West Gate Community Wind - submission to medium-scale solar discussion paper
Submission from:
Gavin Mountjoy
Chairperson
Westgate Community Wind
Medium-Scale Solar Working Group
October 2010
The material contained in this publication has been developed by the Medium-Scale Solar Working Group. The views and opinions expressed in the materials do not necessarily reflect the views of or have the endorsement of all members of the Working Group, nor indicate the commitment of all members to a particular course of action. Nor do the views and opinions expressed in the materials necessarily reflect those of the State of Victoria or the Minister for Energy and Resources. The State of Victoria and the Medium-Scale Solar Working Group do not guarantee that this publication is without flaw of any kind or is wholly appropriate for your particular purposes and therefore disclaims all liability for any error, loss or other consequence which may arise from you relying on any information in this publication.
Section 4: Definition of Medium-Scale Solar
QU1: It is appropriate to define medium-scale solar as falling between 100kW and 5MW?
The (100kw) lower end of the medium scale is way too large. As the Victorian Standard Feed-in Tariff (SFiT) is not adequately supporting significant solar installations (probably due to the lack of generated income) it is recommended that a 5kW – 5MW definition be used.
QU2: Do you agree with such a definition and if not, why not?
As above, a broader range from 5kw – 5 MW is better definition. It will be important to develop structures, mechanisms or policies which just don’t suit the large scale projects.
Section 5: Identification of Potential Barriers to Uptake of Medium-Scale Solar
QU3: What are the immediate financial short-term barriers to investing in the medium-scale solar sector and how do these differ from investment in small or large-sale solar?
VLSSFiT is providing appropriate financial incentives for large scale solar, whilst PFit provides similar financial drivers for small scale solar. There is a real gap and need for a feed in tariff that address the 5 kW – 5 MW range, particularly at the smaller scale end.
QU4: What are longer-term financial barriers to investing in the medium-scale solar sector and how do these differ from investment in small or large-scale solar?
Dramatic changes to policy and incentive programs destroy emerging markets. The abrupt Federal Government changes to ‘rebates’ a year ago and the recent NSW decision to reduce the (perhaps overly generous) Gross FiT have both caused havoc. Households, community group and small business investors need certainty, transparency in policy direction and fair financial incentives.
Deutsche Bank have addressed a number of these issues in a paper ‘Paying for Renewable Energy: TLC at the Right Price — Achieving Scale through Efficient Policy Design’ (available at http://www.dbcca.com/dbcca/EN/investment-research/investment_research_2144.jsp ).
Deutsche Bank suggests in order to stimulate sustained investment in renewable energy that policy frameworks must deliver to investors:
- transparency - how easy is it to navigate through the policy structure and understand and execute?
- longevity - does the policy match the investment horizon and create a stable environment for public policy support?
- certainty - does the policy deliver measurable revenues to support a reasonable rate of return?
QU5: Have all the relevant barriers to uptake of medium-scale solar been identified in this Discussion Paper, and if not, what are they?
The issue of metering and the way energy producers are able to sell their power is a critical issue. The current metering situation does not encourage local generation attached to a high energy using facility e.g. on a roof top of a factory. The solar producer will only be paid a feed in tariff on the net amount produced. This does not encourage partnerships. Medium scale projects are likely to be better projects if they partner with business and community.
Renewable energy producers that offset demand in the present market context are severely penalised financially. Consequently, policy change is required either for a Gross Feed in Tariff or a mechanism that provides a better financial return than just ‘offsetting’ consumption of electricity at conventional market rates.
A new market pricing can and should take into account the cost of peak electricity management and the cost of building new transmission infrastructure to cater for an ever increasing peak demand. Local medium scale renewable has significant capacity to reduce peak demand and reduce the demand for new infrastructure. As a consequence, a feed in tariff for community owned medium scale should reflect the potential of these deferred costs.
Whilst we have had no direct experience as yet, we aware that the Network Distributors are not always very supportive of grid connected power because of the challenges that creates for them in managing the network. Clear policy decisions need to be made to encourage and ensure that distributors do not place unnecessary barriers for grid-connected systems for renewable (and gas fired cogeneration) systems.
It appears as though the Network Distributors seem to be convinced that a centralised distribution system is the only supply system that should be encouraged. Consequently at times it appears that a high burden of the costs of upgrades and grid protection are placed on any new distributed energy system. This seems to be in contradiction of goals of reducing peak energy demand.
We support others who have recommended
- regulation to allow sale of energy between the generator and the user inside the meter, or separation generation and consumption metering
- a formal system requiring retailers to make payments (not just credits) to the asset owner when generation exceeds power use on site.
- simple, standardised off-take, metering and payment arrangements for sub 5 MW generators (regardless of technology).
- Policy should be designed to differentiate systems that generate power into the grid; and systems that offset on-site power demand.
QU6: Can these barriers be differentiated by market segment (for example, are business entities likely to encounter different barriers to government organisations or community groups?)
As a community group that is in the process of establishing a couple of community owned wind turbines (adjacent to the Westgate Bridge in Yarraville and possibly Port Melbourne), we know that there are barriers for community groups that are not necessarily an issue for commercial project operators.
As others have suggested, we recommend that there be recognition given to the three different investor types:
- utility generators — very concerned with economics and returns
- commercial customers — may build solar farms to offset part of their own energy demand in order to meet marketing objectives. However, few medium-scale solar projects will be built if returns are lower than approximately 15%.
- shared-owner generators — our knowledge and personal experience with community energy projects indicates that individuals are prepared to invest together with their community at rates of return in the 8% – 12% range. Community representative are able to ‘cope’ with lower rates of return than commercial ventures. (This will of course result in faster development and uptake of medium scale solar). Considerable effort is required to bring together stakeholders together for community energy projects. However there are significant other benefits such as contributing to increased ‘social capital’, developing community engagement and local reinvestment of community profit. Community energy groups provide significant ‘moral support’ for clean energy.
Separate and additional community Feed in Tariff
We have recently learnt about other places such as Ontario and several other North American jurisdictions who have a ‘community bonus’ feed-in tariff. We strongly support the idea of a ‘community energy bonus’, whether this is paid as a 1c/kWh bonus (in Ontario’s case, to offsets the costs required for administration of a shared-ownership scheme) or as a contribution towards establishment costs.
A secure, long term feed in tariff is probably the better policy option. It is essential that policy and financial incentives are provided to supportive community owned energy projects – whether this be for solar, wind or geothermal etc.
QU7: What is the most significant barrier affecting your particular market segment?
Financially solar energy is not economic under current schemes like the RET and SFiT. A policy framework which ties together metering, grid connection and an adequate Feed In Tariff is needed.
In time as solar becomes cheaper and we become more efficient in installing and managing solar, solar will become viable in its own right. Transitioning steps, policy and financing mechanisms are required to develop and facilitate a mature solar industry – particularly the medium scale area, which has significant potential for community participation.
Section 6.1: Broader Policy Aims for Medium-Scale Solar
QU8: What level of uptake would be required for medium-scale solar to make a significant contribution to meeting renewable energy and greenhouse gas reduction targets and how feasible is such a level of uptake?
There has been a considerable degree of interest in our ‘community owned wind’ project in the heart of Melbourne. If incentives were provided for community generated ‘clean energy’ and the barriers removed, we would be confident that lots of households and small businesses would take up these options. We are anticipating generating the funds locally to develop to 2 x 2 MW turbines.
Given the strong and growing interest in solar we would anticipate a significant generation capacity in Victoria. A major challenge for many individuals and householders is that they are unable to participate in a PFiT scheme because they don’t own the house or have adequate roof area/space. This means solar becomes unaffordable.
If policy mechanisms were changed to actively encourage ‘community owned’ solar (and other renewable) projects to overcome the above barrier, this would immediately create a new level of community interest and investment opportunities. It is likely that 20 – 40 MW capacity could be achieved in 20 x 1 – 2 MW projects across Victoria.
QU9: What contribution is medium-scale solar likely to make to the security and reliability of supply?
Medium-scale generators can make a very significant contribution to local security of the supply system because:
- being local they will naturally be closer in proximity to demand
- the likely scale of a project will be in proportion to demand.
- community owned energy projects are naturally interested in medium scale (beyond individual domestic but not at the large scale commercial end of the market).This is effectively tapping into a new market opportunity.
QU10: How does this contribution differ from the contribution that is likely to be made by small or large-scale solar?
Small scale solar is great and important because of proximity of technology to the end user. However unfortunately it is the most expensive form of solar. One of the major benefits of household solar is that it drives and support energy efficiency behaviour at home (similar behaviour is observed with the installation of rainwater tanks and water savings). Most households have tried to reduce their energy consumption to ‘live within’ the energy they produce. This is not an insignificant benefit and may even be as significant as the generation capacity.
Large scale solar will be attracted to areas with the most solar gains, but not necessarily the areas of greatest demand, so will require an additional infrastructure to distribute electricity – adding to the expense.
Medium scale, due to proximity and scale is likely to find a good match of demand and at a reasonable price scale. Community ownership adds another layer of community benefit and is likely to further develop and strengthen local communities.
A community owned and connected medium scale energy project, would still encapsulate the benefits of ‘inducing’ energy efficiency behaviour that comes with small scale solar. Appropriate metering and visual displays would be required but this component should not be dismissed as insignificant.
QU11: What are the opportunities for establishing local manufacture and production of solar technologies? To what extent are these regionalised?
The opportunity to develop a medium-scale solar industry would lead to the developing a base of Australian expertise in solar industry. Over time with the emergence of hundreds of medium scale projects this would lead to opportunities for Australian industry to confidently expand into large scale solar projects.
Considerable employment will be created in whatever form this takes.
QU12: What are the benefits of increased community engagement in this space over and above financial benefits? To what extent can these be quantified or do they remain largely intangible?
The Hepburn Wind project has established the benefit of community energy including:
- Skills — the project employs three local residents and has developed significant skills in board members, active members and service providers.
- Social Cohesion — the project brings a shared purpose to many in the community. With staff employed focusing on member engagement, it is reasonable to expect this level of engagement to be sustained for many years.
- Community Funding — the project will contributing $1,000,000 to community sustainability initiatives over the first 25 years of the project.
Westgate Community Wind, which is based on a very similar model and scale, would anticipate similar community benefits. Creating clean energy for our community is our mission statement. As we engage with householders, small and medium sized businesses we build a strong support base for clean renewable energy and the transition from high carbon to low carbon energy.
Westgate Community Wind model is being built on the Bendigo Bank Community Enterprise Model, which strongly encourages local investment in local projects, with local profits being returned to local community, rather than the profit being exported overseas.
This provides confidence for residents and the business community to join together to create the new low carbon future, that our planet requires. Shared ownership medium scaled solar projects would have similar benefits.
QU13: What support models for medium-scale solar are likely to provide the greatest opportunities for community engagement?
We believe that shared-ownership models for medium-scale can create high levels of enduring community engagement at a lower cost per household than small-scale projects.
This is not just the Hepburn experience, but would appear to be validated in the work happening overseas where community tariffs have been introduced. See the following:
- Maine, USA has finalised rules for its Community-based Renewable Energy Pilot Program which includes a FiT for various technologies. The scheme is limited to 50 MW total, with individual projects capped to 10 MW
- Ontario, Canada, has implemented a 1c/kWh bonus (‘adder’) for community-owned wind projects. Interestingly, a higher bonus is paid if the project is aboriginal-owned. The adder is paid if 50% – 100% of the project is owned by Ontario residents.
- Nova Scotia, Canada, has implemented a 100 MW target (uncapped) for community-owned distributed energy projects.
QU14: Are there any further broad policy aims which should be considered?
It is very important that consideration be given to extend these policy frameworks to other renewable energy technologies such as biomass and in particular community wind facilities.
There are access and equity issues that need to be address by these frameworks. Community owned projects potentially overcome many of these barriers. People and families with low incomes, need to be given the opportunities to participate equally in low carbon energy creation.
Consideration needs to be given to cost effective and efficient incentives.
Section 6.2: Specific Drivers for Investing in Medium-Scale Solar
QU15: What are the immediate short-term financial drivers for investing in the medium-scale solar sector?
Having a financial incentive is critical – but the financial incentive must be
- clear (no hidden barriers or disincentives)
- fair(a reasonable price over time) and
- secure over the significant life of the project (not subject to the whims of government when a program becomes too popular).
QU16: What are longer-term financial drivers for investing in the medium-scale solar sector?
Local communities need assistance to understand the real constraints and costs of a highly centralised fossil energy source. When this information is provided clearly the community is willing to invest in a clean energy future, as long as there are reasonable financial returns. It takes time and effort for community groups to work with their communities to help them transition to low carbon energy – but they are willing to make this contribution.
Residents are now consistently experiencing increases in utility costs and many are realising now is the time to reduce their exposure to ever increasing electricity costs.
QU17: What other drivers exist for investment in medium-scale solar and to what extent are these differentiated by different market segments (for example business, government and community groups)?
Community based energy projects are driven by shared goals to reduce the risks of climate change, to model clean and renewable energy alternatives, to demonstrate local community based enterprise and strengthen social engagement and capital.
A strength of community based energy projects is their capacity to engage, assist and develop community interest in responding to climate change and be part of building a more secure and environmentally friendly energy future. Community owned energy projects are an emerging and becoming an important part of the energy sector. Consequently this market segment needs to be recognised, their potential captured and enhanced appropriately.
Medium scale solar will inevitably develop Victorian industry skills and expertise in developing appropriate medium scale related industries such as engineering, project management and business developers. This will also lead to innovation as the technology adapts to emerging and hopefully a maturing market that is stable.
QU18: What is the primary driver in your particular instance and why?
Westgate Community Wind aims to provide “Clean energy for our community”.
We are seeking to engage our community in creating and consuming our own low carbon energy – from local wind. This is primarily motivated by a desire to respond pro-actively to the challenge of climate change.
Another driver would be to see a more diverse and distributed energy distribution system in Victoria which would reduce the risks of centralised power failure through black outs and brown outs and the costs of managing peak demand.
We are also encouraging local people to invest in their own local energy supplier – to help create their own wealth and strengthen local communities.
Section 6.3: Potential for Medium-Scale Solar in Victoria
QU19: To what extent is increased uptake of medium-scale solar a regionalised opportunity?
Medium scaled solar is by its nature more suited to regional opportunities because it can respond to local energy demand and make the local connections.
Large scaled solar are not driven by ‘community factors’, which means that medium scale solar and wind are inevitably more regional in nature. This can work well for the community, the energy network and community investors.
In particular community owned medium scale will operate comfortably with lower rates of return and therefore this will provide greater opportunity in a more regional and distributed network, that otherwise would be solely driven by higher rates of return for large scale projects.
QU20: If a support mechanism is deemed appropriate, to what extent should this be differentiated in relation to the type of grid connection?
Support mechanisms should support a variety of projects – including a range of ‘ownership’ models, in particular community owned, a range of sizes of scales from small to the larger and all a range of locations. A diverse program which encourages innovation, engagement and demand management would be great.
Support mechanisms should equally and fairly support generation regardless of whether energy is consumed onsite or sent to the grid. This represents a major barrier at the moment. Retailers/purchasers should be required to provide cash not credits for renewable energy generated.
QU21: To what extent is the need to import system components likely to impact on a project’s capital costs (for example through foreign exchange rates and increased distribution costs)?
QU22: Is labour density likely to increase or decrease when investing in larger installations? In other words, is the relationship between kilowatts installed and number of jobs created a constant, or are medium-scale installations likely to require more or less employees than smaller-scale installations?
Without being an expert, it would appear reasonable to assume that medium scale project will be more labour efficient than small scale domestic solar market. Building on these efficiencies can lead to further local innovation and the development of medium scale industry throughout Australia and potentially overseas.
QU23: How are safety and OH&S concerns best addressed when implementing medium-scale solar?
QU24: Is there a need to modify or extend current accreditation procedures in relation to medium-scale solar?
QU25: What opportunities are available for increased training in the solar sector?
Section 7.1: Potential Solutions to Addressing Current Barriers to Medium-Scale Solar
QU26: Given the barriers you have already identified as being the most significant in your particular instance, what would be the most appropriate solution and why?
Policy Stability
As noted previously abrupt changes to policy and incentives destroy the emerging renewable sectors. Policy needs to provide certainty, clarity and transparency for community and investors.
Additional considerable should be given for community owned energy projects which take longer to develop but have multiple other community and energy benefits. Mechanisms to assist community groups who don’t always have the capital up front should be considered.
Project Return Targets
An effective and efficient FiT should be based around a target rate of return. We suggest that a range of 8 – 12% (after taking into account REC sales) seems a reasonable starting point.
Feed-in-Tariffs as a Relocatable Right
Many Victorian families and residents are excluded from the PFiT because access to the PFiT is dependent on the panels being mounted on their roofs. This is highly inequitable and disempowering for a significant portion of Victorian residents.
Access to Feed-in Tariffs should seen as a relocatable right. We strongly support the idea that households could purchase a shareholding in a shared-ownership medium-scale solar park that might be located in a sunnier part of the state.
Community owned medium scale solar (and other renewable) are more capital efficient than many individual roof top panels and allow more people to participate in a solution to climate change.
There is considerable good will in the community to respond creatively to the challenge of climate change. Such community owned renewable energy projects create opportunities and space for the community to respond on a scale and manner that is appropriate for the average family/householder.
