Councils across Scotland will be allowed to sell green electricity they generate to the National Grid in a move UK ministers hope will kick-start a new energy revolution.
Designed to increase the number of renewable energy projects across Britain, the move could also prove a boost for the battered finances of local authorities.
Last night the decision was welcomed by a number of councils, including Highland and Shetland Islands.
Ministers have overturned a “frankly ridiculous” law that banned councils from selling on any excess renewable electricity they produced.
The restriction was introduced in 1989 during an era of large-scale electricity privatisation, but ministers believe that in today’s society, especially with the need to reduce carbon emissions, it no longer makes sense.
They are concerned that it has restricted local projects, with councils limiting their investment in renewable projects. Chris Huhne, the UK energy secretary, has written to all local councils to tell them about the changes, due to come into force next week.
Although no calculation has been made for Scotland, his department believes that the move could result in £100 million a year of income for councils in England and Wales. In Germany, 1% of all electricity is generated by local authority-owned renewable projects.
Mr Huhne said the restriction on selling energy had stood in the way of the “vast potential role of local authorities in the UK’s green energy revolution”.
He added: “This is a vital step to making community renewable projects commercially viable, to bring in long-term income to benefit local areas, and to secure local acceptance for low-carbon energy projects.”
The so-called “Feed in” tariff, a subsidy that already pays households to provide electricity to the National Grid, will apply to councils from next week.
Last month six community-owned companies in a remote part of Scotland were allowed to connect 11 wind turbines to the National Grid, in a move it is predicted will generate £60m over 25 years for the economy of the Western Isles.
Some Scottish councils are already deeply involved in renewable energy development. Controversial plans to build a 150-turbine wind farm on the Shetland mainland are being pursued by a 50/50 partnership between Scottish & Southern Energy and Viking Energy.
Viking Energy is 90% owned by the Shetland Charitable Trust, an arm’s-length independent organisation which works with the council and has 21 councillors among its 23 trustees. Many believe that wind energy can earn more for the islands than even their acclaimed deal with the oil companies.
There is significant local opposition to the wind farm but Iris Hawkins, chairwoman of the council’s infrastructure committee, welcomed Mr Huhne’s announcement.
She said: “This change will potentially allow another funding source for renewable energy projects and could encourage council or partnership projects that will see more of the revenue generated being retained by the council for the further benefit of Shetland as a whole, including development of further energy efficiency initiatives.”
Dr Michael Foxley, leader of Highland Council, who has long campaigned for communities to benefit directly from renewable energy development, said: “This is very welcome news. We will definitely be pursuing it.”
A Scottish Government spokesman said: “We have been pressing Westminster to make this change for some time and are pleased the UK Government has seen sense and allowed councils to join the green revolution.”
He added: “We will continue to press for further changes to remove barriers to delivering our energy potential, and deliver a level playing field when it comes to the costs of supplying energy to the grid.
“This includes ending the system whereby punitive charges are imposed on Scots energy suppliers, while those in other parts of the UK are effectively paid subsidies.”
Mr Huhne also said Britain is on track to have a new nuclear power station by 2018. He admitted the project would not receive financial support from the Government but said the nuclear industry is committed to it.
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