More profits must go to local communities from renewable energy projects, says report

Martin Shipton

The Welsh Government must find a way to retain a greater share of the profits generated from commercial renewable energy projects for the public good, according to the Institute of Welsh Affairs think tank.

A new report from the IWA says the shift to energy sources like wind, hydro and solar presents an opportunity to retain income and build resilient communities. Currently, however, too much of this wealth leaks out of Wales.

The report, Sharing Power, Spreading Wealth suggests that setting up a Wales Wealth Fund – an approach used for decades by countries like Norway – could be the first step towards making sure wealth generated in Wales flows back into Welsh communities.

Former coalfield communities in particular have suffered from the extraction of Wales’ resources, and seen little to no long-term positive impacts. This has contributed to sustained economic stagnation after the decline of mining and large-scale de-industrialisation.

Long-term benefits

The report says: “We must avoid repeating past mistakes. Across the whole of Wales, communities that host renewable energy projects must not only retain income from commercial developments but play a meaningful part in owning local renewable energy projects to ensure long-term benefits are retained.”

Other points made in the report include:

* 54% of wind farm proposals and 44% of solar farms at various stages of development are located within the heart of the South Wales Valleys, which remains one of the most deprived areas in the UK (Source: The Coalfields Regeneration Trust, Wales).

* Economic benefits from renewable energy projects flow out of Wales’ communities and into the commercial sector, and often to other nations, due to a lack of Welsh Government policy guidance.

* Lack of policy guidance has led to an inconsistent and uneven playing field across Community Benefits Funds (CBF) that limits the long term economic benefit of renewables developments for host communities in Wales.

* The Welsh Government must set the terms of exchange with the commercial renewable energy sector and look to new approaches to retain a greater share of economic benefit within communities across Wales and secure a socially just transition.

* The Welsh Government should establish a sovereign wealth fund for Wales, to capture at least 15% of net revenues made from future large scale onshore and offshore wind projects with an installed capacity over 50 MW in Wales.

* Other recommendations include policy guidance to reform and mandate CBF and compelling all new commercial renewable projects above 5MW to have a minimum level of 15% of community and local ownership by 2028.

Onshore wind developments

In a section discussing CBF from onshore wind developments, the report states: “Our survey data results found that all developers reported to aim to provide £5,000 per MW across their onshore wind projects going forward. One developer, Bute Energy, stated they aim to give £7,500 across their planned projects in Wales, above the stated guidance rate.

“Bute are yet to complete development of onshore wind projects in Wales with a number of projects in planning, therefore, they are yet to provide any CBFs to local communities. However, they stated that they believe £7,500 per MW to be the right amount to offer to local communities where they operate. “While all developers noted that they aim to give £5,ooo per MW, in some cases developers have previously provided higher CBF rates.

“Our research also uncovered that among leading renewable energy developers, the provision of CBFs has, to a degree, become competitive with developers matching CBF rates which may explain how such voluntary funds have at times increased above the guidance rate of £5,000 per MW.

“However, we also found via our use of FOI requests to individual local authorities that some developers were still providing CBFs at rates below £5,000 per MW. In 2022 the Isle of Anglesey Council approved a planning application to extend the lifetime of the onshore Llyn Alaw wind farm for a further 10 years. The CBF was originally set at £2,062 per MW in the late 1990s. The extension of the wind farm was granted and the developer increased the CBF rate to £3000 per MW (index linked) in 2022. While the rate increased, the new CBF rate was far below the industry wide guidance of £5,000 set in 2013.

“Therefore, while gradually CBF rates have increased, the voluntary nature of provision means that levels of CBF can differ between developers, resulting in an unequal provision across communities in Wales. Our research has found a number of examples where CBF rates of £5,000 per MW or above have been ensured on projects in Wales but also examples where rates can fall below this amount.

“Where CBF rates in onshore wind projects do exceed the guidance rate of £5,000 per MW we aimed to explore reasons as to why this has occurred. Firstly, the role of Natural Resources Wales (NRW) as a landowner has shown the ability to obtain greater levels of CBF on projects developed on the Welsh Government’s Woodland Estate. For example, RWE’s Clocaenog wind farm operates on the Welsh Government’s Woodland Estate, managed by NRW and provides a CBF of approximately £8,000 per MW, amounting to over £19m in community funding over the lifetime of the project. As the landowner, NRW negotiated with RWE Renewables UK (RWE) to provide a higher CBF rate, showing the role of landowners, particularly NRW in negotiating higher CBF rates for the local community.

“Our research also uncovered the role of local authorities in retaining greater levels of CBF. Local authorities can act as agents on behalf of the community, negotiating with developers to drive expectations regarding the level of payment and can play a role in collecting and distributing CBF payments.

“Furthermore, through establishing their own non-statutory guidance in relation to CBF provision for renewable energy projects within their jurisdiction local authorities can influence CBF contributions. For example, in 2011 the Highland Council in Scotland adopted a strong policy position that stated CBF payments should provide at least £5,000 per MW index linked. Soon after this figure was adopted as a norm, across the UK, by industry as well as national and local government In Wales, a number of local authorities have established their own CBF guidance, including the Isle of Anglesey County Council. They established a Community Benefit Contributions Strategy in 2021 which ‘aims to maximise local benefits to support the long-term sustainability, quality of life and wellbeing of the Island and its communities.

“Furthermore, the application of Section 106 (S106) Agreements can also allow local authorities to negotiate and secure greater levels of CBF from commercial developers. A S106 is a legally binding private contract between a developer and a local planning authority that operates alongside a statutory planning permission. Such agreements require developers to carry out specified planning obligations when implementing planning permissions and are the result of negotiations on these matters between the parties.

“An S106 agreement may be entered into to secure a contribution from a developer to compensate for any loss or damage caused by a development, or to mitigate a development’s wider impact. CBFs have been secured via a S106 to useful effect. While CBF rates have gradually increased over time, the power to shape the form and volume of community benefit provisions lies largely with the developer.”

Securing greater levels of CBF for local communities must become a priority aim, says the report.