Community Energy Strategy: What are the implications for commercial developers?

5^th February 2014

Gaynor Hartnell, Community Engagement Advisor to the REA, discusses the implications of DECC's Community Energy Strategy

DECC’s Community Energy Strategy is a glass half full for some, and half empty for others. Jonathan Porritt gave it a 4/10. Megan Darby of Utility Week was rather more impressed and summarised it in a very readable article entitled “DECC feels community spirit.”

From the perspective of commercial project developers, it contains a fairly hefty item. The first action listed in the executive summary is: “The renewables industry has committed to substantially increase shared ownership of new onshore renewables developments. By 2015 it should be the norm for communities to be offered the opportunity of some level of ownership by commercial developers.”

Where the text elaborates, it calls on industry and community stakeholders together to come up with a target for the community ownership of commercially-developed projects. If the Secretary of State feels that by the end of 2015 progress is limited, legislation to require developers to offer an ownership stake could be brought in. As Megan puts it: “There is more work to be done on how exactly developers deliver on this community ownership idea: the detail has been kicked to a “taskforce”.”

I’ve not seen much of a negative reaction. Either developers haven’t clocked it yet, or they are not complaining to me. However, I don’t imagine it’s gone down well with everyone. There are a few project developers out there who regard communities as an obstacle in their path, rather than a partner with whom they could forge a win-win relationship. Achieving the latter is only going to happen if developers have to quality community engagement practices. I recently ran a mini project gathering pithy summaries from academics working in the field of community engagement, published a blog on the subject and sent it to members of the Renewable Energy Association.

So how could this be win-win? In a nutshell, it’s because city money costs more than community money. If a project is part-funded by a community energy company, with money raised from people purchasing shares in it, then the difference can be shared between the developer and the community. It also creates a home for “community benefit” payments, which for wind energy following the recent revision of the RenewableUK protocol, are now £5000 per MW, per year. Instead of this cash going to some grant-dispensing body it could further boost the coffers of the community energy company, enabling it to deliver local energy efficiency projects or put the money to work generating more income by doing a renewables project entirely of its own. Peter Capener, author of the study published alongside the Community Energy Strategy, estimates that community projects generate 12 to 13 times more value to the local area than commercial models.

The REA and Pure Leapfrog are planning work with a small group of developers that “get” this model. Our aim is to disseminate the knowledge gleaned from those that leading way to those that are more sceptical or less able to move as quickly.

An approach some wind project developers take when distributing community benefit payments is to give rebates on energy bills. This is often requested by residents in areas where projects are proposed, and one can see why. It’s intuitive to conclude that hosting a wind project near you could entitle you to a lower electricity tariff. Unfortunately the Community Energy Strategy does nothing to address this. There is much discussion about lowering energy bills, but the fact of the matter is that licenced electricity suppliers are not allowed to have localised tariffs. Ofgem prevents them from doing so and Government seems content to let this situation remain.

The only option that developers can offer in response to this request is to electricity suppliers as a vehicle for distributing a set value rebate. Renewable Energy Systems Ltd (RES) is doing this with its Local Electricity Discount Scheme (LEDS). LEDS does not tie customers to using a specific electricity provider, but they must let RES know who they buy their electricity from and if they change provider.

Other developers encourage collective switching, where residents are urged to move to another supplier in order to receive a discount. Again it is a set discount, e.g. £150 per household cash back, not a reduced cost in the sense of a lower price per kilowatt hour. Some commentators have questioned the income tax implications of this approach.

If the means by which we can secure a genuinely lower tariff in the area surrounding a renewables project is via a new “licence lite” supplier, there is going to be limited uptake. It’s not an option that’s likely to appeal to community energy companies widely. Many are stretched enough as it is in establishing themselves as a legal entity and raising finance, to say nothing of those that go through the whole project development process.