Decision

RESOLVED:

Cabinet is recommended to:

1. 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. 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.

1. 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.