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Small-scale hydro – time is of the essence

This article first appeared in the summer edition of Energy Matters, published by CKD Galbraith.

Radical future reductions in the small-scale hydro feed in tariff means owners of pre-accredited projects must focus on on-time delivery of their schemes, says Alex Reading, Development Director at Green Highland Renewables.

There is no doubt the rush to pre-accredit sub-2MW schemes in 2013 and 2014 has sparked unprecedented activity in the small-scale hydro sector.

A quick perusal of data provided by the UK Department of Energy and Climate Change (DECC) shows we are now moving from an historical annual build average of around 11MW per year to possibly more than 100MW aiming to be commissioned over the next two years.

A total of 426 scheme achieved pre-accreditation in 2013 and 2014. If you are involved in one of these projects and it is not commissioned by year end 2015 or 2016 then, depending on the year of pre-accreditation, your tariff will fall by around 25 or 45 per cent.

It is an industry concern that not all of these projects will meet their deadline, so how do ensure that yours does?

Whether it is your own development or a third party scheme, good design will be key. Engaging with a recognised firm with a track record in hydro civil engineering may cost a little more, and scheme design may take two to three months, but will save time and cost in the long run. A good design gives a clear blueprint to your contractor, avoids foreseeable pitfalls and reduces contractual wriggle room as your project unfolds.

Do not underestimate how long it will take to discharge any conditions on your planning consent and CAR (Controlled Activities Regulation) licence – these are critical to achieving financial close and six months’ delay (which is not untypical) will take a significant chunk out of an already highly-constrained construction window. Planning departments are under strain and SEPA is becoming more prescriptive in their CAR licence terms, so do make sure you are well advised.

Similarly, you will have been given a grid offer date by SSE Power Distribution or Scottish Power Energy Networks. Both these firms are dealing with multiple projects and you will need to try and get what confidence you can that your offer date will be met.

(On a related note, the industry has already made representations to DECC to introduce force majeure provisions for grid and weather delays, and we await a response.)

Legal agreements always take time, and you will certainly need to engage with your lawyer to finalise any land agreements if you are working with a third party developer or leasee.

Achieving financial close is the final hurdle prior to construction. Secured finance is generally more straightforward, but if adopting a non-recourse route you can smooth the way by addressing all of the points above in as timely a manner as possible.

Every day spent prior to achieving financial close is a day lost to getting your hydro project built and operating.

The next two years will be extremely challenging, and exciting, for the hydro sector in Scotland. With a clear plan and the right team on board you can maximise your chances of success.

View the PDF edition of this article.

To view the full edition of Energy Matters, please click here.

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Alex Reading
Tel: 01738 493110
E-mail: info@greenhighland.co.uk

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