‘Community Energy’ under a siege by London and Brussels

In a seminar on community energy held in Westminster last week, many agreed that the potential for ‘community energy’ in the UK is massive. Some speakers shared their experience in the rigorous battle with finance and planning regulations at the start-up stage of their community-owned energy schemes. Following on from such discussions, we could also ask to what extent ‘community energy’ can be financed in the existing framework set by the commission in Brussels, which has been leading our ‘greenest ever’ government in London by the nose. 

As I mentioned in my last article, “Financing ‘Community Energy’: Why legal structures matter?”, bankers look for predictable cash flows at known risks, whereas community financiers, who are usually socially motivated investors, for ‘robust’ energy projects. However, if we are to harness the huge potential of ‘community energy’, we need a huge amount of money to kick start everything. The size of the capital pool controlled by community financiers is much smaller than that of the mainstream bankers in the City. Start-up capital is the very first barrier for a community, particularly in areas of economic deprivation.

In the same event, a speaker running a community-owned wind farm as a co-operative quoted his experience in seeking finance from landlords and the Co-operative Bank. Admittedly, the successful financing experience of this co-op wind farm cannot be taken for granted because fortunately investors and landlords were willing to put their funds at risks for a period of time. I am sure that there are many more enthusiasts who wish to realise the dream of ‘community energy’, but unfortunately lack the money to do so.

At this juncture, it is the sacrosanct responsibility of the government to leverage more private capital with public money and policy initiatives. Whitehall deserves credit for introducing such flagship policies as the Feed-in Tariff and the Renewable Heat Incentive, which address the issue of policy certainty for potential investors, and the Green Investment Bank, which is now up and running, to catalyse green investments. Who knows devil lies in details.

The Chancellor has announced that the Treasury would inject £3 billion of funding into the Green Investment Bank over the period 2012-15. But let’s not be too complacent for community energy developers. Just two weeks ago, I attended a symposium on the Green Investment Bank in Whitehall. A consensus among participants was that the green bank should act as a portal for community projects and an informed lender to guide mainstream institutions to drive credit-worthiness of community renewables. The current arrangement within the green bank focuses too much on technologies rather than enterprises desperate for money to kick start and run these community energy schemes.

Even if the government were willing to re-focus the green bank on community energy, it wouldn’t help shed light on the financing barrier that we are facing. What I have learnt solemnly as a member of a board running a community generation project in the West Midlands is that the “state aid de minimis rule” of the European Commission is just the killer. It outlines that an installation owner who has benefited from financial aid worth more than €200,000 over any period of three fiscal years, from ‘public funds’ for the installation, is not eligible for receipt of the Feed-in Tariff and the Renewable Heat Incentive payments, which are the flagship policies that guarantee predictable profitability of community generations. This threshold would apply where we are able to confirm that no electricity will be used in the primary production of agricultural products.

As the Green Investment Bank is not allowed to borrow in the market until 2015 or even later, and the £3 billion sitting in the bank now is public money, it means our green bank is, in Brussels’s logic, no more than another public fund. Thus, a community energy project developer should forget the ‘cherries’ of the Feed-in Tariff and Renewable Heat Incentive if it could secure ‘a loan of mercy’ from the green bank. Apparently community energy is in a ridiculous dilemma unless there is an overhaul in these European regulations soon. Can this also be a driver for Downing Street to re-negotiate our relations with Brussels? I bet it can.

Email me at winstonkm.mark@googlemail.com