New ResPublica Green Paper supported by Friends of the Earth

Energy market diversification has been a heated topic of political debate. Attempts to address an unbalanced and unsustainable market have largely been approached in terms of widening consumer choice, ushering in new competition and breaking up supply. But such focus is missing the real opportunity, which is to change the market completely by encouraging consumers to become producers and owners of their energy.

By the term ‘community energy’, we are in this paper referring to the means of generating and distributing energy that is owned and led by communities, rather than by individuals or private businesses. Community energy vehicles are democratically accountable to community members and participants and may deliver a financial return to investors, or reinvest surplus profits back into the project and wider locality.

Empowering users to become owners and ‘market-makers’, community energy in both its practical manifestations and the ideas which it represents is an ideal of the Government’s ‘big society’ and localism agendas.

To create inclusive local and national benefits, which broker in local groups from both disadvantaged and more affluent areas, we need to enable and incentivise associative and group practice to play a competitive role in market provision. There are already a number of examples from within the UK and abroad, where countries such as Denmark and Germany have shown the potential for communities to lead their local renewable energy economies.

This paper reviews the benefits created by existing community energy schemes, and how these create a framework of responsibility for users, landowners and developers. Though the environmental and social effects are benefits in themselves, the micro-economies created via community energy projects are transformative on a much broader level, achieving incremental economic change to the entire supply and demand process.

Community schemes can only begin to transform the wider energy economy when self-supporting trust networks are enabled both within and between communities and other partners. Through ‘market-making’ practices, local residents achieve powers of ownership, commissioning and distribution, bringing real choice and true ‘bottom up’ competition back into the entire system and creating opportunities for all types of communities, beyond the choice few.

This paper turns to a variety of inspirational cases, from Fintry Renewable Energy Enterprise, which negotiated a community stake in a nearby wind farm being developed by a commercial company; West Oxfordshire’s Low Carbon Hub, which aims to generate and connect enough energy to replace the local Didcot power station closing in 2015; and the German town of Schönau, which set up its own energy co-op to buy the local electricity grid.

In order to incentivise the formation of many more like these, and develop stronger and more self-sustaining ‘local trust economies’ that have the potential to change the macro-energy landscape, we recommend that community energy must be aggregated across policy agendas.

The Localism Act offers a number of opportunities for community projects to attract further finance and assets that will enable them to thrive. The Department of Energy and Climate Change, the Department for Communities and Local Government, and the Cabinet Office should orchestrate a co-ordinated support programme for community energy which recognises the building of local community-led partnerships as central to opening up production and supply. The Treasury should also help to facilitate new community energy schemes and partnership models by addressing the way tax reliefs incentivise, or inhibit, community finance.

Private developers and suppliers, local authorities, businesses and housing associations are well placed as guarantors and capacity builders within the UK’s emerging community energy market, and should be recognised and positioned as such in the national and local policy framework. With the resources, assets and position of such partners, new models of social and economic organisation can come together and grow in capacity and legitimacy over time.

Communities should also be granted the right or entitlement to own their local distribution grids, through clear legal structures and partnerships. Such partnerships should be encouraged through the exploration and creation of new ‘hybrid’ company models that would allow for both community and private sector returns.

There are, in short, unprecedented opportunities for the community energy sector, in addition to those for Government, local authorities, communities, businesses, energy suppliers and industry players. By drawing such opportunities to the forefront of market reform, the sector can usher in, not only a responsible capitalism, but a truly transformative capitalism which places the market back into the hands of the people.