As this project has recently slipped into its tenth year of operation we thought it might be a good time to circulate an update as to the story so far, whilst also providing some insight as to some of the challenges that lay ahead. An amount of the information will already be well known to some community members, but has been included / repeated to benefit those who have joined us more recently.

The Island of Hoy Development Trust (IoHDT) started the project in 2008 and after early feasibility studies, and having identified a site, it obtained funding for initial project development alongside very similar projects on Eday, Shapinsay, Rousay and Stronsay.

The IoHDT immediately formed a trading subsidiary, Hoy Energy Ltd (HEL) and charged them with the task of obtaining capital funding and developing / completing the turbine project as modelled and allowing the targeted outcomes to be achieved.

In March 2011 HEL achieved closure on a £1.74m financial package with 90% funding from the Co-op Bank – repayable over 15 years. The €900k Enercon turbine was ordered from Germany and the £800k civil engineering works started in early May. The turbine went live and started generating to the Orkney distribution grid on October 20th 2011.

The turbine is an Enercon E44 which stands on a 45m tower, has a rotor blade diameter of 44m and measures 67m at its highest point. When generating at full power it produces 900kW and exports to grid at 11,000 volts.

In order to produce 900kW the turbine requires a steady wind speed of minimum 14m/s (32mph) which will allow it to spin at 33rpm under full blade pitch. If the wind speed exceeds 28m/s then the turbine automatically feathers its blades to a neutral angle and shuts down into storm mode.
The relationship between wind speed and generation is more cubic than linear, so sadly if the wind speed drops 10% then output will drop nearer to 30%. Whilst the turbine does an excellent job of adapting to all wind speeds the days where a continuous 900kW output is achieved are indeed quite rare, often a brisk day will see the turbine churning merrily at 30rpm but will likely be only be producing around 500kW.

The annual production target in the financial model (used to obtain the bank loan) is 2,294,000 kW/h. To date we have managed to hit this target every year except for two, 2015 and 2019.

As the project qualified for a feed-in-tariff in 2011, a government generation subsidy, the income it obtains is proportionally higher than any current wind farm project could obtain as the FiT is now closed to new applications.
Our project sells all of its generated energy to the national grid via a power purchase agreement (PPA), currently with NPower, which generally achieves between 3p and 5p per kW/h dependent on market prices and seasonal trends. In addition we claim a FiT of 12.7p per kW/h, so total income is currently around 17p per unit, roughly the same as most of us pay for our domestic electricity.

Annually the project will generally gross between £370k and £450k, of course dependent entirely on wind levels as well as other factors such as breakdowns and export limitations from grid constraints. Due to the high levels of bank funding the project is subject to tight financial controls, managed quarterly by the Co-op Bank with formal accounting audits being completed annually by Scholes Accountants in Kirkwall.

HEL only receives money earned by the turbine from the bank (quarterly waterfall payments) when all pending loan payments have been made and various financial covenant tests have been passed.

HEL employs part time staff to operate and monitor the turbine on a 24/7 basis, as well as conducting the administrative tasks, covering everything from risk assessments and health and safety management through to organising maintenance and of course the all-important monthly energy sale and FiT claims.

The HEL management team consists of five directors, two of which are common to the IoHDT board. The team as a whole benefits from a wide range of experience in the social, commercial and technical arenas coupled with professional legal and financial expertise.

HEL does not pay bonuses or share dividends, with 100% of taxable profits being formally targeted for donation to the IoHDT, using the trusts charitable status to minimise corporation tax. Any amount of trading surplus not transferred to the trust is retained in HEL and formally accounted as an operational reserve in readiness to fund future repairs such as turbine blade replacement, the current operational reserve is £525k
All HEL and IoHDT audited accounts and financial statements are available in the public domain.

Income from HEL to the IoHDT was originally modelled to be around £75k pa starting in 2013, transfers actually started in 2012 and to date have averaged out at £90k pa. This money has been managed by the trust to achieve and maintain the initial project outcomes, which include the community bus service, refurbishment and support of the islands community centres and provision of a community benefit fund.

Information on the community benefit fund, including how it is managed and how awards are made is available from the IoHDT.

HEL have faced many challenges over the past 9 years, including extensive lightning damage on two occasions, extended periods of grid exclusion due to data communication issues and generator winding failures through salt corrosion being amongst the worst. Sub-sea cable failures have also been responsible for reduced income in the last 2 years, an issue that sadly has yet to be fully resolved.

More recently the HEL board are looking at strategies for the post year 12 period, when a prepaid / pre-budgeted service and repair contract (EPK) from Enercon will no longer be available – additionally worrying as Enercon are now looking to diversify their business away from on-shore wind turbines.

Financial provision is also required due to the expectation of blade replacement being required in the next few years, with a set of new blades currently sitting on the Enercon price list at circa €400k ex works, the final cost with shipping, crane mobilisation and engineers would likely see a final figure close to £500k. At the outset we were informed by Enercon that operational life expectancy for an E44 turbine was 18 years, but this could be less in Orkney due to high wind levels.

We are currently in year 10 and so in the not too distant future, probably after the post EPK year 12 situation is clear, the HEL board will be looking at options to hopefully replace the existing project and or exit in such a manner as to maximise community benefit. Hopefully the more recent IoHDT Legacy Project will make some headway towards that goal.

Should anyone want additional information please feel free to contact the IoHDT or any of the HEL Directors, or send an email to brian.clegg@btconnect.com.