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RESOLVED:
 
Cabinet is recommended to:
 
1. 
Agree the
proposed approach as set out in paragraphs 4.1 to 4.25 of this
report for setting up Hackney’s branded residential solar
project to supply locally generated solar energy to residents in
the Borough.

 
2. 
Delegate
authority to the Group Director of Finance in consultation with the
Hackney Light and Power Delivery Board; and, with the Cabinet
Member for Energy, Sustainability and Transport to:
· 
proceed
with plans set out in the Hackney Light and Power Residential Solar
Business Case (Appendix 1)
· 
agree the
final lists of sites and buildings to be included in the
pilot
· 
enter into
contracts and create all other necessary or ancillary agreements
with suppliers in accordance with the strategies set out in the
report and relevant business case.

 
3. 
Spend
approval of up to £1.96m is requested of capital investment
by the council to enable design, installation and operation of a
solar powered system as outlined in this paper.
 
REASONS FOR DECISION
 
The Council has declared a Climate emergency and set a
target to achieve Net Zero emissions across its full range of
functions by 2040. Against these objectives, a Climate Action Plan
(CAP) has been produced, which recognises the decarbonisation of
energy supply as a key delivery pathway for achieving the
target.
 
In line with the CAP strategy, the Council plans to install
six megawatts of solar capacity on Council-owned housing estates by
2030. This equates to one megawatt per year starting in 2024.
Deploying solar in excess of this target will make achieving other
aspects of the strategy easier and align with Hackney's broader
ambitions.
 
Hackney Council’s Mayoral 2022 to 2026 manifesto
committed to developing a plan to expand solar panels across all
Council estates. Part of the Council’s strategy is to develop
a plan to utilise solar on up to fifty per cent of the residential
roof space owned by the Council. This would mean solar being
installed on around 1,400 residential buildings.
 
Hackney Council has also committed to establishing a
municipal energy company focused on the deployment of solar PV and
other renewable projects that will aid the Council’s
decarbonisation ambitions and plans. The Residential Solar project
sets a route in action to deliver on this manifesto commitment.
This is subject to a future Cabinet decision.
 
Government figures on fuel poverty estimated that 9,700
households in Hackney suffer from fuel poverty. Through the
roll-out of supplying solar PV to residents at a reduced rate
compared to options currently available on the market, the Council
is in a stronger position to make strategic decisions to assist
vulnerable residents. This will enable identified homes across the
Borough to save on energy costs without families having to
compromise on other essentials.
 
Approximately 1MW of solar generation on the
Council’s Corporate sites have been delivered already,
however it has been more challenging to develop the business case
for selling Residential solar generation to residents, as the
current regulatory environment means that the majority of
electricity is sold to the grid. Whilst Hackney's approach to PV is
not driven by profit, there is a need to be able to recover any
investment and cover staff costs to deliver - therefore innovative
approaches to delivering PV on residential blocks of flats require
consideration.
 
The relatively low uptake of energy generation within the
Borough compared with consumption figures and the potential of
using its existing assets for energy generation provide the Council
with the opportunity to lead the way in encouraging a greater level
of energy generation, which is generally low across London relative
to other parts of the UK. The Residential Solar Pilot Project will
be able to offer its customers better tariffs for renewable energy
products from its own generation.
 
Investment cases for rooftop solar rely heavily on the
amount of generated solar electricity that can be used on-site.
This is because the income that can be gained by exporting a unit
of solar electricity to the grid, linked to the wholesale market
price for electricity, is far lower than the income gained by using
a unit of solar electricity on-site. Reducing the amount of
electricity that must be imported from the grid is preferential as
retail costs of electricity are much higher than the export price
that can be achieved.
 
The Council has found the development of viable investment
cases for its corporate sites to be relatively straightforward. The
Council can fund the installation costs and directly receive energy
bill savings from the use of the generated solar electricity on
site, which pays (or at least contributes to) the cost of capital
for the upfront costs. However, the Council has found achieving
viable investment cases in residential blocks to be much
harder.
 
A
mismatch in incentives between landlords and tenants - typically
referred to as ‘split incentives’ has been a key
barrier to the installation of solar PV on Hackney’s
residential properties where there are dual interests in a property
(i.e. landlord-tenant and freeholder-leaseholder tenures). This
issue is highlighted in both the Council’s Net Zero Energy
Strategy and Climate Action Plan.
 
The Council also encounters a second challenge specific to
solar and blocks of flats. Due to historical regulatory
requirements, the traditional method for installing solar PV on
flats has seen systems connected to the ‘landlord
supplies’, feeding communal facilities like stairwell
lighting and lifts. The outcomes achieved are poor. Residents
receive no direct energy bill savings. The amount of solar used on
site by the communal facilities is very small, delivering low value
and non-financially viable investment returns.
 
The consequence of this issue is evident in the outcomes of
a desktop study completed for Hackney Council, by consultants
Syzygy, in 2021 (provided as Appendix 4). This study set out to
help Hackney identify opportunities for solar across its roof
spaces. While the potential for 12 megawatts of new solar capacity
was identified on residential blocks, the study failed to present a
viable business case for investment. This is because the study
focused on the traditional method for installing solar PV and found
that just 14-29% of the generated solar electricity might be used
by the communal facilities in the blocks, while the rest would be
exported.
 
Hackney Light and Power has set out to identify the chosen
solution through exploration of the current market and the best
technological, economical, and regulatory approaches available.
After extensive research and collaboration with external energy
specialists, Emergent Energy’s microgrid solution is proposed.
 
A
microgrid can be understood as a local
electrical network that sits between the regulated distribution
networks and customers’ properties, to which some local
generation is connected. A microgrid
typically has a single point of connection to the
‘grid’ through which electricity is imported and
exported.
 
Using a microgrid, solar PV
generated on a block of flats can be sold to the residents. The
residents in the block who are customers of the microgrid are, from the perspective of the
electricity industry, sub-metered, because they buy their
electricity needs from the microgrid
operator and not from a national electricity supplier. The solar PV
generated can also be sold to the Housing Service (landlord
supplies) to power the lifts and communal lighting.
 
Emergent Energy has developed this method for enabling
customers on private wires to switch, and advocated to Ofgem that this be introduced into the industry.
Ofgem agreed that the  solution was credible and awarded two
‘Sandbox’ trials to demonstrate the solution live in
the market, after which, if it was shown to work, the solution
would be introduced into the industry as a standard operating
procedure.
 
Emergent Energy have since demonstrated to Ofgem the technical validity of the solution and
are now progressing through the process that will see the solution
become a standard industry procedure. This process is expected to
take 12 to 18 months.
 
It is through this supply arrangement that we are able to
solve the problems that the Council has traditionally faced in its
approach to installing solar PV on residential properties. By
selling the locally generated solar PV at a cheaper price than the
residents can buy from the grid, the residents save money on their
bills.
 
The added benefit is that the units of solar PV that are
sold to residents effectively achieve the retail price of
electricity (albeit discounted), which is higher than the wholesale
price achieved when a system exports.
 
In this way, we can generate more income for the solar
system, such that the installation capital investment and interest
is projected to be repaid from the project returns.
 
The approach has been demonstrated via a series of pilot
schemes with Gateshead, Brighton and Nottingham City Councils and
there are currently nine such pilots operating, supplying c.210
customers.
 
The pilot provides a scalable solution that can be rolled
out across Hackney’s housing portfolio, as well as across the
wider Hackney Borough, and leads the way for other Councils and
communities nationwide.
 
The business case report is set out in full in Appendix 1 -
Hackney Light and Power Residential Solar, which has been prepared
by Emergent Energy in collaboration with Council officers through a
working group set up to deliver the report. The report includes
details of the proposed operating model and contract arrangements,
resident offer and engagement plans, and extensive information on
the delivery of the pilot.
 
Provided as Appendix 6 is a proposed site list of
identified buildings initially selected to be a part of the pilot.
This has been developed in consultation with colleagues in Housing
and the Resident Liaison Group (RLG) and relevant Tenant and
Resident Associations (TRAs) have been updated.
 
The indicative programme for delivering the pilot is
provided as Appendix 2 - Hackney Light and Power Residential Solar
Implementation Plan and is summarised in the table below
 
DETAILS OF ALTERNATIVE OPTIONS CONSIDERED AND
REJECTED
 
As part of the LEA-funded business case development, an
independent market assessment provided as Appendix 3 was
commissioned to explore a number of options for the installation of
solar PV on Hackney’s housing estates. The other options
explored by the Council which were subsequently rejected
include:
 
Option 1 - Energy Local Clubs
 
This approach is delivered by a Community Interest Company
that has designed a means for local people to benefit from local
energy through Energy Local Clubs. This enables households to join
together and use local, clean power when it is generated. A better
price is agreed for local generators and residents reduce their
bills.
 
Option 2 - Solar Sharing Microgrid
 
This approach involves sharing the benefits of solar panels
with the residents. Instead of residents each having their own
supplier, the landlord (or new group) would buy all of the
electricity for the block and sell this, along with the solar
energy, to residents as needed.
 
Option 3 - Peer-to-Peer
Exchange
 
This approach involves a peer-to-peer energy exchange to
increase the energy provision efficiency and divide the value
between generators and consumers. The concept of peer-to-peer is
also known as a shared economy, and it is typically implemented in
a local grid system. Peer-to-peer energy trading typically involves
a  group of participants, including
generators, and consumers. Peers buy or sell energy directly from
each other without intermediating conventional energy
suppliers.
 
Option 4 - Solar Microgrid
 
This solar microgrid solution
is able to supply residents and the landlord directly with energy
produced from the solar PV on-site. The solution uses a Power
Division Control System (PDCS). The function of a PDCS is to share
a single source of energy generation to multiple, separately
connected units, behind the meter, while conforming to all safety
and network regulations.
 
All of the above solutions offer financial benefits to
residents, but none provide the option for a return on investment
for the Council and were rejected on this basis.