Welsh dismay as hydro support axed

Small hydro operators have accused the Welsh government of abandoning the sector and its own climate change commitments after ministers scrapped a vital grant at the end of last year. According to the British Hydropower Association (BHA), they also failed to listen to businesses across rural Wales affected by punitive business rates. Welsh hydro owners are said to feel angry about not being able to contribute to any meaningful discussions about the decision, plus government failure to introduce a long-term viable solution which will protect the renewable industry and rural jobs.

Relief grants

The Welsh government announced it would ditch business rates grants for hydropower schemes in local ownership from 1 April 2021; only supporting community-run hydro projects in Wales. On 18 November 2020, Minister for Environment, Energy and Rural Affairs, Lesley Griffiths, said: “We will consider options for longer term support to the hydropower sector when the next revaluation of non-domestic rates takes place in 2023.”

The relief grants were introduced in 2018 after business rates were recalculated across England, Wales and Scotland in 2017 by the Valuation Office Agency. Hydro schemes were hit particularly hard and in some cases business rate bills rose by as much as 1000%, offsetting much – if not all – of revenue generated from electricity. After a BHA campaign persuaded ministers the excessive rates increase was unfair, the Welsh government introduced a relief scheme to cover some of the costs.

Richard Rees runs North Wales Hydro Power, which owns and operates 11 small hydro schemes mostly in Snowdonia National Park. The company has suffered a business rates increase of more than 8000% because of the removal of the grant scheme. Rees says it is extremely disappointing that the government has deserted private hydro operators in Wales who provide much needed renewable energy and rural investment.

“I am especially grateful for the support shown over the last four years by the Welsh government,” he said, “however I am incredibly frustrated that they have now taken a very short-sighted view in abandoning the sector without delivering on the long-term solution. It is the worst of all worlds, it is ill-conceived, and it is unsustainable for businesses like ours.

“Like any business, we aren’t averse to paying our share of business rates,” Rees added, “we just want to pay our fair proportion.”

The 56MW Rheidol hydropower project was commissioned in 1964. Excluding pumped storage, it is Wales’ largest hydro project according to the Energy Generation in Wales 2019 report.

Uncertainty

There are over 120 small hydro plants in Wales and during 2019-20 seven community projects benefited from the grant, along with 50 non-community ones (many run by farmers and other landowners). The total cost to government was an estimated £435,000.

Simon Hamlyn, Chief Executive of the BHA, said: “The Welsh government claimed there was no evidence that small-scale hydro operators would close or be sold off as a result of the decision to scrap the business grant. This is wholly untrue. The government was presented with evidence by us in January which showed that 75% of small-scale hydro operators in Wales will almost certainly be affected and that some would close, and they have chosen to ignore it.

“They have also decided to ignore the solution recommended by a report which they commissioned which said that ‘Prescribed Assessment’ was the answer, a method which has previously been used by the Welsh Government to remove uncertainty for certain classes of property for ratepayers. This is the long-term solution for hydro operators,” Hamlyn said.

It is estimated that 75% of hydro schemes in Wales are operated by local ownership consisting of local business including farmers and estates. This cohort, according to Ed Bailey of Baileys and Partners, will be the hardest hit by the Welsh government pulling their support for business rates.

Furthermore, ministers have been accused of hypocrisy by farming families who say the Environment Minister encouraged them to diversify their business, but they’ve now had the rug pulled from under their feet.

Bailey, whose family run a sheep and cattle farm in Snowdonia, said: “The Welsh government says that Welsh farming families need to diversify more to manage the risks associated with Brexit.

“But how can the farming community trust their stance if, on the other hand, the same Welsh government is willing to pull support from those farmers who have – like us - diversified, particularly when they have the evidence of the impact this will have on those people that the grant supports?”

As a result of diversification of his business, Bailey now runs two small-scale hydro plants which were eligible for the scrapped grant.  He believes that those hardest hit financially may have to consider selling their assets in order to release capital in anticipation of further volatility in the agriculture and energy markets.

505kW hydroelectric power station in Gwynedd, North Wales

Viable option

The Farmers’ Union of Wales (FUW) has also reacted with dismay to the development, and is urging the Welsh government to look for a long term solution to keep the production of hydropower on farms a viable option. 

The FUW says it has consistently recognised the threat represented by climate change and the need to take action to meet the Welsh government’s target of 1GW of renewable energy being locally owned, with 70% of Wales' electricity coming from green sources by 2030. FUW says that farmers in Wales have been instrumental in helping achieve a more than five-fold increase in renewable energy production in the past 15 years.

FUW Policy Officer Charlotte Priddy said: “Farmers who can't afford to pay the rates might be forced to abandon these schemes and that's the last thing we want. Furthermore, it will deter future take up of opportunities with hydro power, which is also a valuable source of extra income for farmers.” 

As Simon Hamlyn from the BHA adds: “The Welsh government has pushed small-scale hydro operators to a cliff edge and now it seems they’re simply abandoning them. Ministers are using multiple excuses to withdraw support for an important renewables sector. The government is seeking to hide behind COVID-19 and at the same time it’s also using the Valuation Office as an excuse, saying it doesn’t have the power to intervene on this devolved matter, when it clearly does. At the same time ministers are reneging on their published commitments to climate change.”

Spanner in the works

Shadow Minister for Climate Change, Energy and Rural Affairs, Janet Finch-Saunders, has said she hopes the Covid pandemic will not be used as a catch-all excuse for projects abandoned by the Welsh Labour-led government. 

“This is disappointing on a number of fronts….which has thrown an unnecessary spanner into the works, stalling our nation’s efforts to confront global climate change and inevitably leading to hardship for some private operators. I have consistently asked the Welsh government to look at introducing a hydropower development programme which helps landowners to invest in such projects,” Finch-Saunders said. With over 600 watercourses guiding water across Wales, she says that much progress can be achieved through encouraging investment in micro, pico, and small-scale hydro schemes.  

“However,” Finch-Saunders continued, “instead of doubling down on their support for this mature and proven technology, the Welsh Government have abandoned private hydro operators in Wales, who not only contribute to the production of much needed renewable energy but also inject vital rural investment where it is needed most.”

She urged the Minister for Environment to explain why the short-term funding offer from the British Hydropower Association was dismissed, as well as outlining what impact assessments have been carried out to evaluate the ramifications of such a decision.

Bedrock of the community

The BHA has urged the Welsh government to meet to agree a mutually satisfactory solution for locally owned hydro schemes.

“Small-scale hydro operators are the bedrock of many rural communities in Wales,” Hamlyn said, “and by abandoning them and failing to listen, ministers are blatantly ignoring their own decarbonisation targets.”