NEWS

2020 - what a year!

January 2021

Safe to say that nobody is going to forget 2020. But in a year of very few positives, the Scottish hydro sector enjoyed one of its better years for generation in recent times. Data gathered by the Hunter Hydro Performance Monitor reveals that the average load factor for run of river hydro schemes was 39% against a long term average in the region of 35%.

Most people’s abiding weather memory of 2020 is likely to be the prolonged dry and sunny weather that coincided with the first Covid lockdown from late March through to May. This was certainly reflected in the very low output of hydro schemes in the Spring, however when the rain did return it rarely relented.

The Hunter Hydro Performance Monitor was launched at the beginning of 2017. In the first 35 months of gathering data, there were a total of 3 months that produced an average load factor in excess of 50% for run of river schemes. In the past 13 months, there have been a further 7 months where the average load factor for run of river has exceeded 50%.

Please check out the Sector Performance section of the website for further data on how hydro schemes in Scotland have performed this year and since 2017. And if you would like to participate in the monthly performance monitor, drop me an email at kenny@hunterhydro.co.uk

Where next for hydro?

January 2021

March 2021 was due to be the end of the Feed in Tariff era for hydro (September 2021 for community schemes). In recognition of the impact on Covid on tight construction timelines, the UK Government through BEIS, agreed to extend the accreditation period by 12 months, meaning that those schemes that pre-accredited just ahead of the FITs closure in March 2019 now have until March 2022 to commission. But what happens after that?

Unlike offshore wind, onshore wind and solar pv, the economics of small hydro don’t quite stack up without a degree of subsidy. It might have been anticipated that wholesale electricity prices would have risen over the past decade, thereby removing the need for external support, however if anything, the reverse has been true. Throughout 2020, PPA rates fell to levels that resulted in the majority of those schemes built since 2010 resorting to the FIT Export Tariff, an event that neither Ofgem nor scheme operators would have anticipated. At the time of preparing this news update, it looks like PPA’s will exceed the FIT Export Tariff of 5.5p per kWh in 2021, but there is certainly no indication of sustained higher wholesale prices at a level that might support further scheme building.

The past decade has seen hundreds of small hydro schemes built around the UK and particularly in Scotland. This has benefitted local supply chains, ranging from ecologists and planning consultants through to civil contractors and providers of O&M support services. It has also benefitted remote communities directly and indirectly.

More recently the focus has shifted to protecting the on-going viability of schemes in the face of rising insurance premiums, a poorly thought out but potentially penal charging scheme from SEPA and of course the deeply worrying  Business Rates valuations emanating from Scottish Assessors.

One upside of the past decade has been the creation of a genuine hydro sector and the collective energy of those involved will be key in protecting the well-being of the hydro sector in the years ahead.

Business rates – still more questions than answers

January 2021

Each January, an article or presentation is written that states that this will be the year when the business rates issue will be resolved. This is not one of these articles. It seems likely that one part of the saga will reach a conclusion – namely the Old Faskally case – however in view of the fact that this case has been running since 2013, betting on it ending might be unwise. At the time of writing, the hydro sector and the assessors have provided the required cost information to the Tayside Valuation Appeals Committee. It is anticipated that there will be a hearing of some sort in early 2021, presumably by Zoom, and that should be that, although it probably won’t be.

Engagement with the Scottish Government has been hindered, understandably, by Covid, but despite some encouraging noises, there has been no indication of any desire on the part of SG to intervene and address the root cause of the problem, namely rateable values that equate to c. 24% of scheme turnover when equivalent sectors such as onshore wind and solar pv receive valuations of no more than 10% of turnover.

We were recently advised by the Scottish Government that the reliefs that we had to lobby hard for have been worth £22.9 million since 2017, with the inference being that we have received especially generous treatment. But this is equivalent to a shopkeeper giving you your change (clearly in the days before our contactless world) and expecting major gratitude from the customer.

Clearly we would much rather have the reliefs than not have them, however they do not solve the problem. And with the assessors making it very clear that they will be looking to increase hydro rateable values by somewhere approaching 50% in the next Revaluation in 2023, the need for effective intervention is set to increase.

One related issue around reliefs is the state aid limitation of €200,000 over any 3 year period. The sector has sought to question whether such state aid rules should apply to hydro business rates relief. The matter has essentially been ‘parked’ until the post-Brexit situation became clearer, however as with the wider issue of assessor valuations, the Scottish Government seems very reluctant to  come out from behind the parapet.

Business rates update

January 24, 2020

Business rates – the saga continues, Part 1

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                                                         

January 2020

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                                                                                           

January 2020

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.

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