Is there a future for community energy?

Written by on 22nd May 2016

Community energy may not be on the front pages of national business sections, but for those interested in boosting local economies, cutting carbon dioxide emissions and improving energy security, such projects are a dream come true and a model of what the energy market could be in the future. And the projects have been paying their investors a decent income too.

But the sector has had more downs than ups in the last 12 months.

The Government halted a scheme that enabled projects to sign up to a pre-agreed tariff (a subsidy designed to give certainty of income) in October, although this was reinstated for schemes larger than 50MW.

Then, there was the removal at the end of November of a generous and popular tax break – the Enterprise Investment Scheme relief, which effectively boosted returns by 40 per cent, for renewable energy project investors. Cue a sudden drop in demand.

The reduction of the Feed-in Tariff (FiT) rate for renewables marked a particular low point for those keen to see growth of community renewable energy in the UK.

Offers spring eternal

But, a look at the number of offers launched this month would give the impression that community energy was booming. What’s going on?

The reason for the rush is that many of these projects raising money were at the tail end of a list of organisations that pre-accredited schemes before the changes in legislation.

Projects are looking to raise finance for a community solar scheme in David Cameron’s constituency in west Oxfordshire; a solar farm in Plymouth; a hydro scheme in Oxfordshire; and installations on school roofs and businesses.

Will there still be opportunities to invest in community energy in future?

These organisations have all pre-accredited their schemes with Ofgem before raising finance for projects. This means that the tariffs they receive are fixed for the lifetime of the project, are index-linked and not affected by the changes to the FiT rates in January or by any further changes to the FiT rate. In future, community energy projects wanting to raise finance before building renewable schemes can pre-accredit the Feed-in Tariff, but it will be at the lower rate – meaning potentially lower returns for investors.

What will happen to the sector now?

Historically power generation was owned by the Government through the Central Electricity Generation Board (CEGB) and, after privatisation, by six main utility companies. Community energy started as a bottom up business model driven by a growing awareness of climate change and a deliberate move away from centralised electricity generation: putting local power in the hands of local people. Many of these are fantastic small businesses that create profits that are ploughed back into community projects.

But these constant changes in legislation have knocked confidence in certain parts of the sector, with well-established groups starting to rethink business models in a post-subsidy world.

As Emma Bridge, CEE of Community Energy England says: “The range of community energy projects with current share offers really demonstrates the broad benefits that community energy brings to a local area as well the high level of support it has. Whilst the sector starts to look for ways to adjust to the new policy regime, it is great to see the current pipeline of projects coming to fruition.”

New business models emerging

Bath and West Community Energy bond raised more than £1 million in a few weeks earlier this year. The Low Carbon Hub in Oxford has just launched a Community Energy Manifesto to set out its vision for the future of community energy in their region.

Meanwhile Mongoose Energy, based in Bath, sees a future in community energy with the announcement that it will launch an energy supply business, opening to customers before the end of the year.

The launch will see Mongoose become the UK’s first supply company that is majority-owned by community energy groups. The new company will source its electricity from renewable sources and will have competitive tariffs for its customers. The company currently has 34MW of capacity under its management services – enough to power around 11,000 homes – and a further 30MW in the pipeline. This could transform the nature of energy ownership.

If you have some spare cash, a good way of supporting the community energy sector might be to invest in a project. Investments are long term, capital is at risk and returns can be variable, however, such projects can pay around 3 to 6 per cent a year.

 

Community share offers listing on Ethex:

Plymouth Energy Community

The award-winning Plymouth Energy Community’s third offer has just launched. It gives investors the opportunity to own Plymouth’s biggest solar energy farm to date, the operational 4.1MWp Ernesettle Community Solar Array, commonly known as “Ernie” (see their video to find out more [www.plymouthenergycommunity.com/invest]. With surplus income for their renewable schemes, PEC runs energy and advice services targeted at fuel-poor households in the area and have supported 11,200 households and saved over £341,000. Forecast return of 6% per annum.

Bath & West Community Energy

Bath and West Community Energy (BWCE) has launched two new offers – its sixth share offer and a linked bond offer– to bring a 5MW solar array at Crewkerne into community ownership. This will increase its renewable energy capacity to 12MW, enough to supply the equivalent annual electricity demand of 3,900 homes, making them the largest community enterprise in the UK. Forecast return of 7% per annum for the share offer, 5% for bonds.

Low Carbon Hub

The Low Carbon Hub continues to scale up community energy in Oxfordshire. Its latest share offers raise finance for their biggest project to date: a hydro scheme at Sandford, and a new wave of 18 rooftop solar PV schemes on schools and businesses across the county. Investors can choose between investing in hydro or solar, or both. Forecast returns of IRR of 5%, RPI +3%, on both offers.

Southill Community Energy

Southill has now raised 70% of its £1.4 million target to develop a 4.5MW solar farm in Charlbury, right in the heart of David Cameron’s constituency in west Oxfordshire. The offer is extended to the end of May to allow as many individuals and community members as possible to invest. Annual return forecasted at 5%.