and the one off the Island of Samsoe. It’s similar in Germany, with about half of the 25 GW of wind projects being locally owned.

By contrast, there are only a handful of community-owned schemes in the UK, which has only managed to get 4 GW of mostly large company-owned wind farms installed so far. One of the main problems here, apart from local opposition, is the nature of the UK’s Renewable Obligation support scheme, which, to put it charitably, is not designed for community schemes. The proposed new Feed-in Tariff for schemes up to 5 MW may help. That is certainly the experience with Feed-in Tariffs elsewhere in the EU.

Direct financial gain is of course only one possible type of compensation. There could also be local employment gains. These can be overstated. On-site construction work is inevitably only temporary – a few months for a wind farm. Operational jobs may be permanent, but not many people are needed. The real job gains are in manufacturing the equipment. In Spain and Portugal wind farm developers must show how many jobs they will create by sourcing supplies locally in order to get planning approval for their projects. Vestas has noted “There is a strong political will in most countries to favour local manufacturers.” But not so far in the UK. Indeed we don’t have any significant wind technology manufacturing going on here. Instead we import the hardware.

Not everyone agrees with “local content” rules: they are seen as protectionist – undermining free markets. But then you might say the same of any attempt to provide local advantages via compensation. In effect you are trying to “internalise” locally some benefits which otherwise, unlike the local impact costs, are “externalised”.

To keep up to date on renewable energy developments and policies, visit http://www.natta-renew.org.

Posted by Dave Elliott on December 5, 2009 12:31 PM | Permalink