Onshore renewable energy - refreshing the good practice principles for community benefits: working paper

Section 2 – Fund Levels

Summary

This section sets out the proposed fund level recommendations for the Good Practice Principles, and our approach to setting these recommended levels.

• We propose that the fund level recommendations should continue to be set out in £ per MW of capacity. We are proposing a balanced approach that reflects:
  • the differences in the ability of different technologies to pay community benefit;
  • the effects of inflation on the value of community benefit funds; and
  • market challenges for developers over recent years.
• The proposed fund levels are:
  • An uprated level of £6,000 per MW per year for onshore wind;
  • A new specific recommended range of £700-£1000 per MW per year for solar developments; and
  • A new recommended level of at least £150 per MW per year for battery energy storage developments.

Key Terms:

Fund level: The value of a community benefit fund – expressed in our recommendations in £ per MW per year. For example, a 50 MW wind farm offering £6,000 per MW would pay £300,000 every year to the local community.

Megawatt (MW): A unit of power generation (or storage) capacity which electricity developments are measured in. A megawatt is equal to 1 million Watts.^[3]

Index-linked: A community benefit fund level being linked to the rate of inflation and increased accordingly every year, so that the fund retains its value. For example, a £5,000 per MW community benefit fund in 2014, that has increased with inflation since then, could now be worth approximately £6,900.

Load factor: How much electricity is generated as a percentage of the peak generating capacity – therefore affecting a development's revenue per-MW.

Inflation: A general increase in prices, and therefore decrease in the purchasing value of money.

Irradiance: The intensity of sunlight, and therefore energy available for solar panels to generate electricity.

Purpose

The recommended community benefit fund value is a central aspect of the Good Practice Principles which has encouraged significant investment from renewables projects into Scotland’s communities. Looking ahead, as Scotland continues to make progress towards fulfilling its renewable energy potential, this refresh is an opportunity to build on this progress.

The current Good Practice Principles recommend community benefits to be provided at the value of £5,000 per installed megawatt (MW) per year, index-linked for the operational lifetime of the project. The Scottish Government’s aim is for communities to continue to experience meaningful benefits from renewables and storage developments, in a way that aligns with their specific local needs and priorities.

We recognise the significant work undertaken to date by developers and communities to achieve these goals. The £30 million (approximately) offered to communities in 2025 alone^[4], and the valuable local projects this money supports, reflect the dedication of community representatives who are often using their spare time, as well as the voluntary commitment of renewables developers in the context of increased market challenges. As a result of these efforts, the Scottish Government’s voluntary Good Practice Principles have become well-established practice across much of our growing renewables sector.

For example, we note that many developers have been providing voluntary payments starting at the £5,000 per MW recommended level, index-linked to inflation, for many years – meaning a significant number of onshore wind developments are already offering annual community benefits payments that are now substantially above the recommended initial level. There are also several developments which have offered community benefits well above the £5,000 per MW benchmark from their outset.

The final Good Practice Principles will be designed to enable communities to continue benefitting in this way, whilst reflecting the fact that the level of voluntary community benefits payment may need to differ across development types. We must also consider Scotland’s voluntary recommended fund level in the context of any UK Government scheme to mandate community benefits payments at a set level, and the need for developments to remain competitive in a GB-wide market.

It is also important to note here that the provision of community benefits, and whether a project meets the Good Practice Principles’ recommendations, is not a material consideration in the planning process and has no bearing on consenting decisions.

Approach

In the responses to the consultation, there was general support for continuing to set a clear and specific fund level recommendation. For consistency and clarity, we propose to continue the approach of setting this out as £ per MW of installed capacity per year, index-linked to inflation for the lifetime of the development, which has worked well to date.

Respondents were also clear that the success of the 2019 Good Practice Principles goes beyond the recommended fund level itself – emphasising the need to support communities to build their capacity and deliver long-term projects to help maximise the impact of funds. These views are reflected in the overall approach we are taking to the Good Practice Principles refresh, and the policies proposed in other sections of this paper.

There was also broad support for setting technology-specific fund level recommendations, rather than applying the current £5,000 per MW level across all technologies. Respondents recognised the wide variation in revenue models and ability to offer community benefits from different types of development. For example, the load factor (how much electricity is generated as a proportion of a development’s total generating capacity, affecting a project’s revenue per-MW) is far lower for solar developments than for onshore wind. We propose to adjust the fund level recommendation accordingly – taking account of other factors such as costs – to set specific, realistic expectations for onshore wind, solar power, and battery energy storage systems (BESS).

However, the consultation, and our subsequent engagement across different stakeholder groups, found that views differ on the level at which the recommendations should be set. Community groups strongly supported an uplift, citing the fact that the current level was first set over 10 years ago, with significant inflation since then, meaning the fund level is no longer as valuable in real terms for a community. We have also noted renewables developers’ concerns about the challenges projects could face in meeting an increased benchmark, as a result of rising project costs (such as grid charges and capital costs), market uncertainty, and changes in support schemes over recent years.

Given the above issues, we are proposing a balanced approach to updating the fund level recommendation in the Good Practice Principles, to reflect factors such as:

• differences across technologies in terms of their abilities to offer community benefits – indicated by available data on their load factors, revenues, and costs, as well as feedback from developers;
• current and emerging industry practice for community benefits from different types of developments – particularly for BESS, where there is less information available on potential revenues;
• the effects of inflation over recent years on the value of funds for communities;
• the changing market environment for renewables and storage developers, including increased costs; and,
• various other points raised through the consultation and recent engagement.

Further examples of our analysis are provided in an appendix at the end of this paper.

We are particularly grateful to our community benefits Onshore Review Advisory Group members – across community groups, industry representatives, and third and public sector bodies – for their extensive and detailed engagement and evidence submissions on these issues to help refine our proposals.

Policy proposals

Based on the considerations above, we propose to set technology-specific updated fund level recommendations (index-linked to inflation for the lifetime of the project) of:

• £6,000 per MW per year for onshore wind

This would set an ambition that builds on the current level of £5,000 per MW which is well-established in Scotland’s onshore wind sector. As noted above, we are taking a balanced approach to reflect both increased costs for communities and market challenges for developers. An uplift based solely on inflation would have led to a higher level, but we have mitigated this to reflect these market challenges and increased costs for developers.

• A range of £700-£1,000 per MW per year for solar

This level is intended to reflect the lower load factor (and therefore lower revenue per MW) of solar developments compared to onshore wind, as well as challenges and costs particular to solar developments, such as higher land costs per MW and lower solar irradiance in parts of Scotland than in England.

• £150 per MW per year for battery energy storage systems (BESS)

There is limited data available on the effects of the above factors on BESS developments and their revenues. However, our analysis of current and forthcoming BESS projects found that emerging practice in the sector centres around a level of approximately £100 per MW, with some developments offering significantly higher than this. In the Good Practice Principles, the fund level recommendation above would therefore make clear the need for flexibility. For example, since the complex ‘stacked’ revenues of BESS projects can be more difficult to predict than generation projects, some projects may opt for a fixed fund level. Others may be able to go significantly beyond this indicative benchmark, and we are aware of examples of Scottish projects already doing so.

As noted in the previous section, the refreshed Good Practice Principles will also make clear that the recommendation to provide annual community benefit funds also applies to hydropower generation, pumped hydro storage (PHS), and commercial-scale bioenergy, whilst not setting a specific fund level recommendation for each. This guidance would set a clear expectation that such developments should engage with communities on substantial community benefits that reflect the priorities of the community and the particular circumstances of each development.

The proposed fund level recommendations are intended to build on Scotland’s significant progress over the past decade in the voluntary provision of community benefits. This reflects the Scottish Government’s aim to support communities to continue to gain clear and tangible benefits throughout the renewables transition.

However, we also acknowledge the need for flexibility, reflecting the changing market circumstances and the specific commercial profiles across generation types. As with the 2019 iteration, the refreshed Principles will continue to make clear that the level or exact model of benefit will be agreed to reflect the circumstances of each development and local community. These recommendations are also intended as levels for developers to work towards, recognising that there may be cases where developments or communities require a more flexible approach.

Crucially, the local community must be involved in agreeing a community benefit arrangement that fits its long term needs and priorities, with decisions based on extensive engagement between the developer and the community. The refreshed Principles will continue to make clear that the fund level recommendation is guidance to inform these discussions, and that there can be good examples of negotiated agreements that might take a different approach to the specific fund level. For example, the current Principles already recognise that community benefits are not limited to annual payments in a fund, and that alternative arrangements can also address long-term community needs, such as by providing a lasting legacy through the direct funding of projects identified by the community.

Our proposals reflect the strong calls from community groups to increase the recommended level, and we believe that Scotland is well placed to have an increased voluntary level. However, the refreshed Principles would also make clear that a development’s commercial circumstances can be taken into account and that developers can engage with communities on those factors to agree a suitable benefit arrangement.

We’d like to know:

• Would the technology-specific funding recommendations proposed in this section build on progress to date and help communities gain meaningful benefits from developments?
• Would these recommendations be achievable for renewables developments of different types, whilst leaving room for flexibility?