Planning matters

Against a backdrop of volatile, uncertain market conditions and the emerging climate crisis, the importance of economic viability and environmental sustainability is as important as ever.

In recent times, businesses have had to delicately balance these two issues. Whilst many understood the necessity to reduce carbon emissions – either by virtue of ethical intuition or through force-by-policy – such objective needed to be facilitated in a financially stable manner. This meant finding a way to reduce carbon emissions, without significant (or any) rises in costs.

Now, this balancing act has transformed into a mutually beneficial objective for many businesses – by pursuing environmental savings, the business is able to reduce costs, and reduce them quite significantly! Introducing private wire energy – also known as power purchase agreements (PPA). A PPA is a deal between an energy provider (commonly from the renewables sector) and a private business seeking to acquire energy without the cost and constraints of standard grid energy. The energy produced by the renewable development is fed directly into the beneficiary, rather than into the grid network.

Whilst PPA’s are visibly favourable for both private businesses and energy developers, as explored below, the development of these schemes continues to face planning constraints due to issues such as landscape and visual and loss of agricultural land. To support private wire developments, Lichfields have developed an evaluation framework – Wired – which assesses the substantial economic, energy and environmental benefits that such schemes could deliver, providing material considerations in the planning determination. Further detail on Wired is provided at the end of this blog.

The average non-domestic energy cost per KWh across the UK has almost doubled over the last year alone (Figure 1). This represents an unprecedented increase in operating costs for energy intensive businesses, but inelasticity factors caused (in part) by wider market conditions means affected businesses are unable to recoup these costs elsewhere. This is a leading factor in the government declaring the need to control UK energy to avoid “being held to ransom with energy supply” in the future. By internalising energy supply, both at a business and macroeconomic level, the risk of price volatility is markedly reduced.

Consequently, it is clear that price is a driving factor for businesses seeking to acquire a PPA. Rather than being held to the uncertainty of price fluctuations, businesses with PPA deals typically agree a fixed rate for the energy throughout the operational lifetime of the renewable development. Further, the rate of this energy is at a fraction of the price that standard grid energy is otherwise.

Evidently, the savings generated by the PPA agreement will be substantial over the course of a typical renewable scheme life cycle (20 – 30 years). If applied, these savings could be used, for example, to support additional employment; investment into research and development; and provide the foundation for overall business growth – embodying the term ‘sustainable development’ in its most literal sense.

The UK is legally bound to the achievement of net zero by 2050 as part of amendments to the Climate Change Act (2008). As part of this drive, the government has implemented a number of strategies, legislation and rules for businesses to adhere to. One such regulation is the ‘Government Greener Rules’, which requires all companies bidding for government contracts worth more than £5m per annum to commit to achieving net zero by 2050. It also requires businesses to demonstrate progress against this target by achieving milestone reductions at set intervals.

Given that grid energy is comprised of 35% - 50% from non-renewable sources, it comes as no surprise that consuming grid energy has a comparably high carbon footprint. For energy intensive businesses, such as those within the manufacturing sector, the consumption of grid energy leads to a large associated CO₂ output, which is likely prohibitive for businesses aiming to achieve net zero. If, as a result, these businesses are unable to bid for major government contracts, there could be direct financial consequences by not transitioning towards renewable energy consumption.

One alternative but short-term solution to this issue is the consumption of renewable-certified grid energy – a certification that confirms all the energy a business consumes from the grid is derived from renewable sources. Whilst this does provide a sharp reduction in carbon emissions relative to standard grid energy, it still possesses a small associated carbon output and therefore continues to be a limiting factor for businesses aiming for net zero. It is also typically more expensive than standard grid energy and, as such, is often not considered as a sustainable option in the long term.

Although more prevalent in some areas rather than others, energy supply constraints can cause real issues with permitting major new developments in local areas. For example, data from the UK Energy Research Centre indicates that over 20% of industrial sites in the Electricity North West and Western Power Distribution networks are likely to be constrained in terms of electrical capacity[1]. Not only does this hinder economic development by preventing new development, it also risks wider energy issues such as power cuts.

The approval of a PPA scheme therefore provides additional energy supply in the local area. Despite this energy feeding directly into a business, it indirectly unlocks a level of spare capacity in the wider grid network as that business is considerably less reliant on the grid. This contributes towards alleviating pressure off the grid, which could indirectly support the potential for future development and secure stability of grid energy.

Our new framework – Wired – provides a comprehensive economic, energy and environmental assessment of PPA schemes. Within an assessment, the benefits outlined above are quantitatively modelled using forecasting analysis. This can be used to illustrate the potential cost savings and carbon reductions that could be unlocked by the approval of the private wire development. Using this information, it is then possible to present a number of positive ‘spin-off’ scenarios, highlighting how the approval of the development can lead to long-term significant economic benefits across the local and regional economy. This presents a material argument in favour of development and therefore supports the planning application.

Please get in touch if you would like to discuss how the team can help you.