Copy of an article Neil McInroy from CLES and myself recently did for Public Finance magazine.

Councils should be leading the way with renewable energy schemes. They can reap important economic and social rewards as well as environmental benefits

A report published this week by the Association for Public Service Excellence (APSE) suggests there is still a business case for local government-led renewable energy schemes.

We are finding that many councils around the UK are pushing ahead with the renewables agenda and would urge others to do the same. Our new research provides evidence as to both the business case and broader impacts of renewables for local economies and communities.

APSE commissioned the Centre for Local Economic Strategies (Cles) to examine the issue. Our report, Powerful Impacts: Exploring the economic and social benefits of renewable energy schemes, assesses the benefits of projects in terms of: payments from Feed in Tariffs (FiTs); number of people employed; value to supply chains; training and skills development; and savings in carbon emissions.

Cles researchers found that £1 invested in local renewable energy schemes that were early to get off the ground could deliver an average £2.90 in cashable benefits. They also found that a scheme fitting solar panels to 500 homes can create 12 full-time equivalent jobs and save 650 tonnes a year in carbon emissions.

The model built in sensitivity tests for factors that are liable to fluctuations, principally FiT rates, borrowing rates, equipment costs and energy costs. While government proposals to cut FiTs for solar schemes might have dented confidence, public sector decision-makers are now recognising that lower tariffs can be offset by falls in costs of equipment that are forecast.

Researchers re-calculated the return on investment in light of the latest information on reductions to FiTs. Based on reducing the tariff from 43.3p per kWh to 21p for solar schemes, they found this falls to £1.50.

A return on investment of £1.50 is obviously a drop compared with rewards for those trailblazer projects. But £1.50 can still be a healthy return and the predicted fall in the cost of solar panels also means the initial outlay is reduced.

The report features case studies demonstrating how forward-thinking councils have not only developed renewable energy projects as a way of cutting energy bills, enhancing energy security and reducing emissions, but also used them as a catalyst to stimulate jobs, skills and supply chains locally.

It must be remembered that solar is just one element of renewables. While the authorities discussed in our report have used solar technology, we believe similar benefits can be derived from other projects such as wind, biomass, electric fleet and energy efficiency schemes.

APSE’s previous publication, The Virtuous Green Circle, set out how a ‘revolving fund’ for investment in sustainable energy can operate in local government. Cles researchers found critical success factors are to deliver schemes at minimum cost and risks to the local authority and to ‘lock in’ economic benefit – and that a direct local authority approach offers most ability to control these factors.

Our new report argues that impacts of renewable energy on local economies should be fully recognised in local decision-making and national funding mechanisms. To this end, we are pleased that the Department of Energy and Climate Change appears to have recognised the need to differentiate between schemes that provide a community benefit and those driven by profit and will consult to protect social landlords from an additional cut for multi-installations.

This distinction is an important one. If cuts to FiTs make commercial rent-a-roof schemes less attractive to those seeking purely to maximise profits, there is all the more reason for councils that can make a sound business case for renewables but also have broader environmental, social and economic ambitions, to take a direct approach.

Fortune has most definitely favoured the brave and pioneering authorities have seen the best return on investment in renewables schemes. We suggest that others should push ahead as a matter of urgency.

With recent announcements on feed in tariffs for solar photovoltaics creating such controversy, many could have been forgiven for believing the opportunity for local government to deliver local growth through its response to climate change had gone. From what I have seen in councils around the country, this is far from the case. However, the reduction in tarrifs does create an opportunity to reappraise what strategy authorities should pursue in a rapidly changing environment.

It could be said that there has been an over emphasis on renewables to the detriment of energy efficiency measures of late. Indeed, it has been a bit like investing in larger size clothing to tackle an expanding waistline rather than focusing on the fundamental problem of over consumption.

In the current financial climate nobody needs to apologise for building their previous strategy around pursuing feed in tariffs, renewable obligations certificates or the renewable heat incentive to fund an overall approach to tackling climate change. However, I predict a rebalancing of strategy brought about by a shifting Government emphasis towards energy efficiency measures signalled by Green Deal. Significant opportunities exist for local authorities in this area and, as with the feed in tarrifs, councils that move first will get the most benefit, while those that dawdle may fall victim to funds running out further down the line.

One authority that has been at the forefront of strategy development on environmental sustainability over the past decade is Nottingham City Council and there will be very few in local government who are not familiar with the Nottingham Declaration. An ambitious plan has been developed aimed at providing 20% of the city’s energy through renewable and low carbon sources by 2020; the rate is 11.5% already.

I was therefore interested to hear the authority’s plans for Green Deal. It is looking to become a Green Deal provider and targeting an £80m investment with potential benefit for 12,900 properties across the city. This should generate £13m of annual savings with a payback period of 20 years.

Combine this with recent investment in solar and the 8,000 jobs that are predicted from the imminent expansion of the city’s tram system and you can see very quickly how an economic growth strategy built around energy efficiency and the development of renewable energy schemes adds up.

APSE's view is that at a time when local government is once again being looked at as a vehicle for creating local economic growth it would be surprising if the opportunities that the green economy creates were not near the top of the list for politicians and strategists alike.

APSE’s first strategic forum of the New Year took place last night on the theme of energy efficiency in asset management. Guest speaker was David Kilduff, Head of the Commercial Group at Walker Morris Solicitors, who gave an overview of the issues facing local government in this area.

These events are used as an opportunity to develop policy and share knowledge.

David spoke about the opportunity to examine the corporate assets of the council to identify environmental and actual financial savings through better utilisation of property, procurement and behavioural change. Energy price inflation and energy security are also significant headaches for local authorities.

Prior to Christmas Local Government Minister Eric Pickles touched on the potential savings from better management of local government’s £250B property portfolio, suggesting that £7B savings could be achieved from reduced property use and £8B from enhanced productivity through better space utilisation.

David identified that you need political leadership with a vision for the area, you need sound advice in developing your strategy, a business plan of what you aim to achieve and the implementation skills to deliver. You also need to audit what natural resources and assets you have in your locality. In a time of austerity it’s an opportunity to make an economic case for growth not just an environmental case for change.

A wide ranging discussion took place around using pensions funds to invest in the green agenda, whether recent announcements on feed in tariffs represented a shift in government policy from renewables to energy efficiency, whether it was practical to take a cross public sector approach in this area, lack of public awareness of green deal and how you go about rebalancing property portfolios when your estate is heavily occupied at present.

The meeting closed with agreement that as legislation bites and belts tighten this will become an area of ever increasing importance for local government.

Although many Armageddon prophecies have been written about the coalition Government’s proposed cut to Feed in Tariffs for solar PV and its impact on the wider renewables agenda, I have to say that I don’t quite buy this vision of the future.

Whilst I am as disappointed as everyone else at the proposed reduction from 43p to 21p from early December, I recognise that the budget of £880m has been used up as commercial organisations cashed in on a financial windfall created by FiT’s, coupled with the dramatic falls in the price of solar panels. Government only ever intended that participants would make a return of 5% on a scheme funded by the general public; being honest many schemes were likely to yield a greater dividend than this.

Obviously, a number of local authorities and housing associations are partially through the delivery of schemes and it is unfortunate to say the least that the review has been brought forward from 31 March to now. APSE will be writing to Greg Barker calling for an exemption from the early reduction in tariff's for local authorities who have acted in good faith, based on Governments stated intention and entered into contractual arrangements aimed at delivering large volume schemes by 31 March. After all it is the public purse which will suffer if contracts need to be terminated.

On a wider renewables point I believe that there will be a pause for breath and then authorities will continue with their renewables programmes at pace. Solar will continue to have a place amongst wind, biomass and others; it will probably just not be as prominent as it was in the past. 

When APSE launched its research publication ‘The virtuous green circle: creating a revolving fund for local authority solar energy’, in Birmingham recently, I was impressed by the number of authorities present who were making progress with delivering projects in this area of renewable energy.

Many have woken up to the financial opportunity renewables create in a time of financial famine in local government, whilst also being aware of the policy necessity to reduce carbon usage by becoming more energy efficient.

One concern I do have however, is that this seems to be occurring on an ad-hoc basis rather than being part of a wider well thought through strategic response to climate change. Our research seeks to address this by outlining an approach that makes the investment in renewables self financing in the long term and which ensures that early stage projects are part of a wider programme that maximises the economic and environmental wellbeing for local communities.

Whilst many may have the aspiration, not everyone will achieve the outcome of being the greenest authority in the UK, although that shouldn’t stop the pursuit of that ambition. If Council’s are serious with their attempt then they need to have a coherent strategy that outlines their approach to renewables in the short, medium and long terms. The added incentive is that this can help alleviate service cuts and create new or alternative employment.

As a result of the generous financial incentives offered by Government, many have focused on short term initiatives around solar PV, as it doesn’t need planning permission, can be erected fairly quickly and starts generating a return almost immediately. This can then be used to fund further phases of the strategy such as wind turbines, which are more mid-term concepts, as they do create planning issues. Longer term projects such as District Heating Networks can be identified and worked into the corporate and asset management strategies of the Council.

Whilst I have not mentioned electric fleet, biomass or the renewable heat incentive all of these can be incorporated within such a strategy. Local authorities need to look at what natural resources and physical assets they have at their disposal and then decide how best they can use these to create economic benefit for their area over an extended period of time.

It’s not very often these days that local government gets the opportunity to be virtuous about something whilst making money from it, let’s make the most of it.

Launch of APSE's new research publication 'the virtuous green circle: creating a revolving fund for local authority solar energy', at Birmingham City Football Club. The report demonstrates a business case as to how you can undertake renewables projects in local government on a self financing basis.

In opening the conference my role was to place this in the context of the financial cuts facing local government at present. My emphasis is that for local government this is the one bright shining light at the end of a long dark tunnel of cuts.

David Owen an expert on Solar Photovoltaic energy followed me along with Stephen Cirell who is the author of the APSE report, Steve pursued a line that any authority who are not looking at this at present are missing out as it is the only game in town with in excess of a 17% return on investment. He added that he believed in this so strongly that he had a 4kw system fitted on his own house the day before.

Neil Saunders from Swindon Commercial Services gave a first class insight into how you develop a financial model for this type of project. In the afternoon Tim German of Cornwall Council spoke about the programme of Solar PV that they are pursuing on non domestic properties and Jonathan Edwards presented on the scheme Wrexham BC are rolling out on their council housing.

The debate flowed with great enthusiasm all day with a straw poll identifying that around 80% of the audience were already engaged in developing Solar PV programmes. The message is definitely getting through on this, now all we need to do is to get the Government not to tinker with the feed in tariffs. 

Got this article published on the Guardian's website today on the back of the debate I took part in last week.

With latest ONS figures showing more than 132,000 jobs were lost from the public sector last year and councils grappling with unprecedented budget cuts, green issues are in danger of slipping down the priority list. But in my view, it would be an economic error for local authorities to take their eyes off the environmental ball now.

The Stern report made it clear that environmental and economic sustainability go hand in hand. And, at a time of cuts in jobs and services, the expanding market for low emissions goods and services, predicted to swell to £4 trillion worldwide by 2015, presents a rare opportunity for councils to set a positive agenda.

In its bid to meet targets to cut greenhouse gas emissions, the government is offering financial incentives of up to £400m for generation of renewable energy. This energy can be sold to the National Grid as well as being used to cut councils' own fuel bills.

Given the intense pressure on resources, local authorities will be understandably reluctant to undertake capital investment. But our research shows how renewable energy not only pays for itself but can create a 'revolving fund' to reinvest in further energy saving measures – meaning a virtuous financial circle is set in motion.

The model we have developed uses solar photovoltaic (PV) panels as an example, but it could be applied to any other form of renewable energy. Local authorities have everything they need to develop PV schemes: buildings to convert, staff to undertake the work and the capacity to borrow money at low interest rates through prudential borrowing.

A number of valuable lessons have emerged from our study.

The first is that our number-crunching proves investment to save does pay. Creating a revolving fund to pay for substantial works may involve borrowing, but this expenditure has a guaranteed income stream, so it is ultimately self-funding.

Secondly, this is an opportunity to put the business case for the green agenda within the council and to local residents. In many ways, the local authority's own benefits – free energy, cost savings and income generation – can be taken as a given. It is the wider benefits that will make such a scheme more attractive. These include community leadership, carbon reduction, security of energy supply in an insecure market and, importantly, economic development.

By far the most important lesson we found is that doing it yourself is the most financially rewarding route. The DIY local government green energy model set out in our report means in-house staff can be recruited and redeployed, local supply chains stimulated and skills developed to benefit local economies far into the future.

With misery pervading local government, councils and communities need the positive impact a well-run green scheme can bring. That impact is economic as well as environmental.

Paul O'Brien is chief executive of Association for Public Service Excellence, APSE

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