New business models are transforming the prospects for community energy and revitalising support for renewables, says Martin Wright.
No Finance Director likes a wasted asset. But not everyone is as adept at spotting one as Luke Marion. Marion is FD of the Oxford Bus Company (OBC), and the asset in question is a roof over its main depot. It might be doing a good job keeping the buses dry, but Marion reckoned it could work harder. Vast, sprawling and – crucially – south-facing, it struck him as the ideal site for a massive photovoltaic (PV) plant. The roof could accommodate a system with a peak performance capacity of 140kW – enough to produce a quarter of the company’s total energy needs. At a stroke, Marion realised this could both cut its bills and help achieve its carbon target. But the upfront costs – around £150,000 – “just didn’t stack up”.
Which is where the Low Carbon Hub came in. Set up by community renewables expert and sometime government adviser Barbara Hammond, the Hub helps local companies and communities develop renewable installations for community benefit.
It works like this. The Hub draws on the expertise of Hammond and its founders – all veterans of Oxford’s community renewables scene. Supported by a £1 million European Intelligent Energy Fund, they partner with local communities to develop, finance and manage renewable energy schemes for community benefit. In the case of the OBC, the business made the roof space available and the Low Carbon Hub raised the finance locally and installed the PV panels. The result is that the Bus Company uses the cheap, green electricity generated by the panels, investors get a fair return, and the Hub receives the payments from the UK’s Feed-in-Tariff (FITs) programme to support local communities to develop their own renewable schemes. This backs the rise of ‘energy citizens’ where locals can buy into renewables, whether it is a community or a corporate scheme. Everyone’s a winner.
Like most community renewable programmes, the Hub’s model depends on the FITs – but Hammond is pragmatic about the risk of further cuts. “The other side of the coin is that the cost of the kit – such as solar PV – is coming down rapidly. So financially it still stacks up for us: we can still make it work.”
The Hub is also adept at identifying smart financial mechanisms which can boost the returns for local investors. Mechanisms like the Enterprise Investment Scheme (EIS) and the Seed Enterprise Investment Scheme (SEIS), which provide tax relief on investment sufficient to boost the annual ROI, are “a whole lot better than putting it in a building society”, as Hammond says. Expertise of this sort can make all the difference when it comes to encouraging local people to invest for the benefit of their communities.
With the help of the Hub, a group of locals interested in setting up a micro-hydro scheme at Osney Lock, in West Oxford, were able to raise £600,000 in a share offer in just three weeks. “The Hub was incredibly helpful in offering advice as to how to market the share offer and structure the whole thing”, says Saskya Huggins, Director of Osney Lock Hydro IPS. She calculates that, over the 40-year life of the scheme, they should generate £2 million of income, which can be reinvested in further local community energy work.
This kind of local multiplier effect is at the heart of the Hub’s vision, explains Hammond: to work with communities so that the surplus income from renewables can be invested directly in further schemes – or in helping local households become more energy efficient. “That work is much less developed, but our aim is to ‘power up’, by creating new renewable capacity, and then use the income to ‘power down’ by reducing overall energy demand.”
Green commitment is the spark for many community energy initiatives, but it’s not compulsory, says Paul Phare, Development Director of Energy4All, a group which helps to advise on such schemes. Many people who decide to invest are motivated as much by a combination of decent returns – which can be as high as 10% annually over 20 years on some wind schemes – as by the thought that they’re doing something for their home territory. “They like the idea that profits are staying in the local area.”
The idea of harvesting energy close to home is a motivator, too. Take Cornwall. It’s blessed with a bounty of local resources – such as wind, waves, sun, hydro and biomass. Yet much of its power comes from energy companies far away. Now, a group of local enthusiasts in one Cornish town have formed the Wadebridge Renewable Energy Network (WREN), a co-operatively owned social enterprise which has installed 6.5MW of renewables – including ‘repowering’ a local wind turbine. Over 1 in 10 local adults are members of this Ashden Award-winning scheme: proof that enthusiasm for home-grown energy isn’t restricted to a few fringe enthusiasts.
What’s novel in the UK is fast becoming normal elsewhere in Europe. Dutch co-op Windcentrale is just one of many which is attracting investment by appealing both to people’s concern for the planet and their pockets. Its latest offering saw all 6,648 shares in a new wind turbine, priced at €200 each, sell out in just 13 hours. Impressive, but perhaps not surprising given a projected annual return of 8.5%. In Germany, meanwhile, one local energy co-op is even negotiating to buy the Berlin city grid. Others are using local sources such as wind and biogas to pursue a dream of energy independence. Feldheim, just outside Berlin, has even managed to go completely off-grid, cutting its bills by one-third as a result.
In Britain, there are rare pockets which the grid never reached, such as the Scottish Isle of Eigg. Until recently, the islanders were dependent on noisy, polluting and increasingly expensive diesel generation. But after buying out their feudal owner, they took control of their power supply, too. Eigg Electric is an Ashden Award-winning community-owned company which supplies over 90% of residents’ requirements through a mixture of solar, hydro and wind – pumping power into a local grid which runs around the island. Power bills have plummeted, says one resident, Lucy Conway: “People used to pay 65p per unit when they were reliant on diesel. Now it’s just 21p.”
But it’s not just financial benefits. Eigg has shown what it feels like to be in control. And this, says Giles Bristow, Director of Programmes and energy lead at Forum for the Future, is one of the great unsung benefits of a community energy culture.
For most of the UK, by contrast, it’s still early days, says Bristow. “The whole regulatory system – whether it’s about planning, or grid feed-in - is geared to the ‘Big Six’ utilities. It just doesn’t understand community energy.” As a result, local communities continue to face hefty obstacles, such as access to finance for the initial capex. Support to overcome these obstacles, from pioneers like the Low Carbon Hub, WREN or Energy4All, can unleash a whole range of additional benefits, adds Bristow: “Once people own their energy supply, they get more engaged with the whole issue. So they’re more likely to look for ways to cut consumption – especially if they are still relying on the ‘Big Six’ for part of their needs. It has a huge democratising effect.”
With the right policy environment, Bristow believes the UK could see 3.5GW of installed capacity which is entirely community-owned. That’s the same amount as both new reactors planned for the Hinckley nuclear plant: “We’re only just beginning to see what happens when people become energy citizens.”
An investment worth having
Communities setting up a new renewable energy enterprise can take advantage of the Seed Enterprise Investment Scheme (SEIS) and the Enterprise Investment Scheme (EIS) to make the projects more attractive to investors. These schemes offer income tax and capital gains reliefs. Individuals can benefit from 50% tax relief on the amount invested under SEIS and 30% tax relief on the amount invested under EIS, having a significant positive impact on their overall return.
Photo credit: Low Carbon Hub