2020 - what a year!
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 email@example.com
Where next for hydro?
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
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.