A year of madness in the community energy sector
It has been a crazy year for both community energy and the wider renewable energy sector.
The year started with such high hopes for solar in particular as the government introduced a special opportunity for community energy groups to secure Feed in Tariffs for ground mounted schemes between 5 – 10MW under a “shared grid” arrangement. It was also a confusing start to the year as the Department of Energy and Climate Change’s guidelines were sparse to say the least and nobody knew exactly what “shared grid” meant nor how to be certain these large scale projects (£5m+) would qualify for Feed in Tariffs in the first place! January to March saw the usual mad rush to install projects under a more familiar ROC subsidy, leaving a relatively small window, April to June, to pre-accredit 5 – 10MW projects on what was to be the last of a generous Feed in Tariff. And that is when the madness really started…
From our calculations in April there was in the region of 250MW of unconstructed projects, i.e. nearly quarter of a £billion of assets, across the UK with planning permission and eligible for “shared ownership” subsidy support. There was also only all of three or four community asset development groups that we were aware of, that were looking at opportunities outside of their local areas, by virtue of community energy groups tending to focus on their own communities or counties. These national groups’ combined assets and prior development history didn’t scratch the surface of the scale of the opportunity to put dozens of large scale solar projects into community ownership. So Gower Power saw the opportunity and entered the national market with the knowledge that most commercial developers that owned the rights to these projects didn’t have a clue what “Community Interest Companies” nor “Registered Societies” (previously known as Community Benefit Societies) were, which were the legal forms eligible for the special “shared ownership” treatment. We were perhaps a little naïve in our anticipation that the owners of the projects would want to sell the projects rights to community groups for a considerably discounted fee so that the projects could afford to deliver community benefit as per purpose and spirit of the legislation (not be stripped of their value from the outset). We expected that they would only continue with their core work of developing commercial projects. For the best part we were wrong in that assumption.
Meanwhile another couple of factors compounded what was an increasing commercial interest in these community companies, which was that the government had recognised the challenges community groups have raising capital and carrying out due diligence on projects and so they did a great service of extending the pre-accreditation period for FiTs, which gave communities more time to energise their projects. The other factor was that lead times for critical pieces of equipment, such a switch gear, for connecting to the grid was getting longer and longer, and a national grid that had been designed to push centralised energy out from big power stations was cracking at the seams as it was being used to receive and circulate energy from more and more places and on an intermittent basis. District Network Operators, who have never been renowned for the quality (nor quantity) of their service as they are the monopolies of their regions and therefore are somewhat given a free reign on what constitutes acceptable standards, were also under increasing pressure, so the opportunity to extend the timeframe within which a project could be connected to the grid was getting increasing interest from commercial developers.
So where did we end up? We ended up in a situation where commercial developers, across the UK, some with head offices abroad and with £billion balance sheets started setting up their own community companies primarily to protect their commercial interests. Given Registered Societies are more complex and harder to set up, and Community Interest Companies (CICs) have a legal form that corporations are more familiar with and can be set up easily, dozens of philanthropic business people suddenly emerged out of the commercial sector to practice their new found love for community development and set up their own CICs. This prompted a series of investigations by the Community Interest Company Regulator, a liaison with DECC, Ofgem and various other government departments and strongly worded letters to the new directors of these community companies that they have a duty as a director of a CIC to deliver community interest; the Regulator has the power to shut them down if it finds evidence of abuse, and it made all new CIC directors aware of that.
All good and dandy, but here is the crux of the problem: Because it is very easy to model the amount of energy that comes from the sun each year and lands on a group of solar panels; because most financial institutions use the same assumptions on the price of electricity over the next 25 years; because the FiT is linked to RPI; because photovoltaic panels are extremely low maintenance, reliable and predictable in virtually every regard, it is possible place a very high value on the future income streams that will come from a solar park. Financial institutions are willing to invest in what they perceive as low risk assets and as a result most the future financial value of a solar park is stripped from that day onwards. In other words, when the Regulator’s guns start blazing, it will get there too late… these commercially owned community companies won’t produce much profit for reinvesting into the community because most of it will be long gone.
There are no standards as to what constitutes community interest. There is no community participation benchmark. People’s idea of what constitutes satisfactory social impact delivered with community benefit funds varies as widely as planting a few flowers under solar panels for the sake of pollinators through to bringing thousands of people out of fuel poverty. It is no wonder that various players in the commercial sector took legal advice, found out that anyone could own a community interest company, and decided to test the ‘how low can you go’ bar… though perhaps more disappointingly, that bar was already being tested by some groups that would consider themselves as real community energy organisations.
And then the government went on a rampage against community and renewable energy and obliterated the support mechanisms that were nurturing the growth of the sector:
First the removal of Levy Exemption Certificates.
Then the removal of FiTs.
Then the removal of Enterprise Investment Scheme tax relief.
And no doubt soon the removal of Renewables Obligation Certificates.
But community energy doesn’t just have the challenges of a government that would rather subsidise the fossil fuel industry than renewables, it also has a new challenge, the fact that the growth of the community energy sector has meant that communities are now competing for assets. This has a direct consequence on the price of those assets: the increase in demand means the owners of the assets can shop around; the cost of capital and construction is roughly the same for everyone in the sector; which means the only thing that can change to offer a more competitive price is a reduction in community benefit, which in terms of what community energy is meant to be about, couldn’t be more self-defeating.
With subsidies and tax breaks looking like they are down the drain, the future excitement in the sector is no doubt going to come from the retail side of the things. The possibilities of peer to peer (P2P) supply and purchase arrangements getting off the ground are now fundamentally important, many of which are currently being piloted across the UK. The prospect of getting a decent price for electricity produced and reducing people’s energy bills instead of adding to them is about the most exciting thing possible for community energy. This sort of success would inevitably bring an entirely new and reinvigorated sense of self for the sector. The challenges are the legislative minefields that need navigating to get these P2P schemes off the ground, but for most community energy groups it will be an entirely new landscape to explore and if and when those groups eventually get there, it could mean much greater rewards all round.
It would appear community energy in the UK has been asked to stand on its own feet, and who knows in time maybe it will be better off for it? It is just a great shame that if subsidies are to be completely removed for renewable energy, the fossil fuel industry isn’t also being asked to stand on its feet. As well as having a far greater negative impact on our fuel bills, unless the present government changes its attitude and corresponding policy, future generations will be the ones forced to pick up a much bigger tab.
“Subsidies for ALL renewables currently cost £3.5bn year compared to £26bn year in subsidies for fossil fuels. That’s £400 per year per household to support the fossil fuel industry.”
Gower Power will be launching share offers in the New Year. You can pre-register for priority allocation of shares at the following link: COMMUNITY SHARE OFFER
Written by Ant Flanagan, founder of Gower Power Co-op