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March 22, 2022

Why just the crumbs?

Despite Scotland’s renowned renewable energy resource – the best in Europe apparently – the extent to which communities have been able to derive direct benefit has been frustratingly limited. In Denmark, 50% of onshore wind is community owned whereas in Scotland that figure is less than 1%. Instead, most communities have had to settle for the crumbs from the developer’s table in the form of community benefit payments – often ‘managed’ on the community’s behalf by a third party funder or local authority. The Ferret has been investigating the true extent of just how paltry these crumbs actually are.

Paul Dobson Petra Matijevic, The Ferret

The owners of Scotland’s onshore wind farms will only pay “loose change” to communities this year, despite producing electricity with a market value in excess of £3 billion and soaring rates of fuel poverty in the country.

Analysis by The Ferret has found that in 2022, Scotland’s onshore wind farms could together produce electricity valued at over £3.5bn, but just over £22m will go to the communities which live nearest these wind farms in payments to support local initiatives.

Developers usually pay an annual community benefit fund to local areas when they apply to build a new wind farm. This is often seen as recompense for the impact and disruption caused by wind farm projects.

The figures mean that locals will receive just 0.6 per cent of the value of the electricity produced on their doorstep. At current market prices, it would take the wind farms’ owners just two days to produce electricity worth as much as communities will be paid in a year.

Energy campaigners and politicians said the findings showed that multinationals are still seeing “the vast majority of financial benefit from our renewables” while “fuel poverty soars in sight of some of the most profitable wind farms in the world”.

More Scots are due to be pushed into fuel poverty by the UK Government’s decision to increase the energy price cap from April.

Some of the country’s most energy rich areas have particularly high rates of fuel poverty. The Highlands, Dumfries and Galloway, and the Borders – all of which are in the top five for installed onshore wind capacity – have higher fuel poverty rates than the Scottish average.

The renewable industry told The Ferret that the £22m of “voluntary community benefit payments” was money that would not otherwise be available in “some of the country’s most remote rural areas”.

The sector pointed out that wind farms are key to tackling the climate crisis, and are reducing Scotland’s reliance on expensive natural gas, the main cause of the current energy price crisis

Our analysis used the average generating capacity of onshore wind farms in the UK – which is 26.46% – to calculate how much electricity Scottish turbines are expected to produce this year.

This total generation was then multiplied by the forward price of electricity to calculate the current market value of the energy produced by Scottish onshore turbines. The amount of money paid to communities was taken from Local Energy Scotland’s community benefit register.

Onshore wind farms often enter into power purchase agreements with suppliers which mean that most of the energy they produce will be sold ahead of time. This is known as price hedging and means that owners of the farms are protected from volatility in the electricity market.

SSE has sold 60% of its electricity for 2022-23 at a price of £49 per megawatt hour, for example.

Even if all the electricity produced by Scottish wind farms is sold at this lower price, The Ferret’s analysis found that developers would still pay just 2% to locals, and earn the annual payment to communities in a week.

Locals missing out on benefits

Developers normally pledge to pay a community benefit fund to local areas when they apply to build a new wind farm.

This money is often viewed as a form of compensation for the visual impact on local environments that wind farms have, as well as the disruption experienced by residents when wind farms are being constructed.

Community benefit payments are made voluntarily by the developers and are paid each year at a fixed rate set when the project is built. The current industry standard – established by the Scottish Government’s Good Practice Principles – is an annual payment of £5,000 per installed megawatt lasting throughout a wind farm’s lifetime.

The money is controlled by communities and used to pay for local initiatives. Projects supported by the funds include refurbishments of community halls, befriending programmes, and bursaries for further education.

But even given the positives these schemes deliver, the huge renewable generation on their doorstep is yet to help tackle the soaring rates of fuel poverty faced by ordinary Scots.

Despite being responsible for a quarter of Britain’s total renewable generation and actually exporting renewable electricity to the rest of the UK, Scotland has double the rate of fuel poverty of England and Wales.

The Scottish Government predicts that one in three Scottish households – 824,000 homes – will be living in fuel poverty by the start of April, when a rise in the energy price cap is expected to increase bills by 54 per cent.

Frazer Scott, chief executive of Energy Action Scotland which campaigns to end fuel poverty, told The Ferret that renewables companies should “consider their social responsibility”.

“We believe that far more targeted support to enable communities in proximity to new generation capacity to reduce fuel poverty has been a consistently missed opportunity over the last 20 years,” Mr Scott said.

“We support the right of communities to determine how best to benefit their communities but with fuel poverty rising we believe that they need support to help people in greatest need and where existing public funded or energy supplier programmes are unable to help.”

Community alternative?

The debate over how best to maximise Scotland’s bountiful renewable resource has ramped up since the start of 2022. There are concerns in some quarters over who is benefiting from the boom in both onshore and offshore wind power.

January’s ScotWind leasing round — which auctioned sections of Scotland’s seabed for the development of offshore wind farms — prompted some to claim that the country’s renewable capacity was being sold “on the cheap” to multinational energy companies “with questionable human rights records”.

The Ferret reported last year that a third of Scotland’s biggest wind farms are owned by companies with links to corporate tax havens.

Community ownership of wind farms has been touted as an alternative to the current system which could unlock greater economic benefits for people living near turbines.

There are already a number of developments run in this way across the country. A study last year found that community-owned projects deliver 37 times as much money to locals when compared with privately-owned alternatives.

Fraser Stewart, an energy campaigner and researcher at the University of Strathclyde, said The Ferret’s findings were “important work” and further evidence that “the vast majority of financial benefit from our renewables is still making its way into the pockets of multinationals”.

“Meanwhile, fuel poverty soars in sight of some of the most profitable wind farms in the world,” Mr Stewart said.

“With community benefit and community energy more broadly we can do so much to bring power truly back to people — especially in light of the current crisis — but only if we are willing to get our priorities straight and put those communities at the forefront of a truly just energy revolution.”

Scottish Labour MSP, Monica Lennon, pictured below, described community benefits as “a rotten system” and criticised SNP and Green ministers for “failing to keep their promise to build a publicly-owned energy company”.

“The cost of living crisis didn’t happen by accident; it’s a product of years of market failure and political neglect. We need a new system where clean energy is a public good, not an exploitative commodity,” Ms Lennon said.

“Wind farm operators in Scotland are making billions from bill payers and only giving back loose change to local communities.

“A publicly-owned energy company that supports local energy cooperatives and smaller public energy companies would help to provide a level playing field for energy pricing and investment.”

The Scottish Government pointed out that it has “no direct powers to mandate renewable energy businesses to pay community benefits or determine their arrangements”.

A spokesperson said: “That is why we produced, in partnership with industry and communities, good practice principles for community benefits from onshore renewable energy developments.

“The guidance sets out national standards on community benefits and we encourage all developers and communities to make use of it.”

Mark Richardson, a senior policy manager at trade body, Scottish Renewables, noted that renewable projects are “inherently capital intensive” and enter into long-term power purchase agreements, using hedged prices, to “secure long term financing”.

“For that reason, what a project actually receives is not necessarily linked to the daily, weekly and monthly swings of the wholesale market,” Mr Richardson said.

“More than £22m of voluntary community benefit payments are made by renewable energy projects to communities across Scotland – money which would not otherwise be available, in some of the country’s most remote rural areas.

“Communities are therefore able to plan and invest in the knowledge of secure funding alongside renewable energy developers, who often play an active role in local economies beyond simply the provision of community benefit funding.

“As we increase our clean energy generation capacity to tackle climate change Scotland’s renewable energy industry looks forward to continued engagement with communities to ensure the full package of benefits delivered by renewable energy is maximised sustainably.”