It had been hoped that the Tretton Review would deliver a solution to the hydro business rates crisis, triggered by the 2017 Revaluation, however this has not proved to be the case. The Tretton Review concluded that there was not a compelling case to amend existing legislation and sought instead to steer the Scottish Government towards relief based solutions
While the report from the Tretton Review was disappointing from a hydro sector perspective, some encouragement was provided by a subsequent meeting with Kate Forbes, Minister for Public Finance and Digital Economy, where she indicated that she was keen to find solutions and was willing to look beyond the Tretton report. At the time of preparing this news update (late January) the intention is for further engagement to take place between the hydro sector and the Scottish Government to explore potential options.
If, as we would greatly prefer, the solution comes through changes to legislation, the challenge will be to come up with wording that will be specific enough to ensure that it is applicable to hydro schemes without creating a loophole for other sectors to exploit while not being so specific that it falls foul of State Aid rules
It is the firm and frequently stated view of the hydro sector that reliefs, while welcomed in the short-term, are not the solution to excessive rateable values for small hydro. Kate Forbes has been made well aware of this view and has seemingly accepted the argument.
Business rates – the saga continues, Part 2
While the Tretton Review was essentially a product of the 2017 Revaluation, the legal challenge arising from the previous Revaluation back in 2010 continues to drag on. The Old Faskally case, involving six schemes located in Tayside, and progressed by Alba Energy, made it to the Appeals Court in front of Lady Dorrian, Lord Doherty and Lord Malcolm in January 2019, but was subsequently referred back to the Tayside Valuation Appeals Committee to establish whether due process had been followed in reaching the conclusion that rateable values for small hydro schemes should be c. 10% of turnover.
The hydro sector, through Kenny Hunter along with Calum Innes of Galbraiths, has engaged with the Tayside Assessors to prepare an agreed Statement of Facts incorporating original cost details for each of the schemes, for submission to Tayside VAC. We believe that this information will support the original decision of the Tayside VAC, but experience gained over seven long years suggests that this will not be straightforward.
The end of Feed in Tariffs
March 31st 2019 saw the closure of the Feed in Tariff scheme to new entrants. For small hydro however, the real cut-off date was a few days earlier, as an influx of applications for pre-accreditation meant that the 50 MW cap available for Q1 was exceeded. The result was that 15 MW of consented hydro schemes, submitted to Ofgem ahead of the deadline, missed out on subsidy.
The economics of small hydro mean that it is very unlikely that any of these schemes will be built without subsidy, so as things stand, millions of pounds will have been wasted on planning applications, grid studies, scheme design and legal fees.
Yet it is likely that a meaningful proportion of the 50 MW that was pre-accredited by 31 March 2019, will not be delivered by the 2021 deadline. One major developer has already confirmed that two schemes, amounting to 4MW, will not go ahead. Other developments will be cancelled or scaled back, however there is no mechanism to replace cancelled schemes with other schemes that complied with the 31st March deadline, but ‘missed the cut’.
At a time when the Climate Emergency is now universally accepted (well almost) and the UK is hosting COP 26 later in 2020, it seems inconceivable that budgets allocated to renewable development are not going to be spent.
We are seeking to lobby BEIS on this point, proposing instead that schemes within the original 50MW should be contacted to establish if they are still going ahead. Realistically, if they have not commenced construction and ordered their turbines by June 2020, they are not going to complete by March 2021. Where a scheme confirms it will not be proceeding, the associated capacity should go back into the pot and will progressively be offered to the schemes that missed the cut. These schemes will be given until September 2021 to complete, to coincide with the commissioning cut-off date for community schemes.
The Scottish Government is supporting us in our efforts, with Energy Minister Paul Wheelhouse writing to his counterparts in Westminster. Until now, BEIS, like the rest of the UK Government, has seemingly been unable to deal with anything other than Brexit. Now that Boris has ‘done Brexit’, they will hopefully be willing to at least engage with us. Undoubtedly a longshot but you never know.
First meeting of Tretton Review Group
April 30, 2018
The first meeting of the group established by the Scottish Government to conduct a fast track review of the legislation that drives business rates for FIT scale hydro schemes, took place in Edinburgh on 18 April. The review group is chaired by David Tretton FRICS, with the other members being Professor Fiona Grant of Heriot Watt University, Alastair Kirkwood on behalf of the Scottish assessors and Kenny Hunter on behalf of the Scottish small-scale hydro sector. The first session was introductory in nature, with confirmation of the aims of the group and the proposed methodology.
The next meeting takes place on 31st May, when the group will visit two hydro schemes before meeting in Perth to consider a position paper put forward on behalf of the hydro sector which argues that all physical infrastructure should be exempted from rates, with rateable values being determined solely by the underlying rentals for land and water rights.
Future meetings will include a presentation by the Scottish assessors on the approach they take to the valuation of hydro schemes. It is envisaged that the review process will be concluded by September/October, with a series of recommendations being submitted to the Scottish Government; the intention being that any legislative changes can be made in time for the 2019/20 financial year.
Kenny Hunter launches Hunter Hydro Services
March 01, 2018
Scottish hydro professional, Kenny Hunter, has brought an exciting new business to the hydro sector. Hunter Hydro Services is a specialist Operation and Maintenance (O&M) company aiming to meet the needs of hydro scheme owners who want expert technical, commercial and administrative support to get the maximum return from their schemes.
“The majority of schemes currently have fairly loose O&M support," said Hunter, “and there is a growing need for dedicated technical and commercial management to ensure the schemes continue to perform efficiently, while optimising their profitability”.
Relief at last for hydro schemes
February 22, 2018
After the shock of the 2017 Revaluation, a limited relief scheme was introduced by the Scottish Government in 2017/18, limiting the increases experienced by schemes of up to 1MW , however this still left many schemes facing rates bills that threatened their on-going viability. Throughout 2017, a delegation representing the BHA and Alba Energy engaged with the Scottish Government, culminating in a meeting with the Finance Secretary, following which it was announced that a new relief scheme would apply from April 2018, providing 60% relief for all schemes with rateable values of up to £5m. This relief is to apply until the next revaluation, scheduled for 2022, or until there is a change in the legislation determining rateable values for hydro.
Linked to that second scenario was the simultaneous announcement by the Scottish Government that, in response to one of the specific recommendations of the 2017 Barclay Review into non-domestic rates, a ‘fast-track’ review of the Plant & Machinery Order (PMO) as it pertains to small-scale hydro should be initiated.
David Tretton to chair PMO Review
February 22, 2018
Professor David Tretton has been appointed to chair the review into the Plant & Machinery Order (PMO) as it applies to hydro. The review is scheduled to commence in March/April 2018 and it is envisaged that it should produce its recommendations late in 2018, ideally in time to be incorporated into legislation for the 2019/20 financial year.
The Tretton Review group is expected to contain three members, including representatives from the hydro sector and the Scottish Assessors along with an independent member. The hydro sector representative is to be Kenny Hunter of Hunter Hydro Services. Details of other members will be provided on this page as the names are confirmed.
Kenny Hunter receives BHA Award
November 15, 2017
At the annual Conference of the British Hydropower Association, Kenny Hunter became the first recipient of the new annual award to the individual deemed to have made the greatest contribution on behalf of the sector in that year. The award was presented to Kenny at the Conference Dinner by BHA Chair, Adrian Loening.
The winner of the corporate category for contribution to the hydro sector in 2017 was Scottish and Southern Energy for their efforts in managing grid outages.