Wind Energy Market Capitalisation
Power to the People
Article 2 for The Hebridean
McIntosh continues exploring issues surrounding community, this week looking at
the opportunities and threats of wind energy.
in The Hebridean, Stornoway, 21 August 2003, p. 7, with supplementary
letter, 25 Sept 2003.)
(Published in The Hebridean, Stornoway, 21 August 2003, p. 7, with supplementary letter, 25 Sept 2003.)
So, the question of wind energy is weighing on many people’s minds. It feels a bit like the early days of the superquarry debate.
I’ve spoken with a number of folks trying to make their minds up, often feeling troubled by lack of information and concerned at the speed of developments.
Let me nail my colours to the mast. I don’t see wind farms as identical to the superquarry. Wind turbines can be put up and taken down again. The permanent damage is minimal compared with ripping out the belly of a mountain and one day maybe putting God knows what back into the hole.
A wind farm at least makes visible the environmental cost of the energy that we already consume. Personally, I’d rather that than have the true cost hidden in ways that cause probable climate change and require fighting wars in the Middle East.
The best solution, of course, would be to conserve energy and not have to generate it in the first place. But inasmuch as some energy will always have to come from somewhere, let it be from renewable natural sources.
That said, it is imperative that Scotland generally, and the Western Isles in particular, gets its act quickly together. If we don’t, then renewable energy will develop in ways we’ll come to bitterly regret.
Allow me, then, to outline 5 principles of acceptable wind farm development. I’m then going to come back to the first one, because there’s an issue here about the impact on land values that needs drawing into the debate.
The first principle of acceptable wind farms is that communities must give their consent, they must collect much of the benefit, and they must remain in control of future developments.
This implies that farms should only be permitted where communities own or have significant control over the land. It is imperative that renewable energy does not merely benefit the corporations and landlordism.
The second principle is that wind farms must be zoned. We’re no longer talking about pretty little windmills on postcards from Holland. We’re talking, instead, about Triffid-like metal structures, three times the height of the Butt of Lewis lighthouse.
These will dominate the landscape for several miles around. They’ll change it from a tranquil landscape to a moving one.
We don’t have to see this as being a bad thing. It could be looked on as a providential indicator of wellbeing. It could be seen as an extension of the weather itself. But few people would want to see wind turbines everywhere. Tourism is now a major pillar of the Hebridean economy. Tourists mostly come to look at nature’s handiwork; not at an industrial landscape. It would be no good if we made the lairds and corporations richer at the expense of the honest livelihoods of ordinary folks providing tourist services.
So, wind farms must be zoned. They should be concentrated in some parts of the island but not others. Permission must not be given in areas of outstanding natural beauty or of special social or cultural sensitivity. And this leads in to the third principle.
The profits must be applied on a cascade basis. Primarily, they should go to immediate host communities including families whose homes may suffer loss of amenity value. But the whole island should also benefit.
If sharing around doesn’t happen, wind farms will be like oilwells. They’ll be in the back yards of some, but not others. That would be divisive.
Fourth, it goes without saying that wind farms must be constructed in ways that cause minimal ecological damage to bird life and wetlands. This applies not just to the turbines, but also to the service roads and pylons.
And, fifth, it equally goes without saying that the equipment should be manufactured and maintained, wherever possible, from the local employment and manufacturing base.
From the outset, the planning process should be geared to encourage the maximisation of linkages and multiplier effects within the local economy.
I now want to come back on and expand the first principle – that planning permission should be granted only where the affected communities consent to the development, collect much of the cash, and remain in control of what happens to their environment.
The fact is that huge sums of money are potentially at stake if an undersea cable is laid to allow for the export of electricity, or alternatively, when hydrogen fuel cell technology becomes commonplace, thereby creating a market for hydrogen produced on-the-spot out of the electricity.
Industry expert, Dr Colin Anderson, has been quoted in the press as saying that a 100 megawatt farm (i.e. enough power for 100,000 bars of an electric fire) operating at 35% capacity, will turn over £17 million per annum. It will pay back its capital investment in just 5 years, and have a lifespan of at least 20 years.
In the case of Lewis Windpower Ltd., we’re looking at a 50:50 joint venture between British Energy Renewables and AMEC Wind. The 200 – 300 turbines they propose will each generate around 2.5 megawatts, totaling 600 megawatts from 28,000 acres.
Even if the running costs are high, it’s not hard to see that the potential for profitability to both the company and the landowner is immense. If communities lose out on this, it would be a double tragedy. Not only would they lose revenue, but they’ll also find themselves priced out of the market if considering land reform.
The reason for this unexpected and unwelcome side-effect is that the economic value of land is calculated, in substantial degree, by a process know as market capitalisation.
It works like this. Suppose an investor expects a rate of return on capital of 7% and that an estate generates crofting and sporting rents of £10,000 a year.
The amount that an investor would be prepared to pay to buy the estate, if acting as a pure capitalist and taking account only of the economic rate of return and with all else equal, would be the amount of money that, if securely invested at 7%, would yield £10,000 interest a year.
This works out at about 15 times the annual income – approximately £150,000 – which, by the way, is how the 1976 crofting act’s formula of 15 times annual rental is arrived at.
Put a wind farm on the same land, and the “market capitalisation”, as it’s called, instantly shoots up into funny money figures. We’re talking the land value once permission is granted for a wind farm rapidly climbing to 15 times millions of pounds!
That’s why wind farming could inflate land values far beyond the possible reach of community buy-outs under the new land reform legislation.
Calum MacDonald MP has recognised this problem and drawn it to the attention of Brian Wilson. Wilson, however, is no longer Energy Minister. We need to watch carefully that land reform doesn’t get killed off before it gets properly started.
Indeed, in July I was talking to a community leader in Lewis who told me that a year ago their laird was supporting the idea of a buyout. But now he thinks he might be able to get a wind farm, he’s all of a sudden putting obstacles in their way.
The solution, in my view, has to lie in the planning process. Planning is, in theory, a process that is locally and democratically accountable.
If planning permission was to be given for wind farms only where community buyouts have taken place, or where residents have voted clearly in favour of a deal with a conventional landlord, then the ownership of the wind would rest in the community where it ought to belong.
Planning permission is, after all, a concession granted by the community as a whole. As such, the community has a moral claim to being a beneficiary, and certainly, a strong claim to avoid being injured by land value inflation caused by market capitalisation of wind farm profits.
It will be objected, of course, that present planning law has no adequate provision for the privileging of community interests. At present the laird can often veto community interests, but not the other way round.
Well, we have our new Scottish Parliament. So let’s legislate. And until then, let us place on hold all applications for wind farms that are not explicitly backed by the community most affected.
Let’s have renewable energy sensitively zoned, but only if it avoids leaving our communities doomed to being subsidy junkies accepting peanuts in some multinational’s back yard.
In response to a letter sent in requesting further information, the following letter from me, supplementary to the above, was published by The Hebridean on 25 September 2003:
Having been working abroad for much of the past month, I have only now caught up with the letter that you published on 4th September from A Macphail of Mid Borve responding to my 21st August article about wind farms, and asking if I could, “enlighten the public as to the procedure of removal, and in particular, describe the size of the foundation of each wind turbine…”
I have, accordingly, spoken with David Hodkinson, Managing Director of the wind energy division in AMEC. He advised me as follows: “In principle what happens is that the local authority or whoever authorises planning requires a bond to be put in place by the developer and this can be called down should the decommissioning process not take place properly. As far as I’m aware, we’re required to remove all of the above-ground infrastructure. The foundation, which will typically be a metre below ground level, remains in place. The site is required to be visually restored as it was.”
Mr Hodkinson added: “Any interference with water courses will be avoided as part of the design process.”
In response to more specific aspects of A Macphail’s question, he passed me on to his colleague, Sandra Painter, who is Head of Consents. She said that the foundation for a large wind turbine typically comprises 10 – 15 square metres of reinforced concrete, set below ground level. Unless specifically required to do so, they would not plan to remove foundations in the event of decommissioning because this would cause disruption whilst leaving them in place is harmless.
She said that while present calculations of viability have been based on 2 – 2.5 megawatt machines, by the time the project is ready to start in, say, 5 years’ time, the norm may be to use 3 – 4 MW machines. Due to this uncertainty they cannot yet say what the precise height of the turbines will be.
Another uncertainty is the means of connection to the National Grid. Options are still being explored, and questions such as whether the transmission lines will be overground or underground cannot at this stage be answered.
I asked why AMEC should bother with the Western Isles when there must be easier sites to develop on the mainland. She said it was because they were invited in. The Council had approached them, being interested in developing Lewis as a centre of excellence in environmentally-friendly energy production.
I notice from their website that AMEC are a vast company with interests spanning food and beverages, pharmaceuticals, electricity transmission and even nuclear waste packaging. With 45,000 employees worldwide and an annual turnover of £5 billion, they are a considerably larger economic entity than the entire Western Isles. This need not in itself be problematic. If Lewis is to export energy to the National Grid (and thereby contribute more towards environmental sustainability and balancing the nation’s books), the reality is that companies like AMEC will be necessary partners. Unlike with a superquarry company, the consequences can be dismantled after 20 years if necessary.
Those favourable points made, there clearly remain concerns about community benefit, land value capitalisation, zoning and the protection of prime landscape where crucial details have yet to be worked out. These must be explored and agreed through democratic community structures at as early a stage as possible to avoid the risk of planning blight.
In short, hard questions must be asked, and hindsight engaged from the outset.
See also letter in the Stornoway Gazette of 1 July 2004, about the need for a more open debate on Lewis windfarm proposals.
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16 September 2003