EXECUTIVE SUMMARY
Introduction
1. The Scottish Community and Householder Renewables Initiative ( SCHRI) was established in 2002 to provide a one-stop shop offering grants, advice and project support to assist the development of new community and household renewable energy schemes in Scotland.
2. Funding was initially provided by the Scottish Executive for a three year period from 2002/03 to 2004/05. A further extension of the initiative was announced at the end of 2004, providing a further £6.6 million and extending the programme to March 2008.
3. The purpose of the research is to provide an evaluation of the performance of the programme over its first three years of funding. The main focus of the evaluation 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. 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.
4. The method of research has been by primary means including telephone survey of beneficiaries of household and community projects and by interview with officials of the lead organisations including the Scottish Executive, Highlands and Islands Enterprise ( HIE), Energy Savings Trust ( EST) and Scottish Renewables Forum ( SRF). Secondary means of research has been by literature review and consideration of papers and appraisal forms of the grant making officers.
Contextual Review
5. 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, this number having grown steadily over the last three years.
6. A significant number of these companies are clustered around the central belt, which has made the delivery and on-going maintenance of renewable projects in 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 increasingly important in extending the coverage of accredited installers across Scotland.
7. Consultations with installers indicate that the existence of SCHRI funding has been very important to the development of the small scale renewables sector in Scotland. However, the 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.
8. SCHRI is principally a demand-side measure. Generally, government programmes which support employment are focussed on the supply 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.
9. 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.
10. The potential for 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.
Process Evaluation
11. 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. Feedback from installers and a number of beneficiaries suggests that, given 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.
12. 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 energy output produced by small scale renewable energy systems and the cost of capital of micro-power systems.
13. 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. It is recommended that consideration 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. 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.
14. There is potential for a much greater level of alignment between SCHRI and wider energy objectives relating to energy efficiency and fuel poverty. 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
15. By May 2005, 146 community renewable energy projects had received capital funding worth £3.6 million. The funding was split by:
- wind turbines (28%)
- heating (19%)
- biomass, biofuel and energy from waste (18%)
- Heat pumps (16%)
- Combined technologies (16%)
- Hydro (3%)
16. The survey findings suggest that 92 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.
17. 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.
18. 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
19. 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 grant 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.
20. 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.
21. 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.
22. 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.
23. In terms of the issue of PPP (Public Private Partnership) schools projects, including clear carbon targets as part of the output specifications provides a 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. 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. Nevertheless, this should not be a reason for excluding private sector firms involved in PPP contracts from bidding for SCHRI funding and the Scottish Executive may wish to reconsider the type of organisations eligible for funding.
24. A key incentive for encouraging investment in renewables 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 . Given that carbon reduction is 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, the incentive of a subsidy through SCHRI is felt not to be the most effective means of encouraging the inclusion of renewable energy systems in PPP contracts.
25. 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.
Main Findings
- The existence of SCHRI funding has been very important to the development of the small scale renewables sector in Scotland
- The programme has been successful in stimulating demand for small scale renewables
- The level of satisfaction with the advisory service was very high amongst users and relatively similar across both household and community streams
- Consideration should be given to developing SMART targets on outcomes
- There is potential for a much greater level of alignment between SCHRI and wider energy objectives relating to energy efficiency and fuel poverty
- Funding of the programme is now a critical issue, due to the increase in demand for capital grants through the initiative
- Consideration could be given to how SCHRI can best support the bulk buying of renewable energy systems for the household sector
- Due to a 'risk premium' PPP is not currently seen to be an appropriate vehicle for encouraging renewable energy systems, and consideration should be given to prescribing an output specification for PPP and conventional projects so that they are on an equitable footing.