Renewables Obligation (Scotland) Order 2009 - inflation indexation changes: island communities impact assessment

Assessment

Location of Infrastructure

Our assessment found that renewable energy projects are widely distributed across Scotland, including both island and mainland locations. We note that this should reduce the likelihood of any impacts resulting from this policy change being felt disproportionately by island communities.

Fuel Poverty

Our research also found Scottish island residents are generally more likely to face fuel poverty than the average Scottish resident. Research from both Shetland Island Council^[3] and Highlands and Islands Enterprise^[4] found energy bills to be higher for Highland and Island communities compared to the rest of Scotland, and the rest of the UK. However, given that this policy change may only result in a very minor decrease in consumer bills, it is unlikely island communities will be uniquely impacted through energy bill savings.

Community Energy

Through the consultation many, particularly community-energy respondents, raised concern around the potential reduction in revenue uplifts for community projects, which could shrink the funds available for local consumer support programmes such as for schools and help for fuel poverty. Without data on ownership structures it is challenging to quantify how many community energy projects will be affected by this amendment. In total 5 community projects were accounted for in the 247 consultation responses. The Scottish Government remains committed to working with partners to continue to grow the community energy sector and will continue to support communities through our Community and Renewable Energy Scheme (CARES) and our Good Practice Principles.

Locational Factors

When considering whether the location of island communities could generate unique impacts, we posed two questions to policy leads and Local Energy Scotland:

• Whether renewable energy plays a more significant role in the local energy systems in Scottish island communities compared to other communities
• Whether the ROS subsidy is more essential to the survival of renewable developments in Scottish island communities compared to other communities

Colleagues noted that there is a lack of evidence in this area making it difficult to quantify potential impacts. However, Local Energy Scotland noted that:

• Operation and maintenance costs are higher in Island communities making the transition from ROCs to operating subsidy free more difficult.
• It’s difficult to get any new generation in the Islands with the grid restrictions being capped to 50kW.
• Costs are often higher for island projects at construction stage, resulting in higher finance costs.

Given that this policy change is not proposing to remove subsidies or target support for new generation officials consider that it is likely only the last point regarding higher CAPEX costs could represent a unique challenge for island communities when this policy change is implemented.

Additional Support

However, our assessment also determined that the existing policy framework may provide mitigations against any potential impact by providing additional support to islands as they decarbonise. For example, the Carbon Neutral Islands initiative aims to support six islands with tailored support to become carbon neutral by 2040. This initiative is supported by the Carbon Neutral Islands Financing Roadmap which identifies 50 active decarbonisation projects across the islands (including renewable energy projects), outlines funding pathways and provides a strategic guide for investors to coordinate funding efforts.

A key element of this plan is to ensure that all Scottish islands will benefit through the good practices developed by the core project islands. To do this, the Scottish Government is working closely with Community Energy Scotland to support a wider network of Scotland’s islands to undertake work to decarbonise including developing climate change action plans, producing carbon audits and developing projects for capital funding.

We also consider programmes^[5] such as the ‘Area Based Scheme’ and ‘Home Energy Scotland: Grant and Loan Scheme’ specifically target fuel poor and rural areas respectively which may benefit island communities.

These policies all embed additional support for renewable energy and decarbonisation for island communities alongside mainland areas.