‘Bank of Mum’ & Megawatt Parties

14^th January 2013

Andy Heald talks community energy and the potential for upscaling

2012 was the year that I tapped ‘bank of mum’ for a loan, and subsequently threw my first two ‘megawatt parties’. On this occasion, however, I could offer something back to Mum – a market-beating rate of return. And at the same time, I could benefit.

I am a practitioner and co-founder of Generation Community – a low carbon co-operative. As a home owner in Cornwall, with a south-facing roof, I was in a position to install solar PV (photovoltaic) panels. The choice of finance was between providing the capital myself, or renting my roof to a financier who would install the panels for ‘free’, whilst I’d get the free electricity. Mum lives in London, with an unsuitable roof, and as a pensioner has a lousy pension. The solution then was a loan between ‘bank of mum’, and myself. ‘Bank of mum’ receives principal and interest back at 9% per annum for 10 years – I get the free electricity for the first 10 years, and both electricity and income for the following 10 years, thanks to the Feed-in-Tariff.

This mutual benefit, between ‘bank of mum’ and myself, shows how individuals can come together to develop and finance low carbon initiatives, without the support of grants and private financiers.

So, how can this be replicated nationally? In Europe, where federal banks lend at 3 – 4% for low carbon technologies, communities can, and have, provided the equity capital to supplement the bank debt. Subsequently they own significant amounts of community energy generation. The legislation in the UK has changed, as recently as 2002, to provide the platform for ‘communities of interest’ to form and be a recognized entity. The UK ‘low carbon community’ is not geographically tied to one specific area, but operates nationally. Utilising the “low carbon community” allows for the “bank of mum” model to be scaled, enabling people across the UK to collectively develop and finance projects, where real benefits are made to the local community. Intermediaries like charities, social impact funds and foundations are looking to fill some of the missing funding gap.

A Community Benefit Society – a form of Industrial & Provident Society – is one where ‘investing members’ receive a ‘fair financial return’ whilst non-investing members receive the benefit of the investment. In the case of Gen Community, traditional low-income areas of the UK have been identified, which have high fuel-poverty ratios, and exhibit good locations for the deployment of low carbon technologies, but lack the necessary capital. This is where the wider low carbon community can be engaged to provide the funding for a fair return. Any investment with an income stream attached to it, results in investing members not just receiving a ‘social’ return, but also a ‘fair financial’ return. (A slight digression, but, I would be interested in investing with other like-minded people, in a community retirement home, as an investing member now, and a benefit member later).

Route to market, and cost of delivery, is aided by exemption from being treated as a controlled investment, under the Financial Services and Markets Act 2000. Enterprise Investment Scheme allowances for community schemes also make the investment more appealing. With marketing and transactional costs low, due to use of the Internet, online banking and social & traditional media, returns to members are not being stripped from them at every opportunity.

The target market is projects £0.5 to £2 million, where the ‘cultural/cuddly’ image of community energy, as identified by Rebecca Willis* is no longer applicable. Additionally, the limit of £20,000 withdrawable shares per investor is no longer the maximum investment permitted. Transferable shares above the £20,000 limit can be issued, per offer, with the same voting rights as withdrawable shares, to HNWI/sophisticated investors. The proposition now becomes scalable.

With the launch of Ethex, the not-for-profit stockbroker, there is now a central platform which helps to validate these offers and so ethical IFA’s have to conduct less due diligence per offer. In addition to this, liquidity is provided in the transferable shares, providing a potential exit route for larger investors. All of these recent improvements remove the risk of time delays eating away at investor and management enthusiasm and capital deployment. Commercial principles of a transparent nature injected into the cooperative model can only enhance its offer.

Former US Secretary of State, Madeline Albright at the ‘International Summit of Cooperatives’ in Quebec City last Octover reiterated her conviction that the cooperative model will play an increasingly concrete and decisive role in the fight against hunger, poverty, and community empowerment. The democratic values defend the well-being of members and of the community as a whole.

In reality, Gen Community has witnessed the liberal middle classes as the early, but not exclusively, pioneering investors. Those with surplus income live in cities in the UK, least suited for deploying low carbon technologies; those areas best suited are ‘capital deprived’. Qualitative research from the low-income communities reports a strong desire to join other households who have benefitted from the solar PV installation, to listen and discuss everything to do with ‘energy’ within a non-sales environment. Each house annually consumes 3 to 4 megawatts of electricity, and will generate 2. On generating each megawatt milestone, the benefit community will engage for a ‘megawatt party’ to further their understanding of energy, which ultimately will benefit their health and well-being. Both communities benefit from less reliance on fossil fuels.

The Community Benefit Society model is registered with, but not regulated by the FSA. This offers a sound business model, with community engagement and good governance at its’ heart. In the UK, we will shortly be celebrating three years of Feed in Tariff revenue – three years of payments and megawatt parties for the generation of low carbon electricity. The demand for community energy schemes is strong; the speed of roll out could be accelerated, if some of the ‘greed’ is taken out of the system, with debt finance available at 3-4%, to supplement equity ownership by the UK low carbon community.
*Community Energy: Beyond the Big Six with Co-operative Solutions – Respublica Event 11/07/2012 comment from Rebecca Willis, Author of Co-operative renewable energy in the UK.