Community Energy Strategy: The Roadblock to Scaling Community Energy

22^nd January 2014

Andy Heald, co-founder at Generation Community, calls on the corporate sector and debt financing to boost community energy

Community Energy will remain the domain of wealthy areas where volunteers (often professionals and retired) muster up the enthusiasm, knowledge and community spirit to deploy and finance a low carbon technology, for the benefit of the community. Whist I am an avid supporter, and investing member, of this type of mutual ownership of low carbon generation, it isn’t going to make inroads into the Big Six dominance or dent the profits of the commercial energy world. Some of the most deprived areas in the UK have the best locations for the deployment of low carbon technologies. However, when outside developers and financiers enter a location due to a lack of local wealth, the rewards are often heavily skewed against the community.

Don’t get me wrong, the government has aided local delivery by carving out an enterprise investment scheme allowance for community energy projects, introducing the ability to lock into tariff rates, and providing the investment vehicle in the shape of community benefit societies. However, there remains a fundamental roadblock.

I can source the best location for the deployment of solar PV, or wind turbines, financially engineer most of the associated feed-in-tariffs revenue for the benefit of the community, through a large community fund, whilst still rewarding investing members with a fair financial return, complete all the due diligence, and contractual negotiations, write the offer document and still only get to the starting line – the community equity raise. There is help, in the form of, a not for profit platform, Ethex, who, post conducting their own due diligence and validation of the project, will charge a small fee for equity introductions. However, this doesn’t entirely solve the problem. There remains the ‘unknown’ of whether you will succeed in your raise, or have to have a long offer period, sapping enthusiasm and costly in terms of time.

There are two solutions to scale community energy at a faster pace than we are currently seeing. The first solution is to tap the corporate sector. There’s a decade of guilt hanging over it, and a desire for good corporate social responsibility. It just so happens that community energy projects offer fair financial returns, social and environmental benefits. No corporate pension scheme can offer these triple returns. I would like to see corporates encouraging their employees to invest in these schemes in order for mutual ownership to be maintained. My current solar share offer – Staffordshire Sunny Schools – is looking to raise £1 million to install solar PV on 25 schools in Staffordshire. Surely the largest employers in Staffordshire, whose employees have children at the schools in the county, can see the benefits of aiding the schools through reduced electricity bills, a community fund creating real social impact, whilst engaging their employees. There needs to be a dialogue between the corporate sector and community energy developers.

The second solution is to debt finance the offers, so that the only monies required are for construction, and a small equity raise. By debt financing the offer, the purchaser for the completed project is known at the outset. This might not be too far away. 2014 will see the first local authorities and housing associations take the plunge and contractually reward a community benefit society, or co-operative, to install a large solar PV or wind project. At the same time, social impact funds, or a forward thinking local authority pension scheme, will fund this, through a debt instrument. The Green Investment Bank could also play its part. Significant community benefits, from the feed in tariffs (which currently all of us are all paying for through our utility bills), will be deployed back into local projects, aiding community resilience after the lower cost of loan finance is repaid. Bringing commercial expertise into the community sector, thinking nationally but acting locally, will bring rewards for the brave few who fight the good fight for the benefit of our communities.

I look forward to the announcement on the government strategy consultation regarding community energy and will jump for joy if the mandate for the Green Investment Bank is changed to allow development equity, or debt, into community energy projects. This might require a modest change in the EU state aid de minimis rules, but who knows what might happen!