First Published by Brighton Energy Co-op by Will Cottrell
We’ve done well. Really well. The 40-odd energy coops that exist across the country have so far raised £18m quid for spanking new renewable installations. In 2013 131 new energy coops were registered, so we’re looking forward to seeing things grow hugely in 2014. Exciting times.
Reclaiming the Energy Sector
And yet while this is a fantastic achievement, things need to be bigger still. A few years back I went to an imaginatively-titled seminar ‘Reclaiming the Energy Sector’. It was – and is – a great aspiration. Yet what it really showed to me was that – for communities to really grab the energy sector from the behemoths that currently own it – we need to get much, much larger.
How could that happen? The biggest energy coop in the country provides an instructive example. Spread across 30 acres, Westmill Solar Coop raised £16m in 2011 to take ownership of a 20,000 solar panel (5MW) installation. Westmill has over 1600 members and is the world’s largest community-owned solar farm: Brilliant. But an important aspect of Westmill is that their solar park was already built. A private developer did the legwork, the community took ownership a year after it had been plugged in.
Why build a solar farm when you can buy one?
At present community energy organisations tend to develop their own renewable energy projects from start to finish. While that’s great stuff (and something we’re keen on at Brighton Energy Coop), in order for community energy to scale this model assumes that communities are actually able to develop huge projects. That’s a big ask when you get above a certain size, given the technical, legal and financial acrobatics required to get these things off the ground. Trust me: here at BEC we’re developing our fifth project, and it’s still damn hard work.
To help community energy scale, communities need to buy up existing kit. That’s because if we are really to talk about getting big (and big in the land of energy means really big) we need to join forces with the herculean efforts performed by private companies in getting projects off the ground (you can see who’s developing large-scale solar projects here). Community energy can thus release cash back to these developers, giving them more impetus to go and do more projects, and so on. It’s a virtuous circle.
Follow the money
You ask: if you’re going to buy a solar farm, can communities raise the money required?
Westmill is again instructive here. They raised a phenomenal £6m from individuals (in just 6 weeks), and received a £12m loan from Lancashire County Council Pension Fund (LCCPF).
Let’s take a close look at these numbers. To sell £6m of shares, you need to have a pretty decent rate of interest to get all those people interested in your project. Which is exactly what Westmill did. Members receive a return of 9-11%. So we can see that projects of this sort of size require returns of around 10% in order to be able to sell sufficient shares.
The other portion is that £12m loan from LCCPF. This is fundamental: trying to raise the whole amount through selling shares would probably require circa 10,000 members. The admin cost of that lot would be enough to sink a battleship, as well as the marketing costs of selling the shares in the first place.
So Westmill did a great job in chatting up LCCPF. And why shouldn’t they: they provide LCCPF with a solid, predictable income stream – just the thing for a pension fund that knows (more or less) how much it’s going to pay out each year. It’s key to note here that the debt is long-term (23 years in this case): short term debt is no good since its repayment knocks out the return to shareholders in the short term, and so provides a disincentive to the community investing.
LCCPF is unusual: there are not many pension funds investing in renewables, let alone community renewables. Indeed, finding this debt bit is the weak side of all this: it’s not clear who will lend the cash, on the right terms (it’s got to be long term and usual lenders want their money back, quick).
So work needs to be done on finding debt providers who will lend to community projects and thus allow them to take ownership of the big projects developed by commercial operators.
There are possibilities, of course. Local Government Pension Funds are all potential investors in local community energy schemes. Since the localism bill, local councils can borrow at around 4% and lend for profit – they could be lenders to community energy schemes. And there are private organisations, such as Triodos, the Coop Bank or Abundance Generation who might also be interested.
Working with developers: anyone got any ideas?
The UK Government recently-released the Community Energy Strategy (CES) containing an intriguing section which has many people scratching their heads. The CES states:
“We expect that by 2015 it will be the norm for communities to be offered the opportunity of some level of ownership of new, commercially developed onshore renewables projects. We will review progress in 2015 and if this is limited, we will consider requiring all developers to offer the opportunity of a shared ownership element to communities.”
(see p36 of link above)
That sounds a lot like the government is going to make some kind of partnership mandatory, if it’s not being done voluntarily.
Which is fine – most developers are happy to work with the host communities. Why wouldn’t they: it’s in everyone’s interest that everyone is happy with renewable kit. The question is: how do we work together?
Lots of talk has focussed around joint ventures, splitting off bits of systems for communities, and companies ponying up to build the odd village hall or two.
Which all feels a bit like fiddling around the edges. A bolder approach is required. The way for communities to partner with commercial developers is for communities to take 100% ownership of projects once they are built, financed by part equity and part debt (see above).
As part of their planning consent local authorities should specify that projects should be offered for sale to communities immediately; part of the lease agreement with the landowner should also specify that the project is to be resold to the community. And if the community doesn’t raise the money well hooey – the company can keep hold of it. At least they tried.
Another aspect of the localism bill may mean that – if a renewable asset comes up for sale – there will be a moratorium period before it can go onto the open market. This period is to give community groups a chance to raise the capital to bid for the asset. Again, this looks likely to push developers towards selling out to the community.
Community energy has the potential to scale – and scale quick. By buying out existing installations the communities have the opportunity to own large-scale renewable installations. Work needs to be done on finding debt for these kind of community schemes, but there are possibliities out there. And with the government telling commercial developers they need to get involved with the communities in which they work, positioning communities as their clients (potential buyers) is a surefire way that everyone is happy in working together.