Energy Matters Autumn 2014

Energy

matters

ISSUE 7 autumn 2014

After the vote: The way ahead for renewables Mapping Scotland in the cloud Laying down Scotland’s energy future Home-grown power Incentives: Driving technology forward

Money trees: Scotland’s forest success story www.galbraithgroup.com

CONTENTS

WELCOME

After the vote: time to move forward Welcome to the seventh issue of Energy Matters.

The votes have been counted and Scotland has said ‘no’ to independence, but renewable energy is certain to play a crucial role in the future of the nation — and we at CKD Galbraith intend to continue to strengthen our role in driving this vital industry forward.

Meanwhile, a look through this issue indicates the depth and breadth of our involvement in the energy and utility sectors — not least supporting Forestry Commission Scotland’s telecommunications assets throughout the country, advising our clients on the ever-changing world of energy and heating incentives, and negotiating a new infrastructure framework with implications for a wide range of activities.

As we see on page 6, these include carbon capture storage, thermal generation, high-voltage electricity transmission and pumped hydroelectric storage.

Government incentives remain an important determinant for the future shape of the energy industry and are subject to review and revision as policy is developed; we provide some insights in this issue but they are only one aspect among many.

Perhaps the biggest driver in our profession is technology, and as a firm we have invested significantly in this area. For example, we have developed a cloud-based geographic information system to allow the visualisation of our own information and third party data instantly on-screen, to the benefit of our clients and our practice. We see our investment in technology, across all our service sectors, as a natural extension of our role as a trusted independent adviser.

Calum Innes Partner

CKD Galbraith is Scotland’s leading

independent property consultancy. Drawing on a century of experience in land and property management, the firm is progressive and dynamic, employing more than 200 people in offices throughout Scotland.

The firm provides a full range of property consulting services across the commercial, residential, rural and energy sectors.

CKD Galbraith provides a personal service, listening to clients and delivering advice to suit their particular opportunities and circumstances.

4 The way ahead: two

experts consider the future in the wake of the referendum.

6 Scotland’s strategy for energy will curb wind power on wild land.

Update from the Lochinvar coalfield project.

8 Mapping Scotland with a powerful new tool.

10 Forestry: an

environmental and economic success story.

Since the Earth Summit in 1992, the UK government has developed a number of strategies to incentivise technologies which would have the effect of reducing carbon emissions whilst penalising others that contribute to greenhouse gas emissions.

When we set off down the road to reduce our carbon emissions, many renewable technologies were in their relative infancy and some, such as wave and tidal power, have yet to achieve true commercial scale.

Of course, using hydro power to generate electricity is long established in the UK, but government incentives in the form of the Renewable Obligation Scheme have stimulated significant growth in other technologies, chiefly onshore wind farming, and this in turn has fed through to technological advances resulting in the design and development of larger, more efficient turbines.

The introduction of the Feed in Tariff in 2010 led to a major acceleration of development for small to mid-scale schemes across a variety of technologies.

Some results were particularly surprising,

“

at the end of June, PV installations represented 86 per cent of installed capacity and 99 per cent of the total number of installations, despite the significant reduction in PV support.

12 Anaerobic

digestion: power that’s home grown.

New biomass incentive rules.

14 Farming the

wind, part 3.

such as the proliferation of solar photovoltaic (PV) installations. This resulted in an unplanned reduction in the subsidy regime, which caused a degree of uncertainty and mistrust in other sectors.

These hiccups aside, the question is whether these carrots have succeeded in helping the government in its attempt to meet its Kyoto promises.

Our associate, CKD Kennedy Macpherson, is based in London.

Follow us on Twitter: @CKDGEnergy Like us on Facebook: www.facebook.com/ckdgalbraith Join us on Linkedin: www.linkedin.com/company/ckd-galbraith

T

he Kyoto Protocol was the first agreement between nations to mandate country by country reductions in greenhouse gas emissions.

Energy Matters is produced by ­Allerton Communications, London, UK, and designed by George Gray Media & Design, St Andeux, France. © CKD Galbraith LLP.

There is no doubt that the various incentives have encouraged and accelerated technological advancement and consequently reduced deployment costs across a variety of technologies.

For example, it is claimed that the price

Page 2 | Energy Matters Autumn 2014 | www.ckdgalbraith.co.uk | Twitter: @CKDGEnergy

Carrots and sticks: both required Government incentives have had a dramatic effect on renewable energy technology. Calum Innes reports. of solar PV cells has dropped by a factor of 99 per cent in the past quarter century.

Of course, the UK has only played a very small role in this seismic reduction, but it illustrates the concept that fiscal incentivisation leads to innovation.

Despite the government cuts to FiT for solar PV in late 2011, further dramatic reductions are on the horizon.

Government statistics published in July state that the overall FiT deployment at the end of June 2014 was 2,802MW (571,207 installations).

The main technology contributing to the overall increase in the number of installations was solar PV with an increase of 24 per cent.

It is interesting to note that, at the end of June, PV installations represented 86 per cent of installed capacity and 99 per cent of the total number of installations, despite the significant reduction in PV support.

can be achieved by specifically targeting this sector.

Until 2014, this incentive was restricted to commercial installations and government statistics published in July suggest that 122MW of installed capacity have been supported, the vast majority — about 96 per cent — being biomass.

The balance of capacity is largely wind technology, representing nine per cent of total installed capacity.

The ‘stick’ effect of carbon taxation is less easy to judge in terms of how it correlates to the deployment of clean technologies.

The principle of ‘polluter pays’ has been applied, but the picture is complex. The Chancellor was recently criticised for his decision to freeze carbon taxes at 2015 levels rather than implementing steeply incremental rises to the end of the decade.

Perhaps the most interesting recent development has been the introduction of the government’s innovative Renewable Heat Incentive (RHI). It is estimated that about half of all energy is used to produce heat, so it is hoped that significant benefits

The introduction of RHI for domestic installations earlier this year will significantly expand the scope of deployment and, it is hoped, further encourage innovation and cost savings.

Calum Innes, based in Perth, is head of CKD Galbraith’s energy team. calum.innes@ckdgalbraith.co.uk Tel: 01738 456 075

www.ckdgalbraith.co.uk | Twitter: @CKDGEnergy | Energy Matters Autumn 2014 | Page 3

In the wake of the independence vote, we asked two key players in Scottish

Funding renewable energy: what now?

By Jamie Lindsay of ­Breadalbane Finance

W

hatever one’s views of the referendum result, the vote has provided us with continued certainty of income that can be received from subsidised tariffs that support the investment of renewable energy technology across Scotland and the rest of the UK. Such investments also return income by way of pay-back from excess energy supplied to the grid, in the form of the Feedin Tariff (FiT) for certain projects.

Great Britain currently operates an integrated energy market, whereby investment and maintenance costs are shared across borders and regulation is managed by a single entity (Ofgem).

With Scotland deciding to remain as part of this process the levels of tariff in the current form of FiT can be assumed to be retained for each of the renewable energy technologies.

With the possibility of Scotland gaining complete control over energy policy and related areas, understanding the implications for renewable deployment was critical in the referendum, and an area the debate failed to adequately cover.

Argument instead concentrated on alternate post-referendum visions of the future, often mired in heavily politicised claims and counter-claims. Little attention Wind turbines are being installed at a remarkable rate across Scotland.

was focused on the long-term benefits of renewable energy. This was a critical omission and might have had a fundamental impact on the overall debate if, rather than focusing so prominently on Scotland’s oil and gas reserves, we had focused more on the fiscal, sustainability and environmental benefits that renewable energy would provide over both the current and future generations.

receive without continuity of supported incentives.

The Scottish Government said an independent Scotland would have sought to establish a continued participation in the integrated market, but would require the establishment of an “Energy Partnership” with the rest of the UK to promote a joint steering of energy market policy, a notion dismissed by the main Westminster parties.

What we are witnessing in real time with our clients is that many industry sectors, both rural and urban, have benefited from investment in renewable energy. Wind turbines are being deployed and solar panels and biomass boilers installed at a remarkable rate across Scotland.

Whether the Energy Partnership would work we may never know, but it would likely have led to uncertainty around the level of income and financial support businesses and consumers would

“

We can look forward to Scotland continuing to pioneer and innovate as a global leader in the renewable energy market.

It is my view however, that any fiscal impact would only be a concern for the short term, because with Scotland’s resources in the renewable sector, it would surely have been one of the earliest areas of focus an independent government would have addressed to secure continued investment and support.

However, despite businesses and consumers embracing renewable energy, we are still experiencing funding challenges from some lenders in supporting these projects. Post-referendum, lenders will still have the same appetite to support these projects as before and investors will continue to look to the renewable sector as long as the current and foreseeable levels of returns are available.

In basic terms, lenders need to know that a project has the ability to generate sufficient income to at least be cost-neutral in terms of repaying the loan, and secondly that there is sufficient asset cover available to support the loan should the means to repay fail, which a decommissioned turbine or biomass boiler will not achieve.

Beyond the term of finance and once the loan is repaid, the asset needs to continue to perform for the investment to return an income linked to the remainder of the term of the subsidy.

After two years of campaigning, the outcome of the referendum is now known and we have a continued platform of stability to build on. We can look forward to Scotland continuing to pioneer and innovate as a global leader in the renewable energy market.

Jamie Lindsay is a director and co-founder of ­Breadalbane Finance, an independent asset finance firm which specialises in sourcing renewable energy funding.

Page 4 | Energy Matters Autumn 2014 | www.ckdgalbraith.co.uk | Twitter: @CKDGEnergy

renewable energy for their views on how the result will affect the industry

A Pelamis P2 generating electricity for E.ON in Orkney.

Britannia (still) rules the waves

By Richard Yemm of Pelamis Wave Power

in the real world I worked in the wind energy sector, and my design for wind turbine blade dampers became a source of funding for a very different endeavour.

The Scottish Office’s new tariff support system elevated wave energy from an academic curiosity to a real commercial opportunity. And so Pelamis Wave Power, then named Ocean Power Delivery, was founded in early 1998.

S

cotland’s marine energy industry was mentioned more than a few times in the months leading up to the Scottish independence ­referendum, and it’s no surprise given that it’s home to the world’s leading concepts in wave and tidal power and a visionary test centre, and world first achievements are consistently being notched up off our shores.

In the 16 years since, I’ve been very proud to be at the helm of an innovative,

A long track record of innovation and engineering excellence combined with strong marine expertise and infrastructure thanks to our shipbuilding, civil marine and more recently oil and gas sectors makes Scotland the natural birthplace and proving ground for this industry.

Add to this the tremendous wave power to be found off our shores and the solid cross-party support in both Westminster and Holyrood and we have all the ingredients required to take this nascent technology through to commercialisation.

My own involvement in the renewables sector originated in a love of the sea ­­— I’ve often been accused of ‘having salt water in my veins’! Stephen Salter’s impressive wave tank at the University of Edinburgh inspired a focus on engineering and led me to undertake a PhD testing ship and yacht hulls that paved my journey into wave power. Once out

“

it is very exciting that the wave power sector has now progressed beyond proof of concept to delivery of the first wave power arrays.

resourceful and dedicated team that has delivered world first achievements time after time. From the world’s first offshore wave power generated to the grid from the European Marine Energy Centre (EMEC) in Orkney 10 years ago, to the deployment of the world’s first wave farm in Portugal in 2008 or the sales of two second-generation Pelamis P2 machines to utilities E.ON and Scottish Power

Renewables, in 2008 and 2010 respectively.

The P2 machines are progressing through a staged demonstration programme at the EMEC wave test site off the west coast of Orkney where they have generated a sector leading 250MWh to the national grid.

In addition to providing valuable operational experience and performance data, the P2 test programme provides a solid platform on which to base the on­going development and optimisation of the Pelamis system.

In parallel with technical design and machine operations, Pelamis, along with utility partners, is developing commercial-­scale wave farm sites off ­Orkney, Shetland, Sutherland and the Western Isles. It is very exciting that the wave power sector has now progressed beyond proof of concept to delivery of the first wave power arrays.

Developing wave power is not without its challenges. In addition to the difficulties presented by the harsh offshore wave climate, the energy market is extremely competitive at a time with huge cost pressure from consumers and government.

While wave power has a favourable opening cost and a clear reduction trajectory, we need to rapidly reduce costs of energy in order to remove those remaining barriers and reach commercialisation.

Now, with the referendum behind us we can expect wave energy to continue to be a hot topic and a hot prospect for the Scottish economy within the wider UK renewables and energy sector. An exciting challenge lies ahead, one that we relish with the same energy and enthusiasm as the day we started!

Richard Yemm is CEO of Edinburgh-based Pelamis Wave Power, which he founded in 1998.

www.ckdgalbraith.co.uk | Twitter: @CKDGEnergy | Energy Matters Autumn 2014 | Page 5

R

eaders may recall an Energy Matters report on initial stages of exploration by our Australian client New Age Exploration (NAE) in their coking coal project in Dumfriesshire.

Drilling results boost coalfield hopes

A number of boreholes drilled last year confirmed earlier prospecting results from the Coal Board in the 1970s. This encouraged NAE to establish a full-time presence in the area, with a dedicated team of geologists who have just completed a second phase of exploratory boreholes.

In March NAE was granted additional licences for areas adjoining and to the south-west of the existing Lochinvar licence. The company now has exploratory licences covering most of the Canonbie Coalfield, an undeveloped coking coal resource which has the significant benefit of being close to the main west coast rail line and therefore the potential to efficiently transport the coal to UK steel­ makers, coke makers and export ports.

The second phase of six exploratory boreholes was completed in July. Each intersected the target ‘Nine Foot Seam’ at varying depths between 280 and 420 metres.

On August 29, NAE announced an upgrade of 44 per cent of the Lochinvar resource from Inferred to Indicated status

Planning policy may curb New rules on infrastructure will greatly influence Scotland’s energy industry for decades to come.

Robert Patrick reports.

I

n the last Energy Matters I wrote about the debate about wild land and wind farms, centring on the proposed update of Scottish Planning Policy (SPP). Since then, the Scottish Government has completed and published the new SPP, along with a new National Planning Framework (NPF3). Both documents contain a number of new strategies and policies relevant to energy matters.

The draft SPP discussed in the previous issue included a ‘spatial framework’ for wind farms. This has been carried through to the adopted policy. As a result, wind farms will be prohibited in National Parks and National Scenic Areas.

In addition, ‘significant protection’ will be afforded to a number of other designated sites, including sites of special scientific interest (SSSIs), Natura 2000 (EUprotected­) sites and nature reserves.

Significantly, the areas identified by Scottish Natural Heritage as ‘wild land’ have been included in this group, along with all areas within two kilometres of cities, towns and villages.

The result of this new spatial framework is an additional restriction on wind farms in a large number of areas. While they are not prohibited in these places, significant mitigation would be required to make them acceptable, for example through siting or designing the development in such a way its impact is minimised.

Notwithstanding, the policy changes introduced in the new SPP will clearly limit opportunities for wind farms in some areas.

The new National Planning Framework, NPF3, sets out the Scottish Government’s spatial strategy for the next 20 to 30 years, and includes a number of key ‘national developments’ — proposals that should be

taken forward as a priority in the national interest.

Among these national developments are a number which are relevant to the energy industry: Carbon capture and storage ­network and thermal generation: NPF3 calls for the development of carbon capture and storage network infrastructure throughout Scotland, as well as the development of thermal generation at existing locations in Peterhead, ­Longannet, Grangemouth and Cockenzie.

Included in the ‘national development’ category is not just the construction of new thermal generation plant at existing power stations, but also associated infrastructure, such as the construction of pipelines to transport captured carbon dioxide and buildings to store it.

High-voltage electricity ­transmission network: The upgrading of the electricity transmission network across Scotland is included as a national development, in order to meet national targets for electricity generation, satisfy climate

Page 6 | Energy Matters Autumn 2014 | www.ckdgalbraith.co.uk | Twitter: @CKDGEnergy

economic evaluation. Other tasks still progressing are: mine design; rail and port studies; coal specification and marketing study and production; cost estimates and peer review.

In light of the difficulties encountered by the coal industry in the past few decades, culminating in the recent disappearance of Scottish Coal, it is easy to think of coal as yesterday’s technology.

­ a technical description which indicates — a major boost of confidence in the project.

The phased drilling programme has shown that Lochinvar is expected to produce high-volatile, low-ash coking coal at yields of 75 per cent, making it attractive to UK and European steel mills.

But steel production requires coal with a particular set of properties and UK steel producers currently rely on imports from all over the world, so the establishment of a UK-based coking coal mine would be of strategic national importance.

NAE and its consultants are working on a Lochinvar scoping study for release by the end of October. This will show that many key stages have been wholly or largely completed, including: revised structural interpretation and geological model; surface infrastructure; wash plant design; environmental studies and

Calum Innes is head of CKD Galbraith’s energy team.

He is based in Perth. calum.innes@ckdgalbraith.co.uk Tel: 01738 456 075

wind projects “

hydroelectric storage facilities in excess of 50MW to be located across Scotland.

It appears possible that the Scottish Government sees the future of Scotland’ s energy demands being met not by onshore wind but by other forms of generation.

This means any development connected to a new or refurbished hydroelectric scheme larger than 50MW will be classed as a national development and supported accordingly.

The inclusion of the three proposals listed above in NPF3 highlights the importance the Scottish Government places on the development of energy resources within the country. At the same time, the changes to SPP add a further constraint on onshore wind energy developments.

change targets and ensure security of energy supply.

Included in this category is the development of new cables/pylons, sub-stations, convertor stations and transmission cabling, all for 132kV or more. Any proposal of this type will therefore be classed a ‘national development’.

Pumped hydroelectric storage: NPF3 calls for the development of pumped

It therefore appears possible that the Scottish Government sees the future of Scotland’s energy demands being met not by onshore wind but by other forms of generation such as hydro and the develop­ ment of carbon capture power stations.

Robert Patrick is a chartered planner at CKD Galbraith’s Perth office. robert.patrick@ckdgalbraith.co.uk Tel: 01738 456 078

Turbine site generates strong interest

W

e are delighted to announce that missives have concluded on our wind ­turbine site at Pitkinnie in south Fife. The oneacre site, sold with planning consent for a 225kW wind turbine, received a good level of interest and at the closing date we received a number of offers above the guide price of £180,000.

Our analysis of this sale suggests the project could produce an ungeared internal rate of return (IRR) of 11.5 per cent.

Assuming the turbine is commissioned under the 2014 tariff rates it could generate an annual turnover of around £143,000. However, should the project be commissioned under 2015 tariff rates the annual turnover would reduce to potentially below £130,000 due to degression of the Feed in Tariff.

Annual degression is set to continue across the majority of renewable technologies based on current deployment levels. A wind turbine project can be pre-­accredited at the passing tariff rate to reduce the effect of degression but this can only be a maximum of one year in advance of commissioning. To qualify, the project must have planning consent and a secured grid connection.

In order to have a viable project to bring to market you ideally need, among other things: • A valid planning consent with no onerous conditions.

• An affordable grid connection offer with no third party consents outstanding.

• On-site up-to-date wind speed data.

• Unrestricted access.

As the profitability of consented sites falls due to degression of the Feed in Tariff, so will market values. Sites with higher average wind speed will be the sites of preference for developers.

The glory days of subsidies may be coming to an end, but they are not over yet, and improvements in technology should bring efficiencies through to the market.

Should you have a viable consented site the advice would be to either press on to commission the site yourself or bring the site to market without delay.

Mike Reid

www.ckdgalbraith.co.uk | Twitter: @CKDGEnergy | Energy Matters Autumn 2014 | Page 7

Daniel Campanile reports on a service offering a powerful new resource to the CKD Galbraith energy team and its clients.

C

KD Galbraith has developed a bespoke cloud-based application using current and historic mapping to provide an online databank containing both CKD Galbraith-specific data and a wealth of highly useful thirdparty geographic information.

Designed to capture, store, manipulate, analyse, manage, and present a wide range of vital data, our geographic information systems (GIS) are both a valuable reference tool and a vital resource for constructing plans, maps and 3D images.

If information can be categorised as geographic and represented on a map, it is covered by GIS. One critical layer of data is ownership, and to date we have mapped over 4.1 million hectares ­— more than half Scotland’s land. Information can be accessed and extracted by a few mouse clicks, facilitating faster appraisal of proposals and swifter decision making.

This powerful resource has the flexibility to develop and evolve as our experts update information and add new data.

Applications include: • Reference channel to interrogate information on geographic areas of interest; • Search tool to query specific information based on a range of search criteria; • Export resource to extract data for comparison purposes; and • Image tool to produce basic maps and plans for internal use.

software to enable all aspects of plan and map production and more rigorous GIS analysis coupled with a crystal-clear image reproduction facility.

CKD Galbraith’s GIS service is a breakthrough for any business involved in renewable energy, agriculture, forestry or sporting estates; it is a vital additional resource for use in the preparation of all types of bespoke plans and maps together with 3D visualisations.

In addition to plan production, desktop GIS services make available the full spectrum of spatial analysis tools and visualisation of geographic information.

After a period developing and implementing GIS methodologies and workflows at a successful geoscience consultancy, I joined CKD Galbraith to apply my experience to provide solutions to new problems in the land management sector.

Daniel Campanile, based in Stirling, is GIS Manager at CKD Galbraith. daniel.campanile@ckdgalbraith.co.uk Tel: 01786 434600

More than half of Sc by powerful digital s

In addition to the firm’s internal GIS resource, CKD Galbraith has made significant investment in leading GIS

“

to date we have mapped over 4.1 million hectares. . .

Information can be accessed and extracted by a few mouse clicks, facilitating faster appraisal of proposals and swifter decision making.

Page 8 | Energy Matters Autumn 2014 | www.ckdgalbraith.co.uk | Twitter: @CKDGEnergy

Answering that tricky question: what’s it worth?

G

overnment incentives for renewable energy developments have led to a proliferation of installations harvesting the earth’s renewable resources to generate electricity. Wind turbines, hydro schemes and others have become relatively commonplace and require to be valued.

The market value of an asset is the price which could reasonably be expected to be transacted between a willing seller and a willing buyer, and there is evidence of a growing number of transactions involving renewable energy assets.

In considering a question of value, the prima facie evidence is that pertaining to comparable transactions which have taken place in the market, but the question a valuer requires to consider is how comparable is the comparable?

cotland mapped service in the cloud

The Government’s support regime for various technologies has been subject to degression: support subsidy has been reduced as rising deployment levels have been reached. This means the revenues being generated by two assets that appear to be broadly comparable may differ significantly, so it is important to fully understand the basis and make-up of any transaction before seeking to use it to inform a valuation.

Complicated computer models have been developed which attempt to forecast the expected capital cost of a development together with ongoing revenue expectations and operating costs.

Such tools can be very powerful, but care must be taken that their results adequately reflect market influences if they are being used to help the valuation process. While they can provide an indication of the ‘worth’ of a predicted income stream, this may not equate to the ‘value’ which could be achieved in the marketplace as other external influences may have a bearing. These might include perceived uncertainty or risk, location factors and a multitude of other influences.

Confidence in valuation is fundamental to the correct operation of the market and a good deal of regulation surrounds the valuation process. CKD Galbraith has been closely monitoring and analysing the market for a considerable period, and this knowledge is of considerable benefit in responding to the question ‘What’s it worth?’ as the answer may not be the same as ‘What’s its value?’

Calum Innes

www.ckdgalbraith.co.uk | Twitter: @CKDGEnergy | Energy Matters Autumn 2014 | Page 9

Who says that money doesn’t grow on trees?

The forestry sector in Scotland is an environmental and economic success story. Guy Warren sees the wood for the trees.

F

orestry in Scotland is now displacing some £1 billion worth of imports annually and contributing an estimated £1.67 billion, indirectly, to Scotland’s economy. The industry is achieving all this while operating within a world class regulatory framework.

Returns from forestry are a function of three drivers: fluctuations in timber and land values and biological growth of the tree crops.

It is the synergy between natural growth and the security of land ownership that has established forestry as a proven asset class among existing owners.

In recent years forestry has outperformed many other asset classes, functioning extremely strongly during the recent economic downturn, when our domestic processing sector secured a far larger market share of a globally traded commodity with the consequential strengthening in timber price for growers. Capital values have risen too, with latest published market data recording both average values and market size up on 2012.

What is clear is the maturity of the market, with experienced and well informed investors seeking strategic acquisitions to complement their existing forestry portfolios. It is fair to say that a premium plantation forestry market has developed in the UK in recent years.

Forestry is also an extremely tax-efficient form of investment, for three main reasons: Income & Corporation Tax: tax is not

chargeable on income and profits arising from the sale of timber.

PROFIT AND LOSS Economic comparison between forestry and hill farming in Eskdalemuir

Forestry: normalised 40-yr rotation

Output Input costs

£ total

£ per ha

9,902,957

495.15

119,978

3,085,305

–6,920,531 –346.03

–83,845

–3,523,651

–176.18

–42,382

149.12

36,133

–438,346

–21.92

–5,272

15.76

3,818

1,882,001

94.10

22,637

Surplus (or deficit) 2,982,426 Grants and subsidies

315,134

£ per employee

Agriculture: specialised sheep SDA £ total

£ per ha 154.27

£ per employee 37,110

Source: SAC Consulting

PREDICTED ANNUAL SOFTWOOD PRODUCTION In thousands of cubic metres overbark standing

20,000 18,000

Total

16,000 14,000 12,000 10,000 8,000 6,000

r cto

se ate Priv

FC/N RW e state

4,000 2,000 0

2013-16

2017-21

2022-26

2027-31

2032-36 2037-41 2042-46 2047-51 Forecast period

2052-56

2057-61

Source: Forestry Commission 50-year Softwood Availability Forecast

Page 10 | Energy Matters Autumn 2014 | www.ckdgalbraith.co.uk | Twitter: @CKDGEnergy

Capital Gains Tax: any increase in value

which is attributable to standing or felled timber is free from CGT.

Inheritance Tax: Following two years of

ownership the value of commercial forest is subject to 100 per cent Business Property Relief.

Global timber consumption is forecast to rise rapidly in all world regions, particularly Asia. That demand is for all types of industrial application; sawlogs, pulp and paper, wood-based panels and energy.

Globally, sawn timber accounts for about 40 per cent of the volume of harvested timber. However in Scotland this market

“

Productive woodland creation must begin without delay and continue at levels that can really contribute to the sustainability of the sector in the long term.

The global development of the low carbon economy has forests and forest products at its heart. A good example of this comes from the World Business Council for Sustainable Development – Vision 2050 New Agenda for Business. The UK’s renewable energy strategy encompasses biomass energy production largely incentivised through the various Renewable Heat Incentives.

Energy from wood has the capacity to be a real game changer, but we must be careful to balance supply and demand to ensure a sustainable future for the whole sector.

Of course, this demand for timber can have real impacts on our natural forests;

Results to December 31, 2013

3yr

5yr

10yr

15.8%

22.2%

19.7%

17.9%

Forest win Forestry Commission Scotland has reappointed CKD Galbraith to provide professional land agency services in the management of its 105 telecommunications sites all across Scotland.

CKD Galbraith has been managing Forestry Commission Scotland’s telecommunications portfolio since 2010 and is at the forefront of land agency telecommunications advice in Scotland.

The five-year appointment, which follows a competitive tender, began in September.

Existing owners — if they are not already doing so — should consider the steps necessary to ensure that their forests are ready for harvesting, that forest plans and consents are in place, that access and internal infrastructure is improving and markets are being tracked to ensure the forests can deliver their full potential.

Those seeking longterm capital appreciation might do well to investigate productive new planting opportunities. Woodland creation grants remain available under the existing ­Scotland Rural Development Programme and political support has been expressed for further incentives for productive woodland creation in Scotland.

We will have to await the detail of that in the new SRDP woodland scheme due to be launched later this year or early in 2015.

IPD UK FORESTRY INDEX

1yr

A recently commissioned report by Confor (Eskdalemuir: A comparison of forestry and hill farming; productivity and economic impact, SAC Consulting 2014) looked at a specific economic comparison between an established productive conifer forest at Eskdalemuir and agriculture on an equivalent area of 20,000 hectares of land.

Whether you are an existing forest owner or considering ownership for the first time, the outlook for forestry as an asset class in Scotland is strong.

Softwood availability in the UK is forecast to increase over the next two decades before declining through 2040 to 2060.

Annualised rates

In Scotland, action is required now to mitigate this forecast dip in timber availability. Productive woodland creation must begin without delay and continue at levels that can really contribute to the sustainability of the sector in the long term.

It makes clear that forests created in the right locations and at the right scale can produce far greater economic output than agriculture and they trade at a significant surplus before subsidy.

share is much higher at approximately 65 per cent. Sawlogs are and will long be the backbone of the UK industry.

Total return

five per cent of the world’s forests are plantations but they supply 30 per cent of the world’s timber requirement. As demand increases the need to protect our natural forests by establishing more plantations becomes progressively clearer.

Guy Warren is CKD Galbraith’s Head of Forestry and is based in Edinburgh.

20yr 8.5%

Source:IPD Go

guy.warren@ckdgalbraith.co.uk Tel: 0131 240 6972

www.ckdgalbraith.co.uk | Twitter: @CKDGEnergy | Energy Matters Autumn 2014 | Page 11

Rule changes on way for biomass fuel incentives THe Department of Energy and Climate Change is introducing biomass sustainability criteria for all Renewable Heat Incentive participants from spring 2015. The requirements differ slightly depending on whether participants are domestic or non-domestic, but both must meet a greenhouse gas (GHG) emissions target and land criteria.

GHG target: Biomass fuel must meet a lifecycle GHG target of 34.8g CO2 equivalent per megajoule of heat or 60 per cent GHG saving against the EU fossil fuel average. Non-domestic users with installations smaller than 1MW can report the default GHG emissions values in Annex II of the European Commission’s Report on Sustainability Requirements for the use of Solid and Gaseous Biomass Sources in Electricity, Heating and Cooling. Otherwise they will have to calculate GHG emissions themselves. Online calculators are available to help with this.

Land criteria: In the case of wood fuel, you must be able to show that your fuel has been sourced from sustainably managed woodlands. This can take two forms: the fuel must come either from FSC or PEFC certified woodlands, or with other bespoke evidence, such as timber traceable to a forest with a fully

New network for smart meters The smart metering revolution will require major investment in telecommunications, according to Mike Reid, Head of Utilities at CKD Galbraith.

The Westminster Government estimates smart metering will deliver about £7bn in benefits to homes and businesses.

Energy suppliers will be required to install an estimated 53 million high-tech meters by 2020 amid concerns the £10.9bn cost will be borne by consumers through energy bills.

Communications technology plays a crucial role. Smart meters depend on the two way communication of data so that consumers can benefit from more accurate billing as well as real-time information to put them in control of managing and saving energy.

implemented Forest Management Plan in line with the UK Forestry Standard. Note that evidence of traceability is required.

For other types of biomass it is intended that the land criteria will correspond with the Renewable Energy Directive for transport biofuels and bioliquids. Energy crops assessed as meeting the requirements of the Energy Crop Scheme or equivalent will be deemed to meet the criteria.

If you are a domestic user and the fuel comes from the same estate as the boiler is installed on or you source waste wood locally you will need to register on the Biomass Suppliers List as a ‘self-supplier’.

For those who buy in their fuel, it will simply be a question of ensuring that your supplier is registered on the Biomass Suppliers List. It is understood the register will be available online before the regulations take effect next year.

For non-domestic self-supply, ensuring you can comply with the reporting regime to be introduced will be a pre-requisite of continuing to receive RHI payments. If your woodlands are not already the subject of a long-term forest plan, it would be advisable to complete that process by next spring to ensure that your RHI payments continue uninterrupted.

Guy Warren

“A new network of masts to service these meters is about to be rolled out,” said Mike. “Arqiva has won the contract to provide the smart meter communications service in Scotland and, although they already have a network of telecommunications masts throughout the country, new sites will be required to facilitate this contract.”

Arqiva will set up a dedicated network for the smart metering service which isn’t intended to be shared with other users or the internet. Its agents have been sourcing sites around Scotland concentrating on areas of high population coverage and are now looking to agree commercial terms for these sites.

“The initial terms offered are very much in Arqiva’s favour and rents are proposed well below other commercial telecommunications masts,” said Mike.

“Our experience has shown these terms can be significantly improved in the landlord’s favour, and when entering a long term lease it is worthwhile ensuring the terms are as good as you can achieve at the start.”

Power Anaerobic digestion is an increasingly popular renewable energy technology.

Anneka Fraser explores its benefits.

B

elieve it or not, anaerobic digestion is not a new technology. In fact, it has been used since the late 1800s and as we work towards achieving our renewable energy targets, it is becoming an increasingly popular way of producing clean, renewable energy.

Anaerobic digestion, or AD, is a natural process whereby plant and animal matter (feedstock) is broken down by microorganisms in the absence of oxygen to produce biogas. The biogas produced is predominantly a 60:40 mix of methane and carbon dioxide depending on the feedstock, which can either be burnt to produce power and heat, or upgraded to pure methane (biomethane), which can then be used as mains gas or road fuel.

The by-product, known as digestate, comprises about 90 to 95 per cent of the feedstock and consists of indigestible material and dead micro-organisms. From

Page 12 | Energy Matters Autumn 2014 | www.ckdgalbraith.co.uk | Twitter: @CKDGEnergy

that’s grown at home an agricultural perspective, the digestate makes an excellent fertiliser rich in nitrogen, phosphorus and potassium.

Typical values for nutrients are: nitrogen 2.3–4.2 kg/t; phosphorous 0.2–1.5 kg/t; potassium 1.3–5.2 kg/t (www.biogas-info. co.uk). Digestate fertiliser nutrients are actually easier for the plants to absorb than the nutrients in raw slurry, and this can be particularly valuable for land within NVZ (Nitrate Vulnerable Zones) where applications of organic nitrogen are restricted. By using digestate fertiliser, the need for fossil fertilisers is negated which brings added environmental and functional benefits.

One of the benefits of AD is the Government-backed incentives. At present, smallscale digesters (up to 500kW) qualify for the Feed in Tariff ranging from 9.49p/ kWh to 12.46p/kWh plus the export tariff/ PPA. Larger scale projects qualify for Renewable Obligation Certificates which are soon to be phased out and replaced by Contracts for Difference.

Depending on how the biogas is to be used, other incentives include the Renewable Heat Incentive and Renewable Transport Fuel Obligation.

However, as with all renewable energy projects, installation is costly and ­securing private funding may be challenging. There are however Government-funded schemes which are worth exploring, such as:

“

In comparison with some renewable technologies, anaerobic digestion is an unobtrusive and environmentally friendly way of producing energy.

• Community and Renewable Energy Scheme (CARES) • Green Investment Bank (GIB) • Enterprise Finance Guarantee (EFG) • Capital Grant Aid If it is not possible to install your own plant then all is not lost. An alternative way to become involved in generating renewable energy is to grow crops specifically for your local AD plant.

We are acting for the operator of an AD plant in the Scottish Borders which has set up a contracting business that is currently seeking land on which to grow feedstock crops (hybrid rye, whole crop wheat and grass). The contractor is looking to secure 1,000 acres on limited-­duration tenancies or contracting arrangements for a period

of 10 years at an initial rent of £140/acre.

Landowners will also retain Basic Payment Scheme (successor to SFP scheme) entitlements and the leased land will be spread regularly with digestate from the plant to replace much of the plant nutrients removed.

As might be expected, these financial returns are not as attractive as those from Government incentives. However, landowners can expect (among other things) a secure income for a certain number of years which, under current farming conditions, deserves due consideration.

In comparison with some renewable technologies, anaerobic digestion is an unobtrusive and environmentally friendly way of producing energy. For farmers, there are additional financial and soil fertility benefits from using the digestate.

No wonder almost half the AD plants in the UK are either agricultural combined heat and power plants or agricultural biomethane to gas plants.

Anneka Fraser is a Rural and Renewables Surveyor at CKD Galbraith’s ­Edinburgh office. anneka.fraser@ckdgalbraith.co.uk Tel: 0131 240 2280

www.ckdgalbraith.co.uk | Twitter: @CKDGEnergy | Energy Matters Autumn 2014 | Page 13

FARMING THE WIND PART 3

Race against time to get the blades turning The final chapter of Mike Reid’s rural energy odyssey sees construction begin — and electricity being generated at last.

W

e reached the grant of planning consent for a 500kW turbine on our farm in February 2013 in the last Energy Matters. We now looked to construct and commission the turbine in order to qualify for the 2013 Feed in Tariff prior to degression talking effect from April 1, 2014.

There is the option to pre-accredit under the Feed in Tariff scheme where you can lock in to the current tariff rate provided you have a valid planning consent and have paid for the grid connection in full.

The turbine must be commissioned within 12 months of the pre-accreditation date and this cannot be extended.

But it couldn’t take more than 12 months to construct and commission the turbine, could it? The project was pre-accredited on June 2, 2013 so the turbine needed to be commissioned by June 2, 2014.

Pre-construction Plans Once planning consent was granted we knew we had a definite project subject to other consents and agreements being put in place.

Temporis, the developer we had chosen, progressed the turbine procurement, power purchase agreement (PPA), grid connection and plans for the build programme.

We were consulted on the proposed lease plan and construction timetable including works to the access track, bellmouth (widened access point where the access track meets the main road), and provisions for a borrow pit including restoration. We also had to consider what would happen to topsoil and subsoil from the excavations, what drainage work to include, fencing and other accommodation works required, together with arrangements for a contractor’s compound and other site details.

Legally, further work was required to amend the lease prior to completion and agree provisions for a security sum agreement to cover any decommissioning liability together with agreements with Scottish Power for the sub-station and grid connection route.

Grid connection and sub-station Although we have 11kV and 33kV lines running across the farm, the proposed

grid connection route connected into the 11kV lines on a neighbouring property.

Part of the route was proposed up the edge of the public highway and then across third party land to the connection point. Temporis secured rights across the third party land and all was set for the grid connection, or so we thought.

Scottish Power required a sub-lease for their sub-station adjacent to the turbine, which included reserving rights for the sub-station to continue beyond the lifespan of the turbine itself.

Negotiations with Scottish Power were protracted and we found them fairly inflexible in adjusting their standard documentation even though, in our view, some of their requests were not reasonable. Trying to get an appropriate agreement for the sub-station caused significant delays to the project.

For the grid connection route across our farm (and third party land) Scottish Power required a servitude rather than a wayleave. A servitude generally imposes permanent rights across the land and therefore careful consideration of the route and impact of these permanent rights and areas affected needed to be assessed.

Scottish Power could have obtained adequate rights for the turbine by an annual wayleave, but we understand the main reason they required a servitude was to

“

Trying to get an appropriate agreement for the sub-station caused significant delays to the project.

avoid having to pay the costs of removing the cable at the end of the lifespan of the turbine, which they would be liable for under the wayleave but not under the servitude where we would have to pay to remove the cabling.

As discussions continued with Scottish Power, everything else was in place to begin construction in September 2013.

Trial pits had been dug to establish ground conditions for construction and the load bearing capacity of the access track was also assessed.

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Construction under way: The base for the turbine used about 300 tons of concrete.

Turbine construction Construction started in September 2013 with the establishment of the contractor’s compound and then works to widen and improve the existing access track, including creating a larger bellmouth.

We were blessed with a period of good weather, and work went relatively smoothly on schedule, with drainage being installed along the access track and also around the base of the turbine. The turbine will act as a natural collection point for water so it was important to ensure proper drainage so that this didn’t impede the adjacent land.

Signs were erected on the nearby A92 to identify the turbine project and these were the first indication to some local residents that any project had been given consent. This resulted in some adverse comments in the press.

The existing access track needed to be widened to 4m with a wide bellmouth to enable the blades to be delivered. Each blade of the turbine is 27m in length — and 30m including the transport lorry.

The access track also had to be able to support the weight of the crane to erect the turbine.

About 300 tons of concrete were used for the base of

the turbine. The turbine components, including blades, were safely delivered in November and the turbine itself was erected in December. The project was ready to be commissioned once the grid connection was in place.

Grid connection During the construction of the turbine, issues arose with the proposed grid connection route. Fife Council confirmed there was uncertainty as to whether the roadside verges had been adopted as part of the public highway, so additional third party consents would be required for the grid connection route along the verge and 90 days’ notice would be needed before any works in the public highway could begin.

agreed and signed in late March, together with the servitudes.

This enabled the final stage of the construction project to progress. The grid connection cable was laid and the turbine commissioned on May 31, 2014 — two days before the pre-accreditation deadline.

There are many important points to consider with all phases of a turbine project and, having gone through the full process, I now have a much broader understanding of all that is required. The main lesson is that you can never have too much time!

We will have to see if the turbine performs up to expectations over the next few years.

These difficulties were resolved by putting in place a revised grid connection route across our farm, and a further third party consent, which Temporis secured.

Scottish Power would not start work on the grid connection until the sub-lease for the sub-station had been concluded and the servitudes were signed. The sublease with Scottish Power was eventually

Mike Reid heads up CKD ­Galbraith’s utilities department, with particular expertise in ­telecoms and windfarms. He is based in Cupar. mike.reid@ckdgalbraith.co.uk Tel: 01334 659984

Dingwall wind co-op success In the Spring 2014 issue of Energy Matters, we reported on an innovative community ­venture to develop a 250kW turbine funded by a community share offer in ­Dingwall. We are pleased to report that

the fundraising was successful and the turbine was commissioned in June 2014.

It will be interesting to see whether this successful project encourages other communities to try to emulate this success.

www.ckdgalbraith.co.uk | Twitter: @CKDGEnergy | Energy Matters Autumn 2014 | Page 15

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