Price support allows communities to raise low-cost citizen finance for renewable energy projects

Community energy groups can raise citizen finance for renewable energy projects at lower interest rates than from commercial lenders, but they often depend on price guarantee schemes. Policies providing price stability and business model innovations are needed to realize the sector’s potential contribution to the zero-carbon energy transition

Financing Community Energy Case Studies : Edinburgh Community Solar Cooperative

This report presents the first of four case studies of UK community energy organisations conducted during 2018/19. These will later be included as part of a synthesis briefing alongside findings from a series of sectoral-level interviews. The case study makes use of a combination of qualitative (e.g. interviews, organisation reports) and quantitative (e.g. financial reports) data. Key summary lessons include: The ability of community energy organisations to raise community finance is underpinned by government subsidies (e.g. feed-in-tariff). By providing a long-term guaranteed revenue stream, they de-risk the energy project. Their removal presents investors with a less attractive proposition, potentially closing down an important stream of finance. Local authorities are a key facilitator of community energy projects. For example, they may purchase power from community energy organisations, as well as provide space for power generation. The latter is highly dependent on the extent to which the procurement process and council leadership values locally supplied, low-carbon energy from not-for-profit organisations. Intermediaries are a key provider of economic, technical, social and political capital to community energy organisations. A key example are project developers such as Energy4All. Choices around legal structure have an important bearing on the financing and governance of a community energy organisation, including the: * Extent to which 'community benefit' is incorporated into the legal entity. * Level and type of finance it can raise. * Degree of risk it exposes its investors to. * Way in which control is exerted over the organisation's strategic direction and who wields this power

Financing Community Energy Case Studies : Brighton and Hove Energy Services (BHESCo)

This report presents the final of four case studies of UK community energy organisations conducted during 2018/19, which will later be included as part of a synthesis briefing alongside a series of sector-level interviews. The case study makes use of a combination of qualitative (e.g. interviews, organisation reports) and quantitative (e.g. financial reports) data. Summary of key lessons includes: Energy efficiency and heating services can constitute a core offering of community groups. Unlike many other community organisations, BHESCo has been able to develop a compelling value proposition, centred on delivering affordable comfort and warmth, through a combination of efficiency and generation measures. By employing a Pay As You Save model, it has unlocked a previously untapped revenue stream for communities, which importantly is less reliant on generation subsidies such as the Feed-in-Tariff (FiT). However, we find the model is limited in its ability to assist the fuel poor, who cannot be expected to share any cost savings generated, and tenants of rented properties where landlords are uninterested in investing in energy savings. Financing a serviced based model presents uncommon challenges in the community energy sector. Compared with other community energy groups, BHESCo’s investors must consider higher operating costs, on-going capital needs and a more complex offering, based on its business model rather than a singular asset. However, BHESCo has negotiated these challenges deftly and is open to alternative approaches, involving blended finance and working in consortia, as it explores potential larger scale projects. The complexity of BHESCo’s business model presents both advantages and disadvantages. On the one hand, its relative complexity makes the venture less dependent on any single technology, customer, revenue stream or subsidy (such as the FiT), versus most other community energy groups. This helps to insulate the organisation from market and policy shocks. On the other hand, the complexity of BHESCo’s business model and the novelty of its proposition mean it has taken time to mature as a venture. For a time, it relied strongly on grants and the commitment of its key founder and CEO. The adoption of the bona fide co-operative legal structure stems from both financial and ethical considerations. A co-operative model was adopted largely as a means of raising relatively low cost community shares. This was largely a reaction to a lack of affordable finance being offered to community-led energy efficiency oriented businesses like BHESCo, even from ethical investors. Beyond finance, the co-op model was also selected on ethical grounds. Specifically, the cooperative model's 'one shareholder-one vote' model provides a broader distribution of power versus the 'one share-one vote' model employed by companies limited by shares. Furthermore, the absence of an asset lock provides its citizen investors with the option that assets can be liquidated to pay back their investment

Financing Community Energy Case Studies : Green Energy Mull

This report presents the second of four case studies of UK community energy organisations conducted during 2018/19. These will later be included as part of a synthesis briefing alongside a series of sector-level interviews. The case study makes use of a combination of qualitative (e.g. interviews, organisation reports) and quantitative (e.g. financial reports) data. Summary of key lessons: Government subsidy is the cornerstone to securing both community and private finance. By providing a substantial long-term guaranteed revenue stream, the FiT allowed GEM to raise community investment and further investment from commercial and state-backed lenders. Even with the FiT in place, sourcing commercial finance was challenging. In its absence, it is unlikely that commercial lenders will lend. The ability to raise community finance is dependent on the affluence and population density of a locality. Unable to raise all the finance it needed from the community of Mull, the organisation was forced to access more expensive loan finance. Communities present important test beds for innovation, but direct long-term benefits may not be forthcoming. In its role as a trusted local organisation, GEM demonstrated an important role for community energy in facilitating innovation, but the extent to which it has been able to benefit from this is questionable. Partnerships with public landowners are critical to project delivery. Forestry and Land Scotland made land available for use by GEM, which was critical to their hydro scheme. Without this the project could not have taken place

Financing Community Energy Case Studies : Gwent Energy CIC

This report presents the third of four case studies of UK community energy organisations conducted during 2018/19. These will later be included as part of a synthesis briefing alongside a series of sector-level interviews. The case study makes use of a combination of qualitative (e.g. interviews, organisation reports) and quantitative (e.g. financial reports) data. Summary of key lessons: The withdrawal of the FiT has made business model innovation necessary, whilst legacy revenues from the FiT have made experimentation possible. The withdrawal of the FiT has meant that the CIC is unable to employ its existing revenue model for future projects, forcing it towards a more service-oriented approach. Interestingly, the 20-25 year long guaranteed revenue the FiT provides has also provided the CiC with the necessary capital and security for them to experiment with their business model. Community loans and bonds can be a viable alternative to community shares for delivering community energy projects. Instead of crowd-sourcing share finance from hundreds of shareholders, Gwent Energy has shown how raising community loans and bonds through a members-only Investor Club presents a different means of raising capital. Challenges of CIC legal structure have been overcome by an innovative finance model and a cooperative ethos. Whilst it has some advantages, the CIC legal structure suffers from the inability to raise community shares and the lack of an automatic democratic “one shareholder, one vote” system. These shortcomings have been overcome by legally incorporating these voting rights and raising finance through loans and bonds from community members only. In turn, these investors are invited to sit on committees to shape the CIC’s future. Heating business models present key challenges for community groups. Gwent Energy have thus far been unable to expand the heating side of its business, because of a combination of the poor rate of return from some low-carbon heating technologies (e.g. heat pumps), the rising cost of feedstock (e.g. biomass) and the difficulty of getting users to sign up for district heating. High dependency on individuals with appropriate levels of time, skill and commitment to generate social and environmental benefits. The establishment of the CIC would not have been possible without the involvement of one key individual. However, steps are being taken to overcome the dependency on the company’s chief architect

BEIS Call for Evidence - The Future for Small-scale Low-carbon Generation : Response from the UK Energy Research Centre (UKERC)

This submission draws on two streams of work undertaken as part of the UKERC research programme. Firstly, one stream concerns community energy, and our responses on this topic draw primarily on data from the UKERC Financing Community Energy project. Secondly, it draws on a number of recent UKERC publications on electricity systems and networks

Policies to unleash UK community energy finance

For the past decade, the typical UK community energy project has delivered decentralised and democratically owned, renewable power generation. These have typically relied on state revenue payments schemes (e.g. Feed-in Tariff) to be financially viable. By stabilising revenues and de-risking projects, they've not only provided an income stream but also helped communities secure finance to cover capital costs. However, since the Conservative majority government formed in 2015, community energy has faced a series of disruptive policy changes. The discontinuation of revenue payments, an effective ban on onshore wind and the removal of social investment tax breaks), have created turmoil. Alongside the continued scarcity of capital grants, these policy changes have meant that community energy finance has simultaneously become more important and harder to secure. This paper draws together a national survey, expert interviews and four community energy case studies. It finds that some communities have responded to these policy shocks by implementing novel, service-based business models in an attempt to capture new revenue streams that replace these lost earnings. Even so, critical barriers to community energy finance persist for all types of business model including the: 1) poor connectedness of the UK's community energy finance supply chain; 2) poor community access to land and buildings; 3) limited time, skills and experience within communities; 4) limited opportunities to partner with local stakeholders; 5) poor access to wider energy markets; and 6) logic of institutional investors that prioritises scale and financial profit. Policy action is therefore needed to address these barriers and to unleash new finance into the community energy sector. This paper presents eleven policy recommendations to achieve this aim, including but not limited to: 1) the provision of low-cost state community energy finance and a joined up finance chain; 2) grants and community benefit payments that support business model experimentation, especially in deprived areas; 3) minimum net-zero and just transition investment standards; 4) enforced partnerships with local authorities and NDPBs; 5) swift and affordable community access to under-utilised public land; and 6) a UK-wide community energy strategy and stand-alone delivery body

Financing grassroots innovation diffusion pathways : the case of UK community energy

Exploring how finance can better support Grassroots Innovations (GIs), community-led solutions for net-zero transitions, we examine finance’s role in the case of UK community energy (CE) across three ‘diffusion pathways’: niche replication (growth in the numbers of projects), individual scaling (growth in organisational scale) and collective diffusion (confederation of GIs). We examine each through a nationwide survey, interviews and four case studies. We find that while finance currently supports replication of small-scale CE projects, the incompatibility between GIs and the wider finance meta-regime inhibits individual scaling. The UK CE sector has responded with collective diffusion, via business group intermediaries, attracting greater, but still limited, finance. Consequently, for GIs to diffuse effectively they must be supported to translate across both sectoral regimes (e.g. energy) and broader meta-regimes (e.g. finance). This paper contributes to theory on the role of finance in sociotechnical transitions and the role of intermediaries in GIs diffusion