The grid connection for Kirk Hill is on track to be energised in April, with the first turbines able to begin generating very shortly afterwards.
Higher than expected construction costs
We want to let you know that the project has incurred some costs that have been higher than anticipated. The costs are around £3.5m higher than budgeted, or 11%.
We have always said members would not be required to contribute additional capital to the co-op. This remains the case. The additional costs will be funded by increasing the bank finance facility which is not expected to impact members returns over the lifetime of the project.
Savings rate for the first 6 months
Rather than fixing the price for a full year, the Board has decided to fix it for 6 months, starting on 1st June. It can then be fixed for a full 12 months in the autumn, when prices may be higher, if that appears to be the optimal strategy.
The price we have fixed for the 6 months from 1 June, coupled with a higher average operating cost in the first 6 months of the project due to lower generation over the summer and the need to build up our operating reserves means the saving rate for the first 6 months is forecast to be 3.2p/kWh. Without the increased operating cost the saving rate would have been around 4.3p/kWh. This reflects the current market price for electricity.
You may notice this is lower than the Graig Fatha savings rate, This is in part due to Graig Fatha receiving some grid benefits, which Kirk Hill is not entitled to. The first savings that members will see will be on their July bill, for generation in June.
The above projections do not include any generation prior to 1st June. Any operating reserves built up prior to June will be used to increase the projected savings rate.
The cause of the additional costs falls into three broad areas, in addition to the impacts of high inflation:
1. Delays to the road works needed to get the turbine components off the main road and over Croftengee Bridge, due to a utility company changing their position a matter of days before turbines were due to be delivered. This meant their services had to be diverted and, as well as the direct cost of this work, the delay increased the cost of storing the turbines before they could be transported to site.
2. More extensive road resurfacing was required on the public road leading up to the site entrance. In some parts we needed to effectively rebuild the road rather than just resurfacing it. Prior to construction we had budgeted 6-figure sums for repairs to this section of road, but the extent to which it degraded during construction was greater than anyone had expected.
3. The delay to the grid connection increased the project management and site operation costs.
Whilst the delays have increased direct costs, they have also meant the site has lost valuable winter generation. This has compounded the impact on the project's finances. It means there will be less early revenue to repay the bank finance facility. It will also make it more difficult to build up a healthy operating reserve as the first 6 month of generation will be over the summer when generation is lower.
We appreciate this will be disappointing. We have done everything in our power to minimize the impact of the cost increases on members and anticipate it can be effectively mitigated within the first year of generation.