The co-operative energy sector could be worth £6bn, if the system wasn’t stacked against it
This post is a version of a longer essay which first appeared in Making it mutual: the ownership revolution that Britain needs, recently published by ResPublica.
I’m standing on the beach at Hvide Sande, in the northern reaches of Denmark, on a cold October morning. Strong gusts of wind pick up sand and throw it straight at my face. It’s not a good day for a picnic. But it’s a great day for the three wind turbines on the edge of this fishing village. And for their owners, the local community, who are using the income to fund a new harbour for their fishing fleet. I ask the chairman of the project whether they had had any opposition to the development. Yes, he says, one person complained. Just the one.
Escaping from the wind, we head to the warmth of the combined heat and power plant in the village. Like the wind turbines, it is owned by the community and provides heating, hot water and electricity for residents. As the customers own the plant, there’s an obvious incentive to keep prices down. But they understand the need to invest, too. Recently, they installed an electric boiler, so that when the wind is blowing strongly, and electricity is cheap, they can switch off the gas boiler, saving money and carbon.
The following day, I leave Denmark, taking with me the obligatory Viking souvenirs for my children, and a lasting insight about the fundamental difference between the Danish energy system and the UK‘s. It’s this: Denmark sees energy as a public good, owned by people, for people. The UK sees energy as a commercial opportunity, in which big companies make money from passive consumers.
Failures of our liberalised system
The UK has one of the most liberalised energy systems in Europe, something that has been a source of pride to successive UK governments. The privatisation of electricity and gas in the 1980s and 1990s was supposed to herald a new era, creating a lean, modern industry in which the consumer was king. But the reality has been somewhat different. Our liberalised system has failed in three crucial areas where the Danes and others have succeeded: innovation, diversity, and engaging individuals.
Since privatisation, there has been precious little investment or innovation in the energy system. Investment levels declined as the newly-privatised industry wringed more and more out of existing capital rather than investing in new. Ofgem estimates that £200 billion of energy investment will be required this decade, but less than half of that is forthcoming.
Nor have the supposedly liberalised markets encouraged greater diversity and pluralism. Quite the reverse. Ninety-nine percent of households get their energy from one of six energy companies, and the same companies dominate energy generation too, owning two-thirds of all generation assets.
- Engaging people
One of the most critical failings of the privatised energy market is that people are thought of as consumers. That’s what they do – they consume. In this worldview, the only control people have is over who will bill them for their power. They can switch from the British Gas offering to E.On’s offering, but that’s just about all they can do. Consumers are at the end of the chain that begins with production, then distribution, then consumption. It is a national, one way flow of power from producer to consumer.
Put these three things together, and you have an energy system that’s failing on its own terms. Privatisation has brought about a rigid system dominated by a few powerful players, which lacks the ability to respond to market needs and cannot invest in the long term. A far cry indeed from most people’s idea of a healthy market.
The co-operative energy movement
That’s not to say that there’s no alternative in the UK. If you scratch below the surface, you can find a small, dedicated group of insurgents trying to construct a very different way of dealing with energy, even though the system is stacked against them.
Some of these insurgents can be seen on the roof of Harvey’s Brewery in Lewes. They’ll be there admiring the solar panels that they own and operate. The panels are owned by Ovesco, a co-operative established by Lewes locals back in 2007. In less than a year, they negotiated with Harvey’s to rent the warehouse roof, established a co-operative, raised £330,000 of investment capital from local people and installed a 98kW solar array which started generating power in the summer of 2011.
Ovesco is just one of a growing number of energy co-operatives owned by local people, and generating renewable power. The first co-operatively owned wind turbines, Baywind, perched on a fell above the Lakeland town of Ulverston, started turning in 1997. Since then, over 7,000 individual investors have ploughed £16 million into wind energy co-operatives. Since feed-in tariffs were introduced in 2010, smaller schemes have flourished too. The energy regulator Ofgem reports that over 400 community energy schemes are now generating power and receiving feed-in tariffs. .
These new operators could make a significant contribution to the UK’s energy economy. The co-operative energy sector could be worth around £6 billion, with installed capacity of 3.5GW, the equivalent of three or four conventional power stations. But only if the system of energy regulation allows.
The ownership revolution we need
Politicians recognise the political and economic potential of co-operatively owned energy. The coalition agreement, hammered out between the Conservatives and Liberal Democrats back in 2010, stated that “we will encourage community-owned renewable energy schemes where local people benefit from the power produced”. And yet, whilst people, politicians and press rush to show their support small scale energy, the system is still stacked the other way.
For every success, like Ovesco or Westmill, there are scores of projects that never see the light of day. It’s very hard for smaller schemes to elbow their way in to a market that isn’t designed for them; to access the technical expertise they need, to steer a project through the planning process and to access finance. And the Energy Bill, currently being debated in parliament, is actually likely to result in further concentration of power (pardon the pun) in the hands of the few big energy companies.
The government must:
- Consider community-owned energy in the design of energy policy and markets, and make sure there is a clear route to market for schemes. It should bring together all those involved in planning, legislation and permitting, so that the process is as predictable as possible. It should ensure that there is a clear financial framework for community energy, through feed-in tariffs, and make these tariffs available to larger community projects too.
- Local authorities and large energy companies should be encouraged, or even required by law, to offer part-ownership to local communities. A new law in Denmark requires wind turbine developers to offer 20 per cent of the project for sale to local people. This would kick-start a whole new sector of energy investment.
- And financial regulation should be reviewed, to look at ways in which more of people’s savings and pension pots could be invested in mutuals. Over the past few years, energy co-operatives have outperformed most conventional personal pensions, so there would be benefits all round.
If politicians are serious about their support, they should back these measures and make sure that our energy system works for the benefit of all, not just the large, established players. If we get it right, there could be Ovescos and Westmills in every community. Our energy system, and our communities, would be stronger and more resilient as a result.
Rebecca Willis is a Green Alliance associate and an associate of Co-operatives UK. She is co-author of Co-operative renewable energy in the UK: a guide to this growing sector.
Follow Rebecca on Twitter @Bankfieldbecky