Renewable energy funding costs hamper development

Councils may be being held back from investing in renewable energy projects because of the high cost of private sector funding.

Pension funds, renewable energy project equity companies and the Green Investment Bank all offer funding for certain types of renewable energy projects, often because the subsidies on them offer an attractive and reliable return going forward.

The Green Investment Bank opened in November 2012 and has around £3billion to invest in projects in the green economy up until 2015. “The money is out there from the GIB and pension funds and institutions,” said Michael Ware, lead partner in BDO Stoy Hayward’s infrastructure and renewables practice. “We know 200 plus funds who say they want to invest in some sort of renewable energy or energy efficiency work. If you were a public sector organisation saying ‘we want to spend £50m improving energy efficiency and micro generation’ the Green Investment Bank would bite your arm off.”

But local authorities are understandably shy of the cost of this sort of money. “Yes we want to save carbon,” said Paul Isbell, energy manager for Bristol City Council. “But we want to do it in the cheapest way possible. If we use our own money at 4.8/5% it’s more cost effective – we’re still paying £400,000 a year in interest on £8.5m for our wind turbine project but GIB I think would be 7%.”

According to Isbell many energy schemes have planning permission but are stalled: “There isn’t the money. Banks have killed these projects off.” Companies like Energy for All offer the chance to ‘own’ a wind turbine or other part of a renewable energy project, but also look for 8% on their money. Furthermore according to Isbell, having people own stakes in council projects takes away from the work the council has done on a project. “Having rich individuals own bits of it means we lose all that kickback,” he says. “All the work on a wind turbine is getting it developed, it takes forever, so why would we want to give away the return to someone else? If we were being a bit more business minded and wanted to do it somewhere else maybe we’d have a different model, but if it’s Bristol’s land and Bristol’s wind turbine all the residents should have a stake in it, not just a few people who live in the rich part of the city.”

Councils are managing to do renewables work with other funding sources. Isbell’s Energy Unit is fairly unique as it has its own revolving fund for this type of work. Kirklees Council’s SunCities project was funded by the European Commission and installed solar power systems in over 500 homes making up 4.9% of the total solar electricity installed in the UK at the time. And in partnership with the private sector Exeter and East Devon Growth Point have accessed £3.7m in grant funding from the Low Carbon Infrastructure fund to help build a district heating network.

According to recent work conducted by the Climate Policy Initiative, councils may be doing well to steer clear of private funds. Its report found that policy barriers were discouraging institutional investors from contributing to renewable energy. They included policy uncertainty such as retrospective cuts to subsidies and inconsistent legislation.

David Nelson, senior director of CPI, said: “Policymakers and renewable energy project developers often look to institutional investment as a potential source of capital that can help reduce the cost of wind and solar projects. Our findings suggest that in the near future, this is unlikely to be the case without drastic shifts in government policy, regulation, and investment practices.”

At BDO, Ware thinks that local authorities should be doing more in the area. “There are a few like Peterborough who have done a lot in renewable energy but there are an awful lot that have done nothing,” he said. “Why aren’t they doing micro generation? Solar panels, wind etc. And secondly why aren’t they doing energy efficiency?”

The public sector is, says Ware, slow to the party. Some argue that they can’t afford to undertake this sort of work. “There is an upfront capital cost to anything,” said Ware. “And these things can be risky, people don’t want to take on risky projects and covering every school in your council with solar panels is a big, capital intensive project. If you are a building and facilities manager why would you do that? You don’t pay the bills, you just keep your head down and take care of the repairs.”