ISSUE 3 SPRING 2013
Big benefits from small-scale generating
What future for fracking?
Green energy and property values
Wind farms: Time to extend
Tough times in telecoms Locking in to better FIT tariffs Making the most of your potential
Fracking may have been given the regulatory go-ahead, says Calum Innes, but it’s far from being a magic answer to Britain’s energy requirements.
Mike Reid, CKD Galbraith’s Head of Utilities.
Wind power continues its advance in Scottish market Rental income from wind farm developments was up 20 per cent in 2012, according to our own research, and the rise in agreed base and turnover rents paid to landlords in the 10 years from 2002 to 2012 was 320 per cent. The recent increase appears to be due primarily to competition among developers for a diminishing number of suitable wind farm sites, and the planning framework for potential for wind farm sites in Scotland became significantly less favourable in April, when the Scottish Government proposed to identify ‘core areas of wild land character’ which need to be given significant protection from wind farm development. The timescales involved in wind farm projects mean this announcement will jeopardise potential developments in the provisional wild land areas and may also intensify the development pressure on other suitable sites.
That said, Scotland continues its advance in wind-powered electricity generation, according to the CKD Galbraith Energy Team, which ascertained that 18 wind farms became operational in 2012, providing an additional installed capacity of 783.33 megawatts (MW). Added to existing capacity, this means Scotland has 5.8 gigawatts of onshore wind power potential*. East Renfrewshire, Perth and Kinross and South Lanarkshire saw the biggest increases, primarily due to large sites coming on line, such as the Clyde Wind Farm in East Renfrewshire, Griffin Wind Farm in Perth and Kinross and Whitelee Phase 1 in South Lanarkshire.
Codes of practice for sporting rights are commonplace, but we are seeing similar codes of practice, such as a framework for heather burning, emerge, along with developments in habitat management and the impact of tree-felling. We have also noted an increase in the number of applications for extensions to existing wind farms, and this is covered in more detail on page 10.
The Government has now reduced the Renewable Obligation Certificate subsidy for onshore wind farms by 10 per cent for new registrations. On the face of it, this creates uncertainty about the future of renewables support, but we have yet to see a noticeable fall in demand for projects. The Government expects the ROC shortfall will be compensated by higher electricity prices, so the outlook for the large-scale wind market remains positive. Small-scale renewables, on the other hand, could be significantly affected when annual degression commences in April 2014. Preliminary accreditation is intended to offset this — see page 14.
So, with predictions that electricity prices will rise, landowners and developers can be expected to continue to benefit from renewable projects, but whether increased energy prices will be politically acceptable remains to be seen. For those intending to generate electricity to power their holding, a wind turbine is and will continue to be a viable option in the short term, as the current support system is still giving attractive returns and an increase in energy prices will only help this. * Renewable UK
CKD Galbraith is the leading independent property consultancy, with 12 offices throughout Scotland.
service, listening to clients and delivering advice to suit their particular opportunities and circumstances.
The firm provides a full range of property consulting services across the commercial, residential, rural and energy sectors. Drawing on a century of experience in land and property management, the firm is progressive and dynamic, investing in its 200 people and in technology.
Our associate, CKD Kennedy Macpherson, is based in London.
CKD Galbraith provides a personal
ENERGY MATTERS Issue 3 • Spring 2013
n a recent speech to the Edinburgh Renewables Conference, Ed Davey, the Secretary of State for Energy and Climate Change, said that the reality is that fossil fuels will remain part of the energy mix for some years to come and it will be necessary to continue maximising the recovery of indigenous hydrocarbon resources – on land and at sea. While investment in the North Sea is growing, there is increasing speculation that the shale gas boom experienced in the USA can be replicated in the UK.
Gas extraction from deep coal and shale reserves is achieved by the process of ‘fracking’ which involves hydraulically fracturing of strata at depth to release gas, typically Methane (CH4).
The process involves drilling vertical, inclined or directional boreholes from the surface down to the strata where the gas is contained. Methane is normally found in coal measures and some shales, generally at significant depth. Where the process is carried out in coal measures it is known as coal bed methane, which is differentiated from shale gas extraction, where the target horizons are the very thick shales, hundreds of metres deeper than the coal seams. After boreholes have been drilled to the required horizons a fluid is pumped down the holes at very high pressure. This pressurises the strata to the point where it cracks and fractures develop. Such fracturing can extend to several hundreds of metres in all directions and materials such as sand, within the fluid, are forced into the fractures to keep them open. This process artificially
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Fracking involves high pressure cracking of gas-bearing strata
Shale gas: silver bullet or just a damp squib? increases the permeability of the strata and allows the gas to flow and be extracted for commercial use.
Worldwide, there is significant opposition to fracking. Some countries and at least one US state have banned the technology because of perceived risks associated with tremors at the surface, remote from the drill site, as a consequence of fracking activity, and concerns related to pollution of aquifers and groundwater.In the UK, tremors near to Blackpool associated with fracking at a shale gas site resulted in a temporary ban on such activities in 2011. However, a Government review has now concluded that fracking is safe if adequately monitored, enabling projects to proceed. Operators wishing to carry out drilling and fracking operations in relation to gas extraction are required to obtain various licences and consents to authorise their activities:
• Hydorcarbon licensing is the jurisdiction of the Government’s Department of Energy and Climate Change (DECC) under the regime of their Petroleum Exploration and Development Licence (PEDL); • The Coal Authority is required to license activities where drilling enters or disturbs coal seams or coal mine workings; • Planning permission from the local authority;
With increasing global demand for gas, the UK’ s shale gas resources are highly unlikely to move global prices in any meaningful way.
Ed Davey, Secretary of State for Energy and Climate Change
• The Environment Agency ( England and Wales) and the Scottish Environment Protection Agency (Scotland) with regard to environmental consents; and • Consents from landowners and other parties with interests in land or minerals.
Clearly gas generated from such activities could be injected into the existing gas pipeline network and if cost advantages that have been demonstrated in the USA could be replicated in the UK with a resultant reduction in consumer prices it is likely that there would be significant support for
the activity. But cost and price are not the same thing.
The case for shale gas and coal-bed methane remains unproven in the UK. Some geologists are of the view that UK reserves are held in strata which are deeper and more compact than those found in the US and are consequently less suited to gas extraction via fracking. Furthermore, gas used to generate electricity still needs to have the CO₂ captured to meet government expectations on emissions, and it is perhaps questionable whether such capture is any more easily applied to gas-fired power stations than coal-fired plants. Indeed, the question of carbon capture remains unresolved.
The Minister sums up the situation: “Let me be clear – these resources are unlikely to provide us with cheap energy bills as some would have us believe. Even shale gas is not the silver bullet people think. With increasing global demand for gas, the UK’s shale gas resources are highly unlikely to move global prices in any meaningful way.”
Calum Innes is Head of CKD Galbraith’s Energy Team and is based in Perth. firstname.lastname@example.org Tel: 01738 451 111 ENERGY MATTERS Issue 3 • Spring 2013
Making the best of the changing world of telecoms Consolidation in the telecoms market has big implications for owners of land where masts are sited. But, says Mike Reid, the mobile phone operators don’t hold all the aces.
he telecoms property market has several characteristics that distinguish it from other property sectors. There are many landlords, most of whom have only one telecom site, there are few tenants but each has many sites, and the tenant tends to drive the transaction by locating the site, obtaining planning consent, setting out the heads of terms and drafting the lease agreement. The tenants operate under a distinct regulatory code using Government-allocated frequencies and they are licensed on terms which include obligations to provide a service to a stated percentage of the population.
In March 2009 Vodafone and O2, two of the big mobile telecoms companies, announced an agreement to share network assets across Europe in a cost-saving exercise over 10 years. In the UK, both companies were focusing on the joint building of new sites and consolidating existing 2G and 3G sites. As part of this project, known as Cornerstone, Vodafone and O2, the latter through its parent Telefónica,
ENERGY MATTERS Issue 3 • Spring 2013
have been writing to landlords seeking significant rent reductions and the right to share their sites with each other, together with other amendments to lease terms, with the potential sanction of decommissioning surplus sites.
In summer 2010 T-Mobile and Orange came into common ownership as Everything Everywhere (EE). The aim was to make significant savings by eliminating duplicate facilities, from masts to shops, while taking advantage of its combined infrastructure to cover as much as 98 per cent of the UK’s population. Many landlords will have received proposals from Orange to assign their leases to EE as part of this consolidation, which may require the landlord’s consent.
The telecom network for the emergency services is now provided by Airwave, whose model differs from EE’s and Cornerstone’s because the requirement is for geographical coverage rather than population reach. Previously, the emergency services had their own distinct networks and either ran their own mast sites or shared sites with other operators. However,
this network is no longer needed because Airwave provides the service, so the emergency services have been terminating sharing agreements, with the police taking the lead.
Telefonica and Vodafone have now gone one step further and created a separate joint venture company called Cornerstone Telecommunications Infrastructure Ltd (CTIL) to own their site infrastructure. Telefonica and Vodafone are looking to assign their existing leases to CTIL to include rights for both of them to operate from the site without any additional payment to the landlord, but many agreements won’t permit this without the landlord’s absolute consent. While the format of this consolidation has been taking place many rent reviews remain outstanding and it has been difficult for some landlords to obtain agreement on various issues under the lease. The rollout of CTIL’s proposals is now in danger of being delayed by the failure to deal with these legacy issues and their own unrealistic timescales! The network consolidation and cost sharing proposals by the principal telecom
there are opportunities for landlords to agree improved terms rather than just accept what is on offer.
operators have not been fully implemented across the UK, and their full effect on the retention of telecom sites has yet to be seen, although some sites have already been decommissioned and many will follow as part of this process. Network consolidation will also result in the reduction or complete removal of site-sharing payments on some sites. However, increasing pressure on the operators to roll out the 4G service means there are opportunities for landlords to agree improved terms rather than just accept what is on offer on a ‘take it or leave it’ basis. The private property rights between
landowners and operators are subject to the Electronic Communications Code, which forms part of the Communications Act 2003, and has been widely criticised as out of date, unclear and inconsistent with other legislation. It has recently been the subject of a review by the Law Commission, which published its findings in February — http://lawcommission.justice.gov.uk/ publications/2172.htm.
As well as resolving inconsistencies bet ween the code and other legislation, the Law Commission has recommended that landlords have more certainty about operators’ rights over their land, and that there should be limited rights for an operator to share and upgrade equipment. The Law Commission has also recommended there should be a clearer definition of market value to ensure that landlords receive an appropriate rent for the right to use their land. Changing the payment to landlords from a market rent to compensation was suggested, but, we think sensibly, this has been rejected in the recommendations. It remains to be seen whether the new Electronic Communications Code will
adopt all the Law Commission’s recommendations, but we hope they will help to update the code and provide clarity on a number of issues.
In the meantime, we are aware that landlords are being approached by tenants seeking to vary their lease terms or agree assignations not necessarily permitted by the lease — with the threat of possible decommissioning as the alternative.
Many landlords feel they have no option but to accept these largely unfavourable terms. But landlords are not completely powerless. There may be scope to negotiate an improvement on the operators’ proposed terms, and CKD Galbraith would be delighted to provide landowners with the expert knowledge and advice required. Mike Reid heads up CKD Galbraith’s Utilities Department, with particular expertise in telecoms and windfarms. He is based in Cupar.
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ENERGY MATTERS Issue 3 • Spring 2013
Small scale... Microgeneration can bring considerable commercial benefits, and recent changes to legislation have made it easier to take the plunge, says Robert Patrick.
he planning process can be a significant obstacle, in terms of both time and cost, when considering a renewable energy development.
However, recent changes to legislation have increased the scope for developing microgeneration equipment without the need for a full planning application. MicroÂ generation is classified as equipment with an output of less than 50kw of electricity, or 45kw of thermal heat. This increased flexibility is a result of a series of amendments to permitted development rights, which have been introduced since 2009. The amendments affect both domestic and non-domestic properties, so a range of users can benefit from the new rights. The different types of microgeneration equipment are each subject to different permitted development rights. The effect of the changes in legislation are set out below: Solar/Photo-voltaic Panels Solar/photo-voltaic panels are now generally allowed without the need for planning permission, on both domestic and nondomestic properties.
There are now fewer restrictions on tapping all types of renewable energy, be it wind, ground-source, biomass, air-source or solar.
ENERGY MATTERS Issue 3 â€˘ Spring 2013
The key restriction on all properties is that the panels must not protrude more than 200mm from the wall or roof on which they are mounted, and must not project higher than the highest point of the roof (excluding any chimney). There are also a number of specific criteria for flat-roofed properties. In addition to these rights, for domestic properties, up to 9 sq m of free-standing
outcomes solar panels are permitted within the curtilage of the dwelling. Wind TurbineS There are now limited rights for the erection of a single small scale (less than 50kw) turbine within the curtilage of a domestic property. The main restriction is that the turbine must be located no less than 100 metres from the curtilage of another dwelling, which rules out all but rural properties. Where a homeowner wishes to exercise these rights, there is a requirement to go through a prior notification process with the planning authority. This involves submitting information on the proposed turbine to your local planning authority, which then has 28 days to inform you if they have concerns regarding the size and design of the turbine. There is also a stipulation that, as far as is reasonably practicable, the turbine should be sited in a way which minimises its impact on the local area’s amenity.
At present, there are no permitted development rights for wind turbine developments on non-domestic and agricultural land, so a full planning application is required for even the smallest turbines. Air-Source Heat Pump Permitted development rights for airsource heat pumps in domestic properties were introduced alongside those for wind turbines. These rights are subject to the same restriction as wind turbines, in that they
must be no less than 100 metres from the curtilage of the nearest dwelling, and that prior notification to the planning authority is required. As with wind turbines, at present these rights apply only to domestic properties. Ground-Source Heat Pump Both domestic and non-domestic properties now have permitted development rights for the installation of ground-source heat pumps.
it is important to be aware of certain additional criteria which apply to all types of equipment.
For non-domestic properties, the area of ground under which the pipework is to be installed is restricted to 0.5 hectares. There is also a requirement that all ground under which pipework is installed is restored as soon as practicable after the development is completed. Biomass For agricultural or forestry land, limited permitted development rights are now in place for generating energy through a biomass or anaerobic digestion plant.
The rights are subject to a number of criteria, including limits on the size of the building erected to house the plant, a limit on siting within 100 metres of the curtilage
of a neighbouring property, or within 25 metres of a classified road. There is also a requirement that the planning authority receive prior notification. For domestic properties, the rights are limited to allowing the installation of a flue, forming part of either a biomass or combined heat and power system.
and finally... When considering installing any micro generation equipment, it is important to be aware of certain additional criteria which apply to all types of equipment. For example, if your property is listed, or within a conservation area, there are likely to be restrictions on your permitted development rights. These vary from complete removal of the rights — in the case of domestic wind turbines within the curtilage of a listed building — to the requirement to mount solar panels on the rear elevation, which applies to domestic properties within a conservation area. Even with these restrictions, the changes to the legislation have made installing microgeneration equipment quicker and cheaper. For further information on permitted development rights, and other renewables planning enquiries, contact the CKD Galbraith planning department.
Robert Patrick is an Assistant Planner/Commercial Surveyor at CKD Galbraith in Perth. firstname.lastname@example.org Tel: 01738 456 078
ENERGY MATTERS Issue 3 • Spring 2013
Worth v Value Traditional methods are not always enough when valuing renewable energy installations, says Richard Higgins.
his year’s Scottish Highland Renewable Energy Conference, attracted more than 200 delegates from the industry and interested landowners, and advisers. The success of the conference demonstrates the momentum and energy within the sector, which forms a vital part of Scotland’s planning. The Minister for Energy, Enterprise and Tourism, Fergus Ewing, provided the keynote address which highlighted the importance of renewable energy to the Scottish economy and local communities. In a session on ‘Investing for the future and valuing renewable assets’ I outlined the challenges of valuing renewable installations. The panel’s presentations prompted a lively series of questions and answers highlighting the importance of a valuation for a wide variety of reasons — for tax planning, security against loans or for other purposes. Here is an extract from my presentation: “The Royal Institution of Chartered
ENERGY MATTERS Issue 3 • Spring 2013
Surveyors has published an information paper, The Valuation of Renewable Energy Installations, which provides guidelines for professional advisers. In establishing value, surveyors must be clear about the scope of our instructions — are we required to value the installation in isolation, as part of a wider property holding (and including any impact on value of existing property), the heritable interest or leasehold value?
“Traditional methods of valuation are helpful. However, where there is a lack of transparent and reliable comparable evidence, we should expand beyond traditional means of assessment.
“While comparing a property with other sites will be of use for elements of the overall valuation, such as access, impact on housing and value of ground leases, we are driven increasingly by the need to consider a more explicit method: discounted cashflow (DCF). “Used widely by developers in the site assessment stage and flowing through to the operational elements, DCF provides
us with a net present value (NPV) and internal rate of return (IRR) given a set of assumptions. A discount rate is applied to future anticipated income and expenditure and the NPV emerges. “There is however a disconnect between worth and value, where the value is the notional price achieved in the open market between a willing buyer and seller. The few comparable transactions available indicate that the DCF approach, while demonstrating worth, is frequently overstated when compared to the actual prices being achieved in the market. This can be exacerbated when layered rents incorporating an element of generation income form a part of the overall assumptions. “Caution should therefore be exercised by landowners and joint venture participants when presented with DCF models showing returns over time. Are the assumptions realistic? Does the proposal bear any resemblance to the marketplace and do the early years of generation deliver the required returns to cover funding and other devel-
Hydrogen: fuel of the future? Harry Stott reports on an ambitious Scottish public transport scheme.
As reported in the last issue of E nergy Matters CKD Galbraith has been appointed to develop planning applications for wind turbines on Aberdeenshire Council owned quarry sites, to help the council meet its sustainability targets. One of the sites for which we are developing an application has also been identified as the location for a hydrogen electrolyser which will provide fuel cells for hydrogen-fuelled buses to be run by Aberdeen City Council.
The initiative forms part of HyTrEc (Hydrogen Transport Economy for the North Sea Region) in partnership with Aberdeen City and Aberdeenshire Councils and will provide 10 hydrogen fuelled buses — the largest fleet of this type of bus in Europe. Speakers at this year’s Scottish Highlands Renewable Energy Conference, from left: Richard Higgins (CKD Galbraith), William O’Donnell (ENERCON), Tom Thomas (Harper Macleod), Richard Fyfe (SEPA), Kenny Taylor (Scottish Natural Heritage), Anne Macdonald (Harper Macleod), Nina Turner (Scottish Natural Heritage), Stuart Mearns (Loch Lomond & The Trossachs National Park Authority), Malcolm MacLeod (Highland Council), James Waterson (Close Brothers).
opment costs? The discount rate applied should be carefully considered.
“As the markets mature and we gain a wider knowledge of both market transactions and the performance of the technologies employed, the disparity may narrow. However we must be aware of the dynamic nature of the market which is constantly evolving in both the efficiency of technologies and availability of evidence. “All of the above is predicated, of course, on the underlying availability and security of the subsidy regime through either ROCs or the FiT. “Our advice has to be to embrace the opportunity but seek professional input at an early stage.” Richard Higgins is a Partner at the Stirling office of CKD Galbraith LLP, specialising in energy and commercial property investment. email@example.com Tel: 01786 434 600
So, why hydrogen? Hydrogen is an energy carrier with a zero or near-zero carbon footprint, depending on the production method; it is safe to produce, store, transport and use in fuel cells; and it can be used in a wide range of applications including the food, metal, glass and chemical industries and even fed into the gas network.
The hydrogen will be made in a 1 megawatt electrolyser — about the same size as two 40ft cargo containers — which will be located on the same site as the wind turbine we have been instructed to submit planning for. In simple terms the hydrogen will be produced from the electrolysis of water using some of the electricity generated by the wind turbine, and stored as hydrogen fuel for the bus project. The fuel cells will be taken by a tanker to a fuelling station close to Aberdeen city centre and the buses will be refuelled in about 10 minutes. There is certainly huge potential in using hydrogen as an energy carrier, it is flexible and can be used for a wide range of applications, vehicles and industries. Hydrogen-fuelled transport is extremely clean in terms of emissions. Its use could also be extended to other transport fleets such as taxis, post vans and airport vehicles.
It will be interesting to see how this pilot scheme develops and how it will be received by the public. The aim is for the project to be fully operational by Easter 2014 and that hydrogen transport will be rolled out to other Scottish cities in the next few years. Harry Stott is a commercial and development specialist at CKD Galbraith’s Perth office.
firstname.lastname@example.org Tel: 01738 451 111
ENERGY MATTERS Issue 3 • Spring 2013
In wind power, the action doesn’t stop when the turbine starts producing electricity. Harry Lukas looks at the opportunities offered by extensions.
The rewarding road to wind farm extensions large wind-power development proposals tend to grab the headlines in Scotland, but the average project is probably less than 10 megawatts and may involve only two or three turbines.
Where the planning climate is reasonably favourable and the location of a project fulfils the requirement for wind resource and grid connection, developers will obviously look beyond the single landowner if there is scope for an extension. Extensions to existing projects often have clear benefits. The access may already be in place, the route for turbine delivery established, and the landscape and local issues will have been well aired and settled. If an approach is made to a landowner for the possible extension of a wind farm project on neighbouring ground, this is the point at which professional advice should be taken because the number of sites likely to receive planning consent is reducing and the demand for renewable energy is increasing. The value of these sites is also therefore increasing, particularly while current and continuing government policy on renewable energy remains in place. Access is an integral part of a wind farm
ENERGY MATTERS Issue 3 • Spring 2013
project and its value is extremely important from both a practical and a commercial point of view. It is well worth considering the possibility of potential future expansion on a landowner’s ground as well as over neighbouring land when agreeing terms for the initial project. Site rents have risen over the past three years as competition for developable ground increases, in particular where there are a lot of companies offering attractive deals on joint ventures or site rents based on Feed-in Tariff funding for small-scale wind turbine developments. The level of power output from onshore wind development is increasing rapidly and is now around 12,000 GWh pa according to DEC, an increase of about 14 per cent over 2011. The Government target is to achieve 15 per cent renewable energy consumption by 2020. The
achieved level is currently around four per cent, so there is a long way to go. Given the timescale, the long lead-in for offshore developments and the time it has taken for the required grid infrastructure upgrading which is needed to take this electricity to the consumer, there is still a lot of scope for sensibly targeted developments. Extensions of existing successful developments are therefore primary prospects, so it is worthwhile consulting your advisors and looking at the possibilities your land has to offer.
Harry Lukas is a Consultant at the Peebles office of CKD Galbraith.
email@example.com Tel: 01721 722 787
Access is an integral part of a wind farm project and its value is extremely important both from a practical point of view and commercially.
Creative thinking can plant profitable ideas Compensatory planting is now an established principle in wind farm development, so land owners, agents and foresters should explore their options, says Hamish Robertson. The trend for wind farms to be developed on commercial forestry sites has been increasing in recent years. Many of these sites were seen to have fewer constraints and, if remote, there were often fewer objections as there tended to be fewer local residents that could potentially be affected.
But the collective scale of these develop ments resulted in significant deforestation, which became a major concern to the timber processing industry.
Representations were made to the Scottish Government and as a result Scotland’s second National Planning Framework (NPF2) now indicates that where woodland is removed in association with development, there will be a strong presumption in favour of compensatory planting (CP). This means that if the developed site cannot be replanted, there is a high probability that an equivalent area elsewhere will need to be replanted. Otherwise planning consent is likely to be refused.
if the developed site cannot be replanted, there is a high probability that an equivalent area elsewhere will need to be replanted.
In principle CP can, subject to relevant conditions, agreements or approvals, be undertaken on appropriate sites anywhere in Scotland. In practice it is more likely to be undertaken within the same local authority area as the clearfelling.
Scottish Government guidance states that “FCS (Forestry Commission Scotland) should be proactive in offering help and advice on the delivery of compensatory planting requirements, including encour-
agement to planners and developers to forge appropriate relationships with potential ‘compensatory planting providers’.” The CP concept is still in its infancy, and developers are currently weighing up their options. These will include: keyholing to minimise clear-felling within existing forests; buying or leasing land to plant; offering landowners incentives to take on CP obligations; or a combination of the above. There is an opportunity here for landowners, land agents and foresters to think creatively and to present potential CP solutions to wind farm developers. Hamish Robertson is based in the Perth office of CKD Galbraith where he is responsible for the Forestry Department.
firstname.lastname@example.org Tel: 01738 451 111
ENERGY MATTERS Issue 3 • Spring 2013
Can ‘green’ credentials boost property values? Domestic-scale green energy production is gaining momentum for economic as well as environmental reasons. Rod Christie considers its impact on property values — and saleability.
uyers and sellers alike often ask what impact renewable energy installations have on domestic property values and demand. First, it is useful to consider what these might include. Most people are aware of one or other type of installation, and for years those who were particularly interested for either financial or conscience reasons have adopted their chosen heating method. But in recent years ‘green’ domestic heating or energy production methods have both increased in number and made advances in technology.
Viable options now include air-source heat pumps, ground-source heat pumps, solar panels (electricity generation), solar thermal (water heating), biomass boilers, small-scale wind turbines and – potentially less relevant for most individual properties – hydroelectric turbines.
CKD Galbraith has been involved in the valuation and sale of many properties which include one or more of these installations, and in 2007, prompted by increasing public interest, rising energy bills and several directives and policies from Europe and the UK Government, we commissioned Strathclyde University to carry out a study* into the implications for the property market of these factors. Six years on, and following the credit crunch, double-dip recession and even greater public awareness of environmental
ENERGY MATTERS Issue 3 • Spring 2013
matters, it is interesting to revisit some of the findings of our original study.
Willingness to pay is a key issue. The study found that people will pay between £5 and £10 per month on green energy and perhaps £10,000 on green measures at the point of a property purchase. This theoretical outlay coincidentally matched the levels of stamp duty exemption for zero carbon homes introduced in the 2007 www.ckdgalbraith.co.uk
Budget. However, The effect green energy systems have on value is seldom simple to quantify because property with these types of system are often rurally located, bespoke-designed and unique in their own right.
Property values are determined by price, location, setting, size of accommodation, condition, views and a host of other factors, including annual energy bills and the property’s ‘green’ credentials. In my experience, any increase in property value — and that is not always the same as saleability — will simply be a capitalisation of any savings made, including any grants or subsidy payments received. Subsidies that encourage householders to invest in green technology include the Feed in Tariff (FIT) and Renewable Heat Incentive (RHI). Both provide an outputand index-linked financial return to the household. This helps reduce the payback period on the investment which in many cases will be less than 10 years.
All said, a device which may overall save you £500 to £1,000 a year (or produce this as an income) can add £5,000 to £10,000 to the overall value. While positive, such features are simply another factor to be considered as part of the purchase process.
The report also found that “between one third and two thirds of the property buying public is aware of energy matters and would view energy-inefficient properties negatively”. My experience bears this out, and the market is viewing energy-efficient houses more positively. But green systems don’t operate themselves, and buyers and owners should appreciate what each system requires. Not everyone wants to feed a log burning boiler three times a day; others won’t have an issue with this. Successful sales of properties with renewable energy systems in the Elgin area have included Hummel Burn Lodge at Dallas, 22 The Muir near Fochabers, and Green Neuk House, to the south of Elgin. All were attractive properties in their own right, but the installation of solar panels and air-source heat pumps undoubtedly helped to make them more appealing — and therefore more saleable — in a generally difficult market.
Renewable energy systems may have helped to sell these Elgin area properties, from top: Hummel Burn Lodge, 22 The Muir, and Green Neuk House.
* Energy, Environment and the Property Market.
Rod Christie is a Partner specialising in valuations and property sales at the Elgin office of CKD Galbraith. email@example.com Tel: 01343 546 362
Renewable Heat Incentive website gets an upgrade The recently upgraded Renewable Heat Incentive website should make submitting applications and meter readings easier. The website — www.ofgem.gov.uk/e-serve/rhi — now guides you through the application process with step-by-step instructions and provides a checklist for all the documents and information required. If you have already been accepted on to the scheme then you can submit meter readings online using the helpful new Date Calculator spreadsheet tool. There are also new guides on how to calculate the data required. Don’t forget to read the Meter Readings and Your Responsibilities page, which summarises your obligations to stay compliant with the scheme, such as maintenance and record keeping. For example, from the outset you need to keep a log of the quantity of fuel used and retain fuel receipts. If you are harvesting from your woodland you need keep a log of the deliveries made to the boiler house and a record of where the harvesting has taken place.
ENERGY MATTERS Issue 3 • Spring 2013
When it’s time to do the right thing Environmental damage can be done by accident. But what should you do if it all goes wrong? Bill Robertson reports. There are more than 100 different pieces of environmental legislation in Scotland, each with a raft of requirements and penalties. This maze of laws falls in three main categories — air, water and waste — but there are crossovers between regimes, and future legislation is looking to harmonise permitting in some sectors. Many of us have experienced construction projects that have not gone completely as planned — from small, simple accidents to gross failures to wilful negligence. The last of these three is complex and unlikely to end well for perpetrators who are caught. The first two are somewhat easier to manage, and will have a variety of outcomes. So, what to do if something goes wrong? First, act responsibly. If it is within your control, do what you can to stop and
limit what has happened i.e. for an oil spill it would be appropriate to stop the leak and stop the spread of spilt oil and where possible excavate and safely store any contaminated material. Where silt is running from a land drain into a water course it would be appropriate to use straw or hay bales to filter the water in the land drain to remove the silt before it enters a watercourse. In both of these cases an offence has been committed, but you are likely to be considered to have acted responsibly and worked to minimise the impact on the environment. If however you knew that the oil spill had occurred and decided to ignore it you are likely to be considered to have acted irresponsibly or negligently and the likelihood of enforcement action being taken against you would increase. If something big has gone wrong, for
example a bulk fuel tank has been burst by a forklift tine, first take and keep the initiative and do what you can to stop and contain the spill. Secondly call, in this case, the Scottish Environment Protection Agency (SEPA) and ask them for help and guidance. They can be a source of very useful information, from identifying foul and surface water drains to notifying down-stream river users. Being the person who notifies them also puts you in a better position than you might be in should they find out from someone else. If you are unsure what is likely to happen if you report an incident, the key thing to remember is that it all comes down to attitude and responsibility — and doing the right thing.
Bill Robertson is an Associate advising on energy at the Perth office of CKD Galbraith.
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Lock in now to beat FIT degression Harry Stott makes sense of pre-accreditation. In July 2012 the Department of Energy and Climate Change published its response to the Westminster Government’s Comprehensive Review on the Feed in Tariffs (FIT) scheme. The aim was to determine whether changes were needed both to the administration of the scheme and to the tariff levels for each renewable technology. One element of the review was pre- accreditation, whereby a renewable scheme can lock in to current levels of FIT before degression is introduced in April 2014. This is a great way of securing financial benefits before regulatory changes remove them
ENERGY MATTERS Issue 3 • Spring 2013
from the table, but it’s important to act in order to preserve these advantages. Degression is a process that will reduce the tariff paid to a renewable scheme if deployment targets are met for new installations joining the grid. The default degression rate for power from biogas from anaerobic digestion (AD biogas), wind and hydro is 5 per cent per annum based on the current deployment predictions. However, this rate may be subject to revision depending on the actual deployment rates. By applying for pre-accreditation, installations across all three of these renewable energy technologies will benefit from the current rates on offer. To be eligible, certain criteria need to be met. A renewable scheme must have planning consent,
evidence and acceptance of a firm grid offer and, for hydro installations, either a Controlled Activities Regulation (CAR) Licence in Scotland, or an environmental permit in England and Wales.
Once the application is accepted, the tariff guarantee will be for a fixed period — six months for solar PV, one year for AD biogas and wind and two years for hydro. To be guaranteed the tariff in a particular FIT year — for example April 1, 2013 to March 31, 2014 — an installation must have applied in the same calendar year, that is, January 1 to December 31, 2013. Harry Stott is a commercial and development specialist at CKD Galbraith’s Perth office.
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