I have delayed writing to you for a long time now in the hope that I would be able to give you a lot of clear and unambiguous news, but I have realised that perfection is becoming the enemy of the good, so here we go with where things are today.
As you know, we have lost output due to a number of periods of disconnection from the electricity network. These outages actually started in the Summer of 2016, when we put them down to teething problems. However, we began to worry during last year that they could become a regular issue, which would then have long term consequences for our project. By the time of the AGM last year we had made numerous contacts with SSEN (the company that operates the network on the Island – our Distribution Network Operator or DNO) and managed to reduce the level of outages substantially, but not eliminate them entirely. The end result was that we lost around 12% of our output in 2017, a year that was also not blessed with a particularly high level of sunshine.
As part of the refinancing process (more on this later) our bank required that we obtain more certainty about the future levels of outages. To do this we employed independent consults, SGS, to undertake a modelling study for us. With some reluctance, SSEN provided the information that SGS required and we received their final report in December. It was good news I am pleased to say. The modelling and predictions showed that we were very unlucky with the timing of our project – it coincided with periods of extensive maintenance and replacement on the network, which only occur very infrequently. While that work is not quite complete, it is due for completion by 2019 and after that there should be no further significant outages for many years.
The end result of this is that our cash position remains tight, but as our Chancellor famously said, there is light at the end of the tunnel.
Some good news
One piece of good news is that our income is linked to the Retail Price Index and this has risen by 4.1% and with it our income for the 2018/19 year. While inflation is now dropping, it is likely to remain around 3% or more for a while yet, meaning that we can expect a further increase of 3% or more for 2019/20. This is above the 2.5% inflation level in our original financial forecast and will have a favourable financial impact.
It has always been our intention to refinance the project. Renewable energy projects are financed using a process called project finance – the debt being secured against the future cash flow rather than a hard physical asset as in house mortgages. Consequently the construction and commissioning phase are considered to be a particularly high risk period by banks, so they charge more for their money. Once projects have settled down and proven themselves, they relax and will then provide money at a lower rate of interest.
We are now in that position. Our project has passed its acceptance tests with only a few minor issues that we are resolving. As I noted earlier we are also advised that the severe outages we have experienced are short term issues, so future losses will be much reduced.
We have therefore been in discussions with our existing lenders, Close Brothers and also with Triodos Bank, a leading ethical bank. Triodos are looking like our preferred route and we have received an indicative offer from them, which significantly reduces our debt service costs. They have further due diligence to do, but we are hopeful of a firm offer soon and expect to complete the transaction during the summer. This is later than originally planned due in part to the time required for the SGS study, so this represents a further drain on our resources.
We will report on the progress of the refinance at our AGM in June. Our aim is that the refinance will enable the Society to commence paying interest to members, even if it is at a rate that is reduced in comparison with our original target.
Dates for your diary
- Wight Community Energy AGM will be held in June – date to be confirmed
- Riverfest http://www.footprint-trust.co.uk/riverfest.html Saturday 19th May 2018
- Isle of Wight Council Environment Conference 26th June 2018
- Future Isle of Wight Event 6th October 2018 http://futureiow.co.uk
In addition to negotiating with SSEN to reduce the outages and preparing for the refinancing, I have been undertaking a number of other actives aimed at the longer term development of sustainable energy on the Island.
In association with the IoW Council, SSEN organised an Energy Storage Workshop in December 2017. Sadly it did not provide any magic answers since under the current legislation, SSEN say they are obliged to treat storage as both a generator and consumer of power. Since their models say that the Island network cannot accept any further generation (at least at economic costs) then the scope for storage is negligible at the moment. However, it is possible the legislation may change or that low-cost control systems may become available, in which case it will be possible to look again at storage. In theory it has the potential to time shift the matching of supply and demand and thus relieve some of the stress on the network.
Another promising way of doing this is to increase the demand through the uptake of electric vehicles and smart charging technologies. With sufficient EVs and a degree of control over when charging takes place, it will be possible to absorb the periods of excess generation that cause stress on the network. I have been working with Jim Fawcett at the council on this and I think the council is now very supportive. In addition to the network benefits, EVs reduce the carbon intensity of transport (even if they are charged from our national mixed generation sources), they are quieter and produce virtually no local emissions. While the initial costs are still higher than equivalent fossil fuelled vehicles, this is changing fast and it is reckoned that by 2022 they will be more or less the same. Even today, the lifetime costs of EVs are less then equivalent fossil fuel cars. Purchased second hand, they win hands down (see later section on Living with a Leaf).
I continue to work with the Chamber of Commerce through my membership of the Economic Development Committee and am confident that many on the Island now see sustainable energy as an important part of our future.
Globally, the market for solar energy is growing as rapidly. Last year the total global solar market installed an impressive 98.9 gigawatts of new capacity, increasing by 29.3%, in comparison to the 76.5 gigawatts (GW) and 49% recorded in 2016.
China and India are leading the way, accounting for 63% of the total in 2017. China’s National Energy Administration announced in January that it installed 52.83 GW in 2017, up from 34.5 GW in 2016, well away from the next closest competitor, the US, which installed 10.6 GW, and followed by India with 9.6 GW, so despite the best efforts of Mr Trump, the US is still doing well.
One thing I find especially encouraging about this is that three of the most polluting countries in the world (due to a heavy reliance on coal for power generation) are amongst the leaders in solar installation, meaning that the CO2 reduction benefit is increased.
These days, the main driving force behind most of the installations around the world is price. In countries where there is a good solar resource and readily available land (think Chile, Mexico, the Gulf states, Australia….) electricity from solar PV is now the lowest cost energy there is. No subsidy, no help, just pure market economics. This is perhaps why even oil rich Saudi Arabia is planning to secure all its electricity from solar by 2030!
We are not quite there yet in the UK, but there are already rumblings and by 2020 I think we will start to see subsidy free solar + storage come on line here. This is truly transformational.
LIVING WITH A LEAF
My wife and I have had our 2015 Nissan LEAF for just over a year now. We bought it second hand from JustEVs in Southampton (https://justevs.com), where models like ours are listed at around £11,000. We only use it around the Island, and for that it is great – it is the car of choice, so our Honda Civic is feeling very neglected. Our LEAF has the small capacity battery (24kWh) and Nissan recommend that for long battery life it is best to only charge to 80% unless the car is to be used immediately (it seems that it is not a good idea to leave LIon batteries fully charged). In winter this gives a practical range of 65 miles, a bit more in the summer. This may not sound a lot, but for us that is comfortably Newport and back then Ventnor and back in one day. In practice, whenever the car is at home it gets charged, so we actually set out on every journey with a full “tank”. We have not yet used any public charging points, but there are quite a few scattered around the Island.
We try to charge the car when the sun is shining so that it draws power from our solar panels, but even when that it not possible, the running cost is very low. The car does roughly 4.5 miles for each kWh of battery energy, which works out at less than 3p per mile from standard price electricity. Under similar driving conditions I guess our Honda does about 40 miles per gallon in old money, which works out to around 14p per mile. Add to that zero VED and half the cost for a service, and the annual difference for 7,000 miles is about £1,000.
But what about battery life and expensive replacement? As I say, our car is coming up for three years old and so far as I can tell there is around 5% loss of battery capacity. Batteries don’t suddenly fail, so the degradation will continue slowly but even at 80% the car is still practical around the Island. At the present rate that will be in 9 years time, by which time the cost of a replacement battery pack will be a lot less than the £4,000 it is today, and it will have more energy.
Battery prices keep dropping and the rate of reduction has been continually underestimated. The latest information I have seen shows that battery prices have dropped from $1,000/kWh in 2010 down to less than $200 today and projected to be around $100/kW in 2025. Other than solar panels (which have shown even faster cost reductions) I cannot think of many other things that have come down in price by ten times in 15 years. And only a few years ago the “conventional wisdom” was that storage would never become cost effective, which would be a major barrier to increasing renewable energy. As it is, our electricity grid did not seem to have any problems when wind energy alone provided for 36% of demand recently, thanks in part to the ever increasing amount of storage on the network.
Which brings me to V2G, jargon for vehicle to grid – which is when EVs are connected via smart two way connections, so they can charge when power costs are low and actually feed back power at times when the electricity network is stressed and prices are high. This is going to be big and even the government can see that, having recently awarded £30million to a range of research projects. Meanwhile Nissan have been running successful trials in Denmark and all their new cars come with a V2G capability. It might actually mean that charging is almost free since the money earned by returning power can offset the cost of the imported power. Nissan say that just 10 LEAFs can power 1,000 homes for an hour and I have worked out that if just 5% of the cars on the Island were EVs and that the owners would allow up to 20kWh of capacity to be used, that fleet of cars could supply the average electricity demand on the Island for one hour. Just think of the possibilities when 50% of cars are EVs in 2040. This energy storage on wheels is going to transform our electricity network.
Chair, Wight Community Energy