SPECIAL ISSUE
COMMUNITY ENERGY
‘WE’
PUTTING THE
BACK INTO POWER
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CONTENTS 6 Putting The ‘We’ Back Into Power everything you ever wanted to know about community energy but... 22 “We Are Going To Have Chickens” - a truly ‘backyard’ local energy initiative... 24 Community Energy In The UK - a question of funding... 26 The Crowd Power Plant - from students to entrepreneurs... 28 Financing Community Energy Projects - been there, done it... 30 Living From The Air Of The Sky - a pioneering local wind turbine...
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WELCOME Change of season – change of times? The holiday season traditionally invites us to contemplate our lives, our relations, and our work. The energy sector has even more reason to. The energy market is on the verge of great changes. Large, traditional energy companies are facing a dilemma. They must sharply depreciate their fossil power plants, tolerate ever more sustainable niche players and deal with rapid technology developments in renewables and energy storage. E-on’s recent announcement to sell off their coal plants is a sign of the times.
In the shorter term, automation will play an increasingly important role, along with storage. The prospect of phasing out subsidies and net metering will provide a huge impetus. The likes of Samsung or Philips will be the energy companies of the future. They manufacture the appliances to make our homes completely self-sufficient in the long term. Electricity will simply be free, we will only pay for security of supply. Like your house insurance: when a ball goes through the window, they will replace the glass.
In short, renewable energy is growing as a local player: in terms of where it is produced (in our villages and regions) but also in terms of ownership (communities and crowdfunding). More and more local, sustainable energy initiatives are emerging across Europe, as you will read in this issue. For the long term, I see some big moves that will put the energy sector completely on its head. Solar energy is becoming an integrated application in existing buildings, infrastructure, transport and household appliances. It is the driving power source, supplemented by gas as a transition fuel for the coming decades. Wind energy will move out to sea completely, and off the land.
Free energy, we don’t have it yet. But we’ll see service bundles emerge, as in the telecom sector. In the medium term already for the exchange of surplus energy. For charging my Volvo I will be able to choose between my own solar power generation, or my neighbour’s momentary excess power. A social network like Facebook can play a very important role here: if we can help each other continuously with Candy Crush, why not get a little energy from our friends? Hope you enjoy the power of this Community Energy edition. Season’s greetings! Jan-Willem Zwang, guest editor.
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PUTTING THE
‘WE’ BACK INTO POWER
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Take a couple of slices of energy insecurity, sprinkle them liberally with continually rising prices, add a dash of climate care, pop it all through the grinder of human ingenuity, and what do you have? Community energy projects, that’s what.
By Joe Swain
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putting the ‘we’ back into power
There was a time when the very mention of the word ‘power’ would evoke images of ugly old gas- and coal-fired power stations perched on windswept escarpments belching smoke and steam into the air like flatulent characters from a latter-day LS Lowry painting. Or the sinister curves of nuclear power stations, whirring silently but ominously on the edge of perpetually nervous coastal
offshore wind farms (despite the protestations of a certain Scottish-American golf resort developer), small solar farms (yes, even in northern Europe), tidal energy installations (nothing to get nervous about there) and waste-powered biomass generators (where there’s muck, there’s brass). But old dogs learn new tricks very slowly and the relatively
consumption currently derives from renewable energy sources (hydropower, biomass, biofuels, wind, geothermal, and solar) a figure which they reckon will only rise to a whoppingly disappointing 15% by 2040. Which can’t help me thinking that instead of today’s inane platitudes, the politicians of 2047 will be spouting lines like, “Don’t worry folks, something’s
“Still, there wouldn’t be much point owning a speedboat if we didn’t have regular floods now would there? What do you mean you don’t have one? Flood or a speedboat? Everyone has floods.” towns. But fortunately things have changed a little over the last few decades. As the need to develop cleaner, less dangerous and more sustainable ways of generating and managing energy has increased, and the cost of the technology involved has continued to fall, new players have gradually entered the fray. Gangs of industrial strength wind turbines for example, which, if we leave the politics of rural aesthetics to one side for the moment, are becoming a far more common view on those windswept escarpments. As are
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small number of large and powerful energy companies responsible for generating and distributing the world’s electricity from their power stations to our front rooms, haven’t exactly been biting our hands off to switch to 21st century technology. (Hydroelectric power generation being the only real exception, due perhaps to its single location, manly, large-scale, nature.) Indeed the Energy Information Administration (EIA) in America estimates that only 11% of the world’s energy
bound to turn up in the next few years,” and, “Still, there wouldn’t be much point owning a speedboat if we didn’t have regular floods now would there? What do you mean you don’t have one? Flood or a speedboat? Everyone has floods.” People power… Thankfully however, it is quickly becoming clear that technology has changed the rules of the games so significantly - in terms of both the hardware and the systems needed to efficiently implement that
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case study
Scotland: The Isle of Gigha’s Dancing Ladies Community-owned schemes in Scotland include one on the Isle of Gigha. The Heritage Trust set up Gigha Renewable Energy to buy and operate three Vestas V27 wind turbines, known locally as The Dancing Ladies or Creideas, Dòchas & Carthannas (Gaelic for Faith, Hope and Charity). They were commissioned on 21 January 2005 and now generate up to 675 kW of power. Revenue is produced by selling the electricity to the grid via an intermediary called Green Energy UK. Gigha residents control the whole project and profits are reinvested in the community.
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putting the ‘we’ back into power
“Like the tortoise of unfunded community action steadfastly marching past the slumbering hare of corporate power generation, it’s a concept which is fast gaining traction.” hardware - that we won’t have to wait for the large powergenerating companies to wean themselves off their addiction to fossil and radioactive fuels after all. People, if I’m allowed to bastardise a well-known Eurythmics lyric for the purpose, are doing it for themselves. Yeah, sod it, why wait for the politicians and the power companies, burdened as they are by their financial responsibilities to their shareholders and their as yet unrealised underground assets, to come to the table when all the know-how already exists for communities of like-minded people to get together to start harvesting their own clean power? From their own back yards.
The official term for this, and one which you‘re likely to hear more and more over the coming years, is ‘community energy’. A concept which, according to a report released in January this year by the UK’s Department of Energy and Climate Change (DECC) entitled ‘Community Energy Strategy: People Powering Change’, is all about “many different types of community getting involved in energy issues in many different ways. Be it a group of local people setting up their own solar installation or wind turbine; a local authority leading a collective purchasing scheme to help local people get a better deal on their energy tariff; an energy advice session at a local community centre; or a
whole range of other schemes.” (Bordering on platitude? Only time will tell,) And, like the tortoise of unfunded community action steadfastly marching past the slumbering hare of corporate power generation, it’s a concept which is fast gaining traction. And, most excitingly perhaps, not in a ‘one at a time’ sort of way, so much as all over the place all at the same time. From the craggy peaks of the Chilean Andes, past the rugged coasts of northern Scotland, to the sun-baked rooftops of the south pacific islands. As Joel Otero, a participant in a small solar project near Barcelona recently told me, “There’s near limitless free
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putting the ‘we’ back into power energy all around us, literally bombarding us from every angle; all we have to do is figure out a way to grab a hold of our slice of it. And frankly, we have the technology.” And while nobody seems to be pretending that setting up a community energy project isn’t without its challenges, the vast majority of the people who are getting involved are obviously happy they did. “If you search for images of ‘community energy’ on the internet,” says Rachel Coxcoon,
head of ‘Local & Community Empowerment’ at the Centre for Sustainable Energy, “there’s a local newspaper-type photo that’s emerging as a kind of standard. It’s of a group of happy people surrounding their renewable energy installation, often waving their share certificates and looking jolly pleased with themselves. And so they should, since they have invariably laboured long, unpaid hours on top of full time jobs and family commitments to make their project a success.” Such is the level of ground
level enthusiasm to get on with the job of switching to clean renewable energy sources, rather than just talking about it. And even if, as some commentators are suggesting, these groups of people are more inspired by the prospect of cheaper energy bills and returns on their humble investments than the state of the planet, so what? “Broad community ownership of renewable energy in particular could go some way to transforming the distribution of wealth,” says Coxcoon. “Since
“And even if, as some commentators are suggesting, these groups of people are more inspired by the prospect of cheaper energy bills and returns on their humble investments than the state of the planet, so what?”
Community power in Ontario, Canada PAGE 12
case study
England: The Braydon Manor Farm Solar Array Located in Swindon in the beautiful UK county of Wiltshire, the Braydon Manor Farm project is a proposed 5MW solar array, which is forecast to generate 4,905MWh in its first full year of operation. Enough power for about 1,200 local households. The project is being put together by Wiltshire Wildlife Community Energy (WWCE) who are anticipating a final build cost of ÂŁ6.1m, ÂŁ2.7m of which they are looking to cover through a public share offer, with investors standing to earn a 7% per annum return on their investments. The balance coming in the form of a loan from a commercial bank. The project has planning permission, grid connection secured and is ready for construction. The current final commissioning date is 30th June 2015.
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case study
Austria: The Munderfing Wind Farm The first Austrian wind farm to be majority owned by a local municipality and managed and operated by local residents. Comprises five, 140m tall 3MW turbines in a specially selected location 1,650 meters from the nearest residential area, thus minimising the risk of noise or shadow flicker. Annual energy production: 32 million kWh – electricity for approximately 10,000 households - about one third of the households in the Braunau District. 75% of the wind farm belongs to the community and the other 25% to Energiewerkstatt GmbH.
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Two thirds of people living in Upper Austria believe that wind energy is one of the most popular forms of energy production in the country, followed by all other renewable energies. “Do something instead of complaining� is the motto of the people who live in Munderfing. All political groups in Munderfing gave their immediate consent for its construction.
putting the ‘we’ back into power some of the poorest areas have some of the best renewable energy resources. In fact, our energy use is perhaps the only issue that affects us all, which offers such enormous opportunities to generate and save money within local communities, and our elected representatives need to get their heads round that. Fast.” Side benefits… Aside from the obvious benefits to be gleaned from increased energy security, cheaper bills, and a more egalitarian division of profits, another less obvious
Getting projects off the ground… If there is one common denominator in all the new community energy projects we are seeing cropping up round the world - be it a village run wind turbine in New Zealand, a solar panel installation on a school roof in England, or a community funded biomass generator in the Netherlands - it is the presence of a single person, or a small group of people, who really want to make it happen. The catalysts of change.
to bring in revenue to support community based action and development. And also to save costs in many of the community facilities that need heating and energy and which could convert to renewable energy. Those were the driving forces for the idea of community energy development.” Once a possible scheme has been identified and the nucleus of a team with the determination to make it happen formed, the next logical port of call is usually the Local Authority, or government office. Certainly in terms of basic
“I think generally we were seen as completely barmy,” benefit of locally managed energy projects is the positive effect they seem to be having on the communities they serve, bringing people together for a common cause. The “let’s all get stuck in and bring to the table what we can” nature of the beast often leading to opportunities for younger members to learn skills from older more experienced participants (and vice versa perhaps when it comes to the transfer of knowledge about climate change).
“I think generally we were seen as completely barmy,” says Nicholas Gubbins, Chief Executive of Community Energy Scotland, which has helped launch dozens of successful community energy projects in the country since its formation in 2002. “There wasn’t a lot of theory or concept behind the idea, but in Scotland we have an incredibly well developed community infrastructure, with a very strong tradition of voluntary sector engagement. One of the major issues communities face is how they earn revenue to underpin their social purposes so we felt that renewable energy generation was a fantastic opportunity
information, advice and help evolving some sort of business plan. If governments are good at anything, it’s theory and rhetoric. In some countries though they will also perhaps be able to offer access to loan funds or other forms of financial support to help get the ball rolling. But most importantly, depending on the country concerned, is the support they can usually provide negotiating (their own) usually complicated planning processes and an idea of how the project might best fit into (their) overall plans for that particular locality. “Finding your way through the
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putting the ‘we’ back into power complicated maze of planning requirements can be enough to stop many community projects in their tracks,” says Michael O’Keefe, an independent renewable energy advisor based in County Kerry in Ireland. “But there are plenty of people like me around who know the ropes and how to convince the various planning bodies that the proposed project is not ony feasible in a technical and financial sense, but that it also has the backing of the wider community in which it will be based.” For more grandiose projects, the large energy companies, particularly those with a proven record in renewable energy installations, are also worth contacting. Many of them actively encourage approaches from local communities keen to buy clean, renewable energy from a local source. Local, part ownership evidently being one of the best antidotes to planning objections. As has been the case in countries with high levels of community ownership such as Germany and Denmark, where on-shore wind turbines don’t attract nearly as much ‘Not in my back yard’ (NIMBY) criticism as they do in countries such as the UK. “When I look up at the turbines on a nice windy day,” says Roland Muller, a freelance illustrator based in southern Germany, of the small wind farm located on a windy escarpment
a few miles from his house, “all I see is money being shaved off my electricity bill. As do my neighbours as most of us own a share in them. Plus I know that it is good for the environment. All in all a beautiful sight not an ugly one.” It’s not what you know, but who you know… The next logical step in the evolution of the project is the formation of useful partnerships. Partnerships with local authorities, commercial organisations, universities, local knowledge networks. Anyone who has ‘been there and done it’. “You’d be surprised how much local knowledge you might have lurking in your community,” says O’Keefe. “Particularly in rural areas, which are home to commuting professionals. I recently helped realise a 30kw solar installation on the roof of a rugby club in a small village just outside Dublin and when we told the club’s membership about the plan it turned out we had access to 2 architects, an electrical engineer, a local councilor and a fully-qualified solar panel installer. To name but a few, all of whom were only too happy to get involved as volunteers, because they saw it as a chance to do something for their community. At the end of the day, your greatest local asset is often your people.”
The sordid issue of cash… As anyone who has ever considered saving money by replacing all their electricityhungry light bulbs at home with far more efficient LEDs will know, once you’ve done all the research and developed your game plan, the next major barrier to doing the sensible thing is usually cash. The same applies to most community energy projects. According to a report in the Guardian newspaper in the UK last year, the world needs to find $1tn a year of clean energy investment if we are to have any chance of avoiding runaway climate change. Last year we collectively managed just $254bn. Europe, often cited as one of the more advanced parts of the world when it comes to renewable energy investment, saw a worrying slump in investment of 41% in 2013 to $58bn. Some countries it would seem, take the whole business more seriously than others. Sweden for example, derives 51% of its energy from renewables, while Austria and Denmark also seem to be paying heed to the warnings with 32% and 26% respectively. The larger economies fare less well though with Italy posting a score of just 14%, France 13%, Germany 12% and the UK, as rich as it is
“Finding your way through the complicated maze of planning requirements can be enough to stop many community projects in their tracks PAGE 16
case study
Canada: The Monestary of Mount Carmel Solar Project A 1MW roof top solar installation at the Mount Carmel Spiritual Centre in Ontario. The roar of Niagara Falls, one of nature’s biggest waterpower providers in Ontario, provides a fitting backdrop for the unfolding story of renewable power development at Mount Carmel Spiritual Centre. Here, only steps away from the rushing Niagara River and in a facility that provides services for a wide community of practitioners, laypeople and visitors, the dream of solar power is underway. “For a long time we’ve had a vision of how to be sustainable on the Centre’s land, and solar power was a dream that I’ve longed to realize,” enthuses Father Stanley Makacinas. The Centre’s project was partly funded by the Community Energy Partnerships Programme which helped provide the initial finance to engage a local professional solar power project manager who identified an ideal location for the solar system on a flat, unobstructed property across the street from the Centre’s 135-year-old site, and room for a further 70 kW on the rooftop of one of the centre’s more recently built structures. Members of the Spiritual Centre supported the development of the solar projects through donations, and the Centre’s staff have created a renewable and solar energy education campaign that will reach the diverse array of visitors who visit the property every year. The Centre hopes to inspire other faith-based communities to develop their own renewable energy projects. As Father Stan points out, “Solar Power fits in with our theology … to be stewards of creation and to protect it”.
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case study
Denmark: The Middelgrunden Wind Farm, Samsø Denmark has long been a world leader in community energy and thanks to a generous tax exemption that began in the 1990s, 86% of the country’s wind turbines are owned by local co-operatives. This has led to a very high level of social acceptance for renewable energy and low carbon processes generally, which is perhaps best demonstrated by the island of Samsø, which in 1999 won a government competition to become a model renewable energy community. It now boasts 21 on and offshore wind turbines, all of which have been funded by the islanders which together provide 100% of its electricity needs with 75% of its heat coming from solar power and biomass energy. An Energy Academy has opened in the main town of Ballen, with a visitor education center.
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putting the ‘we’ back into power in all forms of natural energy, just 4%. (A figure that would have slumped even further if Scotland had voted to leave the Union last year.) With banks still seemingly unwilling to prise open their coffers for renewable schemes of any size, let alone small scale community projects, a far more common source of funding these days are what are known as ethical community lending schemes, whose charters require all the projects they fund to pass basic criteria tests in terms of their social and environmental impact. Organizations such as Ethex in the UK, whose stated remit is to “make positive investing easy to understand and do,” while providing “a direct and personal
way for individuals to invest in businesses they believe in.” Which in a nutshell encapsulates a whole new approach to investment, particularly on a local level, which works on the basic tenet that a sufficiently large proportion of investors care as much about the ethics of their investment as their profits. (Hark, is that the sound of bankers scratching their heads in puzzlement?) The role of the crowd… All of which is essentially an extension of the concept of crowdfunding, whereby the catalysts behind a project, rather than going cap-in-hand to the local bank and jumping through countless hoops to prove their worth, instead
appeal directly to their local community. Indeed, while ethical funds such as Ethex and more traditional pensions and investment funds will be increasingly important in the future, in many countries crowdfunding is proving to be the potential savior of many community energy projects. For example a quarter of Germany’s electricity comes from renewable sources (as opposed to its total energy, which is 12%) the main reason being that nearly half of its renewable energy capacity is owned by individuals, community groups and private developers. They have collectively managed to leverage tens of billions of
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putting the ‘we’ back into power
“In America, the country’s largest solar power provider recently forecast that crowdfunding will generate $5bn of investment for rooftop solar projects in the next five years.” euros in the last two decades to bring about what is essentially an energy revolution.
Generation and community energy facilitators such as The Resilience Centre.
In Denmark, which produces 32% of its total energy from renewables, on a good day they can produce more than they need and are able to sell their surplus to the perpetually hungry European grid. A huge contributing factor being legislation, which requires commercial wind developers to offer at least 25% of every project to the local community.
However, the general concensus in Europe and the rest of the world, and one which is echoed in the Unlocking Finance report, is that governments and their respective financial service regulators need to broaden their view on risk, and by adopting a longer term view on investment proposals, play a more proactive role in facilitating far more diverse financial sectors. Thereby allowing smaller but more innovative players such as crowdfunding platforms and peer-to-peer initiatives to expand their influence in the community energy sector.
In America, the country’s largest solar power provider recently forecast that crowdfunding will generate $5bn of investment for rooftop solar projects in the next five years. A May 2014 report in the UK by the independent think tank ResPublica and the energy supplier Co-operative (who pledge to source electricity with a carbon content of less than half the national average) entitled ‘Community Energy: Unlocking Finance and Investment’, set out how crowdfunding could be used to bring about a community energy revolution in the UK.
Many analysts are also calling for governments to introduce real tax incentives to investors in community businesses, such as the Social Investment Tax Relief (SITR) scheme launched in the UK last year. The rules governing the sort of tax-free saving schemes common in most developed countries these days could also be opened up to include the debt-based securities offered by peer-topeer lenders.
At the time of the report Cooperative Energy had in place six purchasing agreements with community energy groups and strategic partnerships with community energy crowdfunding sites such as Abundance
The bottom line being that there is very significant ground level support around the world for renewable energy generation, and in particular for community energy projects that have a direct effect on the well being
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of local people. And that the key to unlocking that support in terms of providing the billions of dollars, pounds, euros, yen, roubles, rand, francs and yuan needed to bring about real and immediate change, lies in the crowd. As the UK’s minister for climate change, Greg Baker, recently said of the situation in the UK, “Crowdfunding could be an incredibly powerful way to deliver a decentralised energy system, and help achieve the goal of turning the ‘Big 6’ energy companies, into the ‘Big 60,000’.” As the title of this article suggests, putting the ‘we’ back into ‘power’, both figuratively and literally.
case study
USA: The Brewster Community Solar Garden A 350 kW community-funded solar farm on Cape Cod, which is run as a cooperative with each member receiving benefits including tax credits. Backed by National Wind, a large-scale community wind project developer, with thirteen families of projects in development or operation. These projects have an aggregate capacity of over 4,000 MW. The vision of the company is to revitalize rural economies by promoting investment in domestic renewable energy resources. In March 2009, National Wind formed Little Rock Wind LLC, its 7th Minnesota-based, community-owned wind energy company. The company, which is developing up to 150 MW of wind power within Big Stone County, Minnesota, is currently the largest national company in community wind in the US. In total it has developed 27 community wind projects totalling more than 1,000 MW across 14 US states. The company’s strategy is to attend trade shows and “let the customers come to us” – ensuring that local support is already in place. A cornerstone of the company’s approach is that “profits will be reinvested into the community”. “As a Brewster resident, I am impressed by the high level of citizen awareness, involvement and commitment to keep this community the best it can be for all who live or visit here.” - Kit Reynolds, founding member of the Brewster Community Solar Garden. PAGE 21
WE ARE GOING TO HAVE
CHICKENS!
As everyone surely knows, the first step in the process of starting a community energy scheme is to set up a chicken pen. Don’t they? “A random thought to many people, but not apparently to community energy expert Pauline Westendorp, who decided that the perfect way to instigate her vision of a community energy project in her district of Amsterdam, was to start a small chicken pen and then take it from there. The idea behind the novel approach being to place early emphasis on the need to build the community first. To put in place all the basic connections on a far more achievable scale and then ramp those connections up to the real project, the community energy scheme. In short ‘We are Going to have Chickens’ (WAGTHC) is an informal cooperative, a swarm of residents, businesses and people from government and education in Amsterdam South and beyond who are working together to bring clean local energy to the whole of the Amsterdam Metropolitan PAGE 22
Area by 2018. The idea for WAGTHC was first hatched in December 2012 as one of the eight projects of the ‘Innovation Climate Neutral Cities’ organized by the NL Agency, who also sponsor the scheme, as do local businesses and individuals.
houseboat in Amsterdam Zuid which is equipped with solar panels, a solar water heater and a pellet stove. She also believes strongly in the power of the local community and steers WAGTHC towards working with neighbours, employers, employees and officials in Amsterdam Zuid (and beyond) to Local citizens and interested produce their own clean energy parties are encouraged to with local resources. They visit the WAGTHC site to offer residents cooperatives, peruse information about community businesses, onelocal sustainable energy: on-one customized coaching, the experiences of others, content and process. An organization, techniques, and/or extension of the ‘train the contact them with any questions trainer’ learning principle. or ideas or maybe to suggest other ways to participate. They are also open to other Every week, on Thursdays, they related themes such as organize ‘Energy Breakfasts’ local food production, green where people who want to get management, care, etc. If involved can come along and required, they also offer handsexchange ideas, ask questions, on courses for building solar speak to experts and generally collectors and installers. get involved in the initiative. All from a simple vision, to go to As WAGTHC’s founder and work on an egg. project manager, Westendorp, certainly believes in leading by example. She lives on a
The idea behind the novel approach being to place early emphasis on the need to build the community first.
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COMMUNITY ENERGY
IN THE UK
Community energy in the UK is poised for rapid growth. Whether or not this happens will depend on the outcome of the General Election in 2015. By Jeff Kenna. Unlike other countries, the majority of renewable energy projects in the UK have been, and still are, owned by commercial companies. While such companies do make financial contributions to local communities, the sums involved are small compared to what could be contributed from projects which are fully owned by the community. The lack of local benefit is one factor that contributes to strong opposition to some renewable energy developments. Until 2010, small-scale renewable energy projects were not viable but the introduction of a feed-in tariff scheme changed this, and provided a market driver for smaller scale community-owned projects. A number of community energy companies were started and they raised funds to install solar roofs on community buildings such as schools. The business model is simple: the community energy company rents roof space through a long-term lease; it finances the installation of the solar roof and receives income from the feedin tariff and sale of electricity; PAGE 24
it covers the operation and maintenance costs from income. The building owner benefits through the supply of cheaper electricity. The investors in the community energy company benefit through a return on their investment. The community benefits since surplus profits are paid into a fund that is available for grants. This model ensures a more resilient local society - not only through the provision of more sustainable energy supplies, but also through economic development - since much of the cash generated from the projects flows into the local economy. Community energy is generally funded through crowd funding either via local share offers or through share offers on new platforms such as Ethex, Abundance and Trillion Fund. The legal structure of a community energy company is normally that of an Industrial and Provident Society, of which there are two forms: a bona fide cooperative, or a community benefits society (“bencom”).
The main difference between a co-op and a bencom is that the former trades for the benefit of its members, while the latter trades for the benefit of the community. Both have to register with the Financial Conduct Authority (FCA) which has recently refused to register co-ops as community energy companies since the member investors do no trade with the co-op. Bencoms can issue 2 types of shares: withdrawable ones, which be sold to a thrid party, and transferables, which can. A share offer of withdrawable shares is not subject to FCA regulation, whereas a share offer of transferable shares is regulated. Both shares always remain at par value and the bencom can pay interest on the shareholding “at a rate sufficient to attract the investment”. Typically share offers have target interest rates of 5-7% although these are not guaranteed returns and actual interest payment will depend on the performance of the bencom. As a principle, equity investors in a business should receive
a higher interest rate than a secured lender, which means that rates of 7% are needed to attract capital for the larger projects. The maximum investment in withdrawable shares is limited by law to £100,000 and share offers generally have a lower limit (typically £500) to avoid excessive administrative costs. The average investment is around £4,000 to £5,000. Investors are attracted by both the ethical nature of the bencom and the potential longterm returns. But what exactly defines a community energy investment? A share that is offered nationally and doesn’t use surplus profits for the local communities benefit isn’t really a “community share offer”. There are over 200 groups in the UK actively developing projects. Some are building on their early projects and are looking at larger solar and wind farms. If community energy is to become a significant player in
the UK’s energy sector, it needs to scale up, otherwise it will run the risk of becoming a side issue and eventually fizzling out. Ultimately, a vibrant community energy sector can offer an alternative energy supply to local consumers. This will never happen though if changes in government support pull the rug from under the sector. So far, there has been positive support from the Government. Investments in bencoms and coops qualify for tax relief of 30% of the investment. This relief is not available for commercial projects. The Government has published the first ever UK Community Energy Strategy and this has put in place a number of working groups to address the most pressing problems around financing, grid connection, planning, hydro and shared ownership with commercial developers. These working groups are currently reporting to Secretary of State for Energy
& Climate Change, Ed Davey, who has committed to ensuring that tangible improvements are implemented as a result. However there are negative signals. Rumours that the 30% tax relief on investments might be removed. News that Feed-in tariffs are going to be reduced to levels where projects are no longer viable without significant drops in capital costs. Plus move from some political parties to block any further onshore wind projects. The nascent Community Energy Strategy could be killed off at its first hurdle. Consequently it is important that those involved in the sector, as practitioners or investors, continue to develop projects under the current supporting mechanisms and demonstrate the real society benefits in the hope that future governments will continue to support the growth of these new players in the UK energy market.
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THE CROWD POWER PLANT
Crowd Power Plant was founded in January 2014 by Dominic Jacobson and James Winfield, two students from Imperial College London, who, after scooping first prize in the Low Carbon Entrepreneur awards in London, were described by the city’s mayor Boris Johnson as, “the future leaders who will be powering London’s booming green economy.” The following blog entry was written by co-founder James Winfield and first appeared in the UK’s Guardian newspaper on the 29th of August, 2014.
“Money makes the world go round”: whoever said that first was correct. If we want to solve climate change and change our energy infrastructure, we need to be innovative and entrepreneurial. We need to have green ideas that make more money than their dirty predecessors. We all know that the UK’s fossil-fuel-heavy energy mix is a big problem for our future. The solution must include increased revenue and increased profits, but for a cleaner alternative. At the start of this year I decided to commit to making a difference. I took what I called a “productive gap year” to have a go at setting up a business to tackle this problem. It meant moving back in with my parents, scratching around in the penny jar for a pint at the weekend and eating far too many tins of baked beans. But my efforts paid off: a few weeks ago my business Crowd Power Plant won the mayor of London’s low carbon entrepreneur award. PAGE 26
The award, which looks for the most innovative ideas to help reduce London’s CO2 emissions, is a competition open to students and recent graduates in London. The process really tested out the business plan and my ability as an entrepreneur. The idea for Crowd Power Plant came to me by deconstructing contemporary ideas such as crowdfunding and crowdsourcing, and seeing what other industries the notion of the crowd could be applied to. I combined this idea with my academic background in environmental technology and came up with a business proposition that signs up members and rewards them financially through a profit share for becoming part of a crowd. After a few weeks of thinking through the idea I asked my friend Dominic Jacobson, who specialises in solar cell fabrication, to come on board as a co-founder.
Our strategy is to offer our members cash in return for the excess electricity that their renewable energy installations generate. We aggregate surplus electricity from lots of small renewable energy installations across the UK, to form a “crowd”. Using the bargaining power of this crowd we then sell electricity to suppliers or the wholesale market for a better price. Finally, we share the profits with our members. Our hope is that Crowd Power Plant will revolutionise the UK energy market by further encouraging the uptake of small scale renewable technologies. Winning the award is opening up lots of doors for us and we are talking to generators and suppliers. Our £15,000 prize is mainly being spent on ensuring that our business is legally water tight.
Challenges In 2010, Amsterdam developed ambitious environmental goals in its Amsterdam Energy Strategy 2040. In order to meet these goals, the city designed a powerful financing instrument called the Amsterdam Investment Fund (AIF), which has 75 million € (USD 103 million) net worth to be invested in projects reducing CO2 emissions, lowering energy bills for citizens and businesses, and creating a healthy environment. All businesses, residents, housing associations and community organizations are contributing toward reaching the Amsterdam’s 2040 energy goals. Most of these parties are willing to invest in sustainable and profitable projects but lack financial resources as well as technical knowledge.
Actions The AIF provides funding (soft loans, warrantees & equity), not subsidies, to sustainable and profitable projects. Projects are evaluated based on estimated environmental effect per euro and the amount of co-investment involved. The higher the amount of co-investment, the better the rating of the project. Additionally, rating is based on four qualitative assessment criteria: innovation, duplication, diversification and visibility. Customized instruments have been devised to fit a variety of actors: large-scale commercial projects; smart energy startups; sustainable social initiatives; house owners; and iconic sustainable projects. To spread the word and encourage the submission of proposals, the AIF has launched a strong, cost-effective advertisement campaign, using social networks as well as media outreach.
Projected Outcomes In 2010, the Fund’s investments helped Amsterdam achieve a 20% emission reduction as compared to 1990 levels. It is projected to contribute to Amsterdam’s C02e reduction by 40% in the year 2025 compared to the year 1990. One of Amsterdam’s primary objectives in creating the AIF was to create an “internal” financing tool to implement the city’s Energy Strategy and broader emissions reduction goals. It also aims to create a climate that encourages citizens to make investment proposals. The response has been strong so far, and is expected to remain so in the future. A key outcome of the Fund is that both citizens and organizations are able to increase the energy efficiency of their homes/offices, and thereby gain protection against increasing energy bills. Tender loans for social initiatives are expected to stimulate cooperation and a bottom-up approach at the neighbourhood level. Moreover, the small business focus of some of the Fund’s instruments promotes the creation of a dynamic, local, job creating, and green economy. Through its active participation in the C40 Sustainable Infrastructure Finance Network, Amsterdam actively shares information and best practices with other global cities.
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FINANCING COMMUNITY ENERGY PROJECTS
2050 co-founder Jan Willem Bode gets to grips with the everyday financial challenges of launching your own community energy project. Recently I have become fascinated with community energy projects. It has always felt like a great idea: generating renewable energy in the community, financed by the community, delivering clean, cheaper electricity to the community.
recently become involved with a fab community energy company, BWCE, near where I live in South West England. From working with them, I have learnt a lot of stuff, not in the least about getting the first step done - the actual building of a renewable energy project in the community.
One of the main characteristics of a community project is that the development process is a continuous balancing act, even more so than a normal project development process.
The first phase of the project development process is very However, unfortunately it is not similar to a normal project as simple as it sounds. The investment proposition for development process. Site these projects is simple and selection, planning permission First of all, you need people in beautiful. (which could even be a bit the community who want this as simpler than a non-community well. Then you need to actually Become a member of the project as in theory at least, develop a project (or a number local community company by you should have the community of projects) to generate it, you investing a certain amount of to support you) leases, grid need to get it financed, built, money. The community company connection offer, etc. commissioned, and operational. aims to pay 7% ‘interest’ per And then you need to get the annum, with the balance of the Then it becomes a bit more electricity to the community cash coming out of the project complex. Fund raising. In a (which is not just a matter of payable into a community non-community (or traditional) pulling a cable from the project fund (that will be used to project without bank loans, you to the end-user.... what happens finance clean projects in the have one, or a small number of if it’s not sunny? And do you community). Sounds simple, no? equity investors. In a community really want to build a whole new However, what does not become project however, the idea is to infrastructure?). clear from that is the complexity get many of them, and as many behind the project, particularly as possible from your (local) Not being one to shirk a the complexity behind the community. This means that a challenge though, I have financing of a project. fund raising process needs to be PAGE 28
designed, started and managed. And with average ticket sizes of 5 to 10k, this means accessing a lot of people, if you want to raise enough money for let’s say a 5 MW solar project (approx 6 million GBP, or 7.5 million Euros). This means convincing hundreds of people to put significant chunks of money into a project. This is a process that can take a significant amount of time. In parallel, negotiations with the installers, or EPC (engineering, procurement and construction) contractors need to take place. Typically, they would either want to wait until the fund raise is finished, or want additional security that the project will actually be built. And in order for the project to be completed on schedule, and therefore benefit from the Feed In Tariff under which it was registered, money needs to be paid to various contractors, before the fund raise is completed. In
other words, before it is certain that the project will actually be funded. This is money at risk. It becomes even more complex when debt financing (from a bank or financial institution) is brought in. On one hand, it reduces significantly the amount of equity that needs to be raised, and it can increase the return on equity, but on the other hand, it comes with a lot of additional requirements. Most importantly, the due diligence requirements. Even though a project developer will carry out a degree of due diligence on contractors, legal documentation, and the like, this is different when debt finance is involved. As the bank will lend purely against the expected cashflow from the project, with the assets as their only security, their main risk sits in the quality of the EPC contractor and the performance of the project once
it is completed. Both legal and technical due diligence are therefore very important to a bank - which means additional cash out for the project during its development phase. Significant cash out as well, as due diligence like this goes easily into the tens of thousands of pounds, which is a lot of money for a community project developer. Also, a bank is likely to put additional requirements on both the cashflow of the project and the EPC counter party. For example, with regards to the cashflow of the project, the bank will ask to keep debt service reserves in a separate account, so that interest and capital repayments for a period of let’s say 6 months are guaranteed. The bank will also ask to have a maintenance reserve, so repairs and spare parts can be paid for in case PAGE 29
they are not covered under a warranty, or in case the coverage is disputed. With regards to the EPC counterparty, the bank is likely to have additional requirements both from a contractual point of view (Quality Assurance processes are typically very strict) and from a credit risk point of view. Think parent company guarantees, warranty bonds, retention of payments until the project has been operating for at least 12 months without problems, etc. These are also likely to push up the cost of the project. The EP counterparty will also ask for guarantees from the developer, in order to ensure
to be called, the interest terms are typically higher than the projected equity returns and the debt returns. It helps the fund raising, it provides security to other people involved in the project (additional commitment with additional due diligence shows that more people believe in it), but it also comes with an impact on the project performance. Also, typically, underwritten capital will need to be exited after a limited period, so a re-finance of a part of the project will be required. Our experiences with underwriting are positive, as they strongly support the equity fund raise, even though they come with the additional cost. Underwriting also really helps
debt.) And then, when that balancing act is all sorted, financial close is achieved, the contracts for building the project awarded, grid connection agreements signed, etc, the build of the project will start. Not trivial, but a satisfying moment nonetheless. Even better when the project delivers its first electricity to the grid. Well, that was my experience of the first step to generating local, clean electricity, but now for the next step, delivering it to local consumers! As I imagine they probably say at Nasa: watch this space!
Not trivial, but a satisfying moment nonetheless. Even better when the project delivers its first electricity to the grid. that the money is and will be there. They will have to order large volumes of kit, and will not necessarily have received all the funds required to deliver the project. This is likely to put additional strain on the community developer. Solutions typically can be found in financial structuring and in timing. An example of financial structuring can be found in the instrument of underwriting. This basically means that a portion of the equity (or debt) part of the project is guaranteed by a third party (individual, financial organisation, etc). Typically this costs between 1 and 3% of the sum that is underwritten, and if the underwriting needs PAGE 30
in the negotiations with the EPC contractors - they see it as significantly more likely that the money will be raised. With regards to timing, EPC negotiations and execution typically have to run alongside the equity fund raise, the debt fund raise, eventually leading to the process of achieving financial close, so as to reassure the EPC counterparty that the funds are available. Obviously, this timeline becomes more complex if additional financial instruments, such as underwriting, or freely callable mezzanine is involved (mezzanine effectively functions as a bridge between the equity and the debt fund raise. Expensive, but less strict than
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‘LIVING FROM THE AIR OF THE SKY’
Celebrating the 30th anniversary of Catalonia’s first electricity generating wind turbine. On March 10th 2009, a large group of people commemorated the 25th anniversary of the public opening of a project known as ‘Ecotècnia 12/15’, the first modern wind turbine to be connected to the grid in Catalonia, Spain. On the very same day in 1984, hundreds of people took part in the inauguration party of this remarkable wind turbine, installed in the Catalan town of Valldevià, in the windy Empordà region, by the workers of the Ecotècnia cooperative. Its name deriving from the 12m diameter of its rotor blades and its 15kW capacity. To mark the anniversary, the European Association for Renewable Energy in Catalonia launched a pioneering initiative to bring about the installation of another suitably placed wind turbine, also financed and owned by local citizens. The initiative, which roughly translates from the original Catalan to ‘Living from the air of the sky’, was made public on the same day as the anniversary. To turn the initiative into a reality, four people came together to found Eolpop SL, a limited partnership responsible for the promotion and facilitation of the project, and PAGE 32
the issuance of shares to local investors and those connected to the area. The project’s founders realized that rural areas are often marginalised by Spain’s prevailing economic system to the point that many of their citizens are often forced to move away to the relative wealth of the cities. The ultimate irony being that once there they often have scant choice but to deposit their savings in bank accounts over which they have little control and which give them very small returns, while the rural areas many of them have left behind are rich in natural assets, such as solar and wind power, but often lack the necessary capital to harness those assets. The project’s founders therefore wanted one of the main goals of the project, aside from the egalitarian benefits of shared ownership and the environmental common sense of clean and ‘green’ electricity, to be the strengthening of ties and solidarity between those rural and urban groups. An additional objective being the chance to enable individuals and families to be proud of the fact that the energy they use in their everyday lives is not only ‘green’ and ‘clean’, but locally
generated by their very own community owned wind turbine. The plan is for the cost of installation and commissioning to be covered by the funds raised by the rural and urban community as shareholders of a non-profit organization, but with priority being given to people and families living nearest to the site. The chosen site is within the municipality of Pujalt, Anoia, Catalonia, given its good wind conditions, accessibility and connection to the medium voltage electricity grid. The chosen wind turbine model is the Alstom ECO-122 (formerly Ecotècnia), a wind machine specially designed for low wind areas. Any individual, group of people, or non-profit institution, can participate in the ‘Living from the air of the sky’ project, providing their investment corresponds to the number of shares available, which has yet to be finally decided. Small businesses that wish to contribute to the democratization of energy systems can also participate in the project. For more information: www.viuredelaire.cat
The environmental common sense of clean and ‘green’ electricity, to be the strengthening of ties and solidarity between those rural and urban groups.
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