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Milestone 01


The Eddleston Water Project


Initial Project Scoping


Green Finance Institute / GFI Hive / Investment Readiness Toolkit / Initial Project Scoping / The Eddleston Water Project

 Project Overview

The Eddleston Water Project is a flood resilience and habitat restoration project near Peebles, Scotland. The project was started in 2010 primarily to reduce flood risk and restore habitats at a catchment scale, and ultimately to gather an evidence base on the effectiveness of natural flood management for wider use. Measures implemented across the 69km2 catchment include the creation of 38 new ponds, the re-meandering of some 3.5km of once-straightened river channels, 100 engineered log structures to slow excess water, and the planting of over 330,000 native trees.

While the project was predominantly funded through grants from the Scottish Government, the Scottish Environment Protection Agency and a number of other funders, the project team also sold a small number of carbon credits from its native woodland creation through the Woodland Carbon Code. In February 2023, the project was chosen as a UNESCO Ecohydrology Demonstration Site, the only one in the UK.

 

Milestone 1: Initial Project Scoping

Often the initial task is to understand the site(s) you want to use and the land use change needed for nature restoration or creation. This includes considering the goals of the land managers involved, the vision within the wider catchment or neighbouring area, and whether there are permits or planning consent needed for any proposed changes.

At this stage, you can also conduct a high-level assessment to determine which revenue streams can be generated from ecosystem services , e.g. carbon credits, flood reduction cost savings, or biodiversity units, which will be crucial for identifying buyer interest.

Finally, it is useful to have an idea of the costs of the project and potential grant funding that may be available to support initial development.

Milestone 2: Identify and Work with Sellers

Initial ownership of the ecosystem services will belong to the landowners or, in some cases, the tenants of the sites that the project is using. However, these can be passed onto others, such as third-party project developers, with appropriate legal arrangements and compensation. In some cases, there may be a sole seller of the ecosystem services, where the site or landholding is large enough that it delivers the volume of ecosystem services needed to cover the costs of the project and attract buyers.

However, in order to achieve scale and impact, a project will likely involve multiple sellers, such as neighbouring farmers and estate managers. Scale of land is often needed to deliver significant environmental outcomes, and also to attract private finance. Project developers must plan how they initially contact and engage with these sellers going forward, building their wants and needs into the project.

Milestone 3: Baseline and Estimate Ecosystem Services

At this point, you will have understood the vision for the project and identified a particular ecosystem service or set of services to be sold. The next step will be to carry out detailed analysis – baselining each ecosystem service and quantifying what will be able to be delivered from the interventions, as well as planning how to monitor and maintain these interventions. You will need to rely heavily on ecological expertise for this more scientific Milestone.

At this step, standards, verification and accreditation methods will be considered in more depth.

Milestone 4: Identify and Work with Buyers

Based on your earlier market analysis in initial project scoping, you will have identified one or more groups of beneficiaries who may be willing to ‘buy’ or pay for the ecosystem service(s) to be created, restored or maintained. Buyers vary – as do their requirements – but at this step, greater buyer engagement is now needed to develop a deal that channels money towards the nature-positive outcomes that your project wants to deliver.

 

 

Milestone 5: Develop Business Case and Financial Model

You’ll have started building your business case and financial model in earlier steps – laying out your project’s vision, the market proposition and estimating costs and income. This step offers a review, in addition to providing details needed to build out the financial model and business case more fully. Both of these key documents will be iterated throughout project development, and will likely be altered during project delivery as new information emerges. These documents are interlinked and, if developed correctly, will ensure your project’s viability and help you with discussions with stakeholders – including sellers, buyers and future investors.

The financial model will also enable you to better understand the type of structure your project may take to attract investment (i.e.a loan, an equity investment, a bond) and what sort of returns you can afford to pay/offer.

Milestone 6: Develop a Governance Structure

A governance structure will inform the way in which the project is run when fully operational and for what purpose. It identifies appropriate decision making processes, who is responsible for what actions, and what controls are in place to make sure that the project is meeting its stated goals, all while abiding by the risk appetite of its engaged stakeholders. The legal entity to host the project will be a key driver in this, and the appropriate choice of entity will be dependent on several factors that are outlined below.

Your governance structure should align with and underpin your business case, as a necessary component of how the project will deliver its environmental outcomes and other strategic targets.

Milestone 7: Identify and Work with Investors

It is important to note that not all projects will need up-front investment, but for those that do, this section provides a framework for thinking around the development of the investment model. This does not constitute financial advice – as the GFI is not licensed to do so. However these considerations are based on the insight offered by project developers and other market stakeholders.

An investor will be a new core stakeholder in your project, and it’s just as important to think of what you require from investors, as much as what they require from you – so that you can build a positive and collaborative relationship with them.

This entails defining the investment ask (in line with the financial model), the strategy for approaching the right investors, and the negotiation of terms that can then be formalised in contract development (Milestone 8).

 

Milestone 8: Establish Legal Contracts and Closing

When all relevant stakeholders have been engaged and their terms of engagement are clarified as much as possible, this is the time to develop the legal contracts and close the deal. This stage is last because legal fees are expensive, and it is generally advised to determine as much as possible in previous stages before starting to draw up contracts in earnest.

Note: The information in this Milestone does not constitute any form of legal advice but instead serves as practical advice on how to manage engagement with lawyers and the process of contract development.

The Green Finance Institute is not a firm of solicitors or connected in any way with the courts. The information and opinions we provide in this section and across the Toolkit do not address your individual requirements and are for informational purposes only. They do not constitute any form of legal advice. We recommend that appropriate legal advice should be taken from a qualified solicitor before taking or refraining from taking any action.

Community Engagement

Community engagement is highly advisable for any project that aims to sell ecosystem services, to ensure fair outcomes for local communities and the long-term success of the project. Project developers can build connections with local stakeholder groups early on to spot both risks and opportunities.

Policy and Regulation

Project developers and enterprises will need to keep a continuous check on how current and future policy may affect the project, and also opportunities for the project to inform policy. The role of private finance for nature across the UK is being encouraged by the UK government and its devolved administrations, and new rules, standards and markets are being developed.

 
Acknowledgements 

 

With many thanks for their time and insight on this case study:

Luke Comins, Chief Executive Officer, Tweed Forum

 

 

 

 

 

Professor Chris Spray, Emeritus Professor of Water Science and Policy, University of Dundee

 

 

 

Date published: 26/05/2023

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Project Mandate

The Eddleston Water is a tributary of the River Tweed in the Scottish Borders, located within a catchment of 69 km2 that drains south to the Tweed at Peebles. It has a mix of forestry, rough grazing and improved grassland, arable and peatland. Part of the catchment is also designated as an EU Special Area of Conservation (SAC) for its salmon, lampreys, otters and aquatic plants. However, the river was classified by SEPA at ‘bad’ ecological status in 2009, using the EU Water Framework Directive (WFD) criteria, largely on account of historical changes to its banks and channel

The catchment has also seen a significant increase in flooding. SEPA’s flood risk assessment shows some 582 properties are at risk of flooding in Eddleston and Peebles under a 1:200 year scenario, but there have been several flooding incidents that have drawn attention to the lack of flood resilience within the catchment. Over the last 200 years, the river has been extensively channelised and straightened, losing up to 16% of its length and with embankments and drainage installed alongside it.

 

Peebles Village – October 2021

 

Given these characteristics, the Eddleston catchment was selected as Scottish Government’s main empirical research study of the effectiveness of Natural Flood Management (NFM) managed by Tweed Forum, in partnership with the Scottish Government and SEPA. Representatives from these organisations met at a flood-focused conference a year before and identified the lack of evidence proving NFM could be a cost-effective measure to reduce flood risk as a major challenge to implementation; something highlighted earlier in 2009 by a Scottish Parliamentary Inquiry into flooding policy.

At the time, Scotland’s Flood Risk Management Act (2009) was being developed and the Scottish Government recognised the need for a stronger evidence base for NFM. The Act (Section 20) requires that for any Flood Scheme being developed, one must assess to what extent and how the ‘natural characteristics’ of a catchment can also help reduce flood risk.

Luke Comins, Director of the Tweed Forum, said that the group wanted to create a “catchment laboratory” to start shedding light on this issue, and act as a forward-thinking advocate for the ‘upstream approach’ of natural flood management, rather than, but alongside traditional infrastructure flood defence measures.

The project’s aims were to:

  1. assess the effectiveness of NFM measures to reduce flood risk
  2. assess the impact of NFM restoration on habitats and species
  3. work with landowners and the local community to maximise the benefits to them, while sustaining farm businesses

 

Assessing the current state of the land

Before doing anything, in 2010 the University of Dundee as the Project’s main research provider produced a scoping study that identified potential NFM measures that theoretically could be introduced. Working with cbec ecoengineering, this included a characterisation of the river and catchment, utilising existing information on land use, ecology and hydrology, as well as a new ‘fluvial audit’ field-mapping physical condition through the system.

The Scoping study also included the production of a Monitoring Strategy and a Stakeholder Engagement strategy. In 2011 the project team  set up a comprehensive hydrological and ecological Monitoring Network to measure the effects of the NFM interventions. This includes a comprehensive array of instruments across the whole catchment measuring rain and other weather parameters, river levels and flows, groundwater and soil moisture to identify how and where flood runoff is initiated and how floods then move downstream.

Eddleston catchment map showing location in Scotland (inset), NFM measures and numbered locations of hydrology monitoring instruments

The team gathered two years of baseline data before undertaking any capital works, including one year which saw the highest recent river levels on record. This initial data showed a complex interaction between surface water and groundwater, with a significant contribution of groundwater to localised flooding that Comins notes was a valuable learning of this early study and key for planning the NFM interventions.

Alongside collecting hydrological data, the project team also undertook ecological surveys of aquatic invertebrates, plants and fish at a whole catchment scale to assess the health of the river’s biology. More detailed ecological surveys were also undertaken at two locations where the river had been re-meandered (and two control sites) to assess the impact of re-meandering on channel structure and riparian ecology.. Over the course of the project, these surveys have been repeated to demonstrate the recovery of the river and any uplift in biodiversity as a co-benefit.

 

Determining appropriate change in land use

Based on the information gathered, the catchment would benefit from a network of re-meandered rivers, high-flow log restrictors, riparian tree clusters, ‘leaky’ ponds and restored peatland, from an NFM and habitat restoration point of view. These would be placed strategically based on the hydrological analysis, current land management practices and historical context of the area. For example, it was theorised that high-flow log structures would be best placed in headwater streams, and ponds in the upper parts of the catchment would store water in floods and storms.

However, the project team understood these measures would only be effective as a whole if implemented at scale across the whole catchment, and landowner agreement was naturally key to this implementation. Along with the Monitoring Network, the project team undertook a series of interviews and surveys to assess farmers’ attitudes, cost-benefit analyses, income foregone, and land use strategy. It also consulted the 30 or so farmers to ask their views on what and where NFM measures may be best suited, incorporating their local knowledge of the catchment. Comins highlights this as a valuable part of the project’s design.

 

Funding project development

This initial phase of work was managed by the Tweed Forum, and directed by a small Project Board chaired by the Scottish Environment Protection Agency (SEPA) and the Scottish Government, with the University of Dundee as the main Science provider. This initial phase took around two years, and costs totalled £355,000, including the feasibility study, the Monitoring Network, baselining and engagement with farmers. This first phase was predominantly funded by the Scottish Government.

Over the course of the study, the Project Board has expanded to include the Scottish Borders Council, with the British Geological Services as a second main science provider alongside Dundee university. The project also has a Steering Group, set up to provide advice and support, including the NFU (Scotland), Scottish Land & Estates, the, Forest & Land Scotland, Environment Agency, Forest Research, Tweed Commissioners and NatureScot.

Further costs over the following 15 years included the full monitoring, evaluation and modelling of the project (£1,157,342), and the design and capital works of the NFM practices (£1,251,265). Total costs were c.£2,800,00, though ‘help in kind’ was a significant component of the project’s resources. Notably, this included time from SEPA, which undertook all the extensive hydromorphological and ecological monitoring, and the University of Dundee, which allocated several fully funded PhD and master’s students. Other universities also dedicated such resources.

The majority of funding came from the Scottish Government and the EU Interreg Programme (for ongoing monitoring). However, the project also secured grants from a variety of sources, including SEPA, the Forestry Grant Scheme, the Nature Restoration Fund (NatureScot), Scottish Power, CEMEX, the Woodland Trust and some carbon finance. Comins highlights that this project has undertaken extensive scientific and ecological research to provide an evidence base and blueprint for other NFM projects. The overall aim of the project is to serve as a ‘typical’ catchment and share learnings with other sites and locations.

While the main focus of the project was NFM, the team also emphasised the other ecosystem service gains, such as biodiversity, amenity value, carbon sequestration and water quality. Comins recommends that other projects gather supportive information on such co-benefits to improve their chances of securing funding.

 

Sources

 

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