- Subsidies and tax incentives initially promoted investment
- Held back by a lack financial and legal expertise
- How consumers are taking power
In The Good Life, the UK television sitcom of the 1970s, Tom and Barbara Good give up the rat-race to start a new, self-sufficient life. They converted their garden into a farm, grew their own crops and bred chickens. If the scriptwriters had thought of it, they would no doubt have also generated their own electricity.
Fast-forward 40 years and today’s community energy projects evoke that Good Life spirit. The sector, however, is more than a handful of schemes set up to generate renewable energy and reinvest the proceeds from the sale of electricity into the locality.
It is part of a wider trend towards “distributed energy” as the industry moves away from the traditional model of large coal-burning or gas-fired power stations that send electricity through central transmission networks, to one that is dominated by smaller-scale, often renewable, plants. It is also, increasingly, an investment proposition for socially conscious investors.
“Everyone realises our energy is changing,” said Emma Bridge, chief executive at Community Energy England, the organisation that represents the sector. “The public want more local involvement and to take practical action on climate change.”
Government support through subsidies and tax incentives helped promote investment in small-scale renewable projects and fuelled the sector’s growth from 2010. Several policy changes and cuts to incentives, however, led to a steep drop in new schemes. Despite the changes, the falling cost of renewables, advances in battery storage and the prospect of selling electricity locally are giving new impetus to community energy projects.
These projects come together when residents join forces in the form of a co-operative society, which owns the local scheme. The society raises money through share and bond offers to develop a project. Any profits are fed back into local causes.
The schemes can range from solar panels on a school roof to a 5 megawatt wind farm, and can be used to generate lower-cost power on-site — for a community centre, for example — or wholesale energy that is fed into the national grid. At the moment, given the structure of the UK power market, any electricity produced locally by a community energy project is not bought directly by local residents for their own usage.
Last year research by Community Energy England identified 222 organisations in England, Wales and Northern Ireland with active local schemes operating wind, solar or hydro. They had raised £190m of investment. Together with the Scottish sector, community energy projects have 188MW of generation capacity installed — enough to power about 130,000 homes, the research found.
Growing investor appetite
How fast the sector will grow is unclear. Even if the community spirit is there, the financial and legal expertise often is not. One of the issues, said Ed Reed, associate director of research at Cornwall Insight, a consultancy, is that “Britain’s energy industry and its legislation have traditionally been premised on large-scale generation”.
The market rules and regulations are all designed for national-scale players, while accessing funding requires a degree of knowledge. New companies are beginning to fill the gap. Among these is Mongoose Energy, which helps develop and finance schemes. Its projects are funded through a combination of bank loans, funding from social capital providers and community fundraisers.
Mark Kenber, Mongoose chief executive, said he believed investor appetite was growing. “More and more people are now investing as they see renewables such as wind and solar as tried and tested technologies and the returns on offer are predictable,” he added. “People are looking at it as a reasonably low-risk return.”
Consumers take charge
The sector may be small but supporters said it was part of a future in which consumers increasingly take charge of their energy usage. The Department for Business, Energy and Industrial Strategy said it had made £100m of funding available for small scale renewables between 2016 and 2019. It is currently “considering options” for its approach beyond next year.
Richard Benwell, a director of Westmill Solar Cooperative, the UK’s first community-owned solar farm, is optimistic. The “really exciting” thing, he said, will be when schemes can sell locally produced energy to members of the co-operative society that owns a community energy project. With lower distribution costs “real savings” can be made.
A small step towards this future took place in April when the Banister housing estate in east London executed the UK’s first physical trade of energy using blockchain, the technology that serves as an electronic database for transactions. The trade saw 1 kilowatt hour of electricity sent from an array of solar panels with excess energy on one of the block’s roofs to a resident in another building within the estate.
The trade was “a fleeting example but a potent example of the kind of future we are working towards”, said Dermot Nolan, chief executive of Ofgem, the industry regulator, at a conference last month.