This post is by Matthew Parsons, technical director at Scene, a social enterprise, based in London and Edinburgh, focused on growing the community energy sector.
This year, the concept of community or locally owned energy has, to some extent, gone mainstream. Large scale projects such as Neilston, Westmill and Lochcarnan have hit local headlines, and politicians have hit the headlines nationally, expressing effusive support.
A feelgood buzz around community energy
The government is just about to launch its Community Energy Strategy, while Forum for the Future ran the first Community Energy Fortnight this autumn. Indeed, you would be hard pushed to find a politician or journalist who has anything bad to say about community energy; there is an undeniable feelgood buzz around the idea and, as the sector is so small, it isn’t taking money or attention away from something else that might elicit pushback. So, given that it’s such a great idea, why is it that community energy still makes up only 0.4 per cent of all renewable energy capacity in the UK? My organisation, Scene, has written three research papers (published by Scene, Respublica and ClimateXchange) addressing just that question.
Through our and other research, a coherent picture of at first slow but now rapidly accelerating growth is beginning to form. Communities themselves are, of course, the primary drivers, and pioneering groups have had to blaze long, hard and winding trails to eventual success. These and other groups are learning from mistakes and problems along the way and are beginning to find shortcuts and ways to improve the process of finding a site, navigating the planning process and, most importantly, raising money. Community vigour is not the problem here. In short, although there are many communities full of energetic, intelligent and motivated people, this alone by no means guarantees success. The central barriers that have emerged are finance, land access and the planning system.
Financial risk is a major barrier for communities
Scene’s 2012 report showed that communities have to spend, on average, 70 per cent more, as a proportion of project costs, on the feasibility stage of a project compared to commercial projects. All money invested here is 100 per cent at risk, should the project turn out to be unviable. Communities are even further disadvantaged compared to commercial, investor led renewable energy projects, since these companies can spread their risk across several projects, knowing some of them are bound to fail.
Our report also revealed that communities had been heavily reliant on grants to finance projects. In 2011, all direct grant support for renewable energy installations was removed, conforming to newly applied EU regulations concerning ‘anti-competitive’ state aid for capital projects. Most grants have now been abandoned or replaced with loans, leaving only two loan schemes in the UK dedicated to community energy project finance; the Rural Community Energy Fund (RCEF) in England, and the CARES loan in Scotland. These both offer up to £150,000 to finance pre-planning costs, potentially covering all work to the point at which a community submits a planning application.
Planning is expensive but community projects are favoured
This reveals one of the more worrying aspects of our current planning system: to find out whether a project will even gain permission to be built, unreasonable sums of money must be spent, none of which will be returned if unsuccessful. The planning system is so expensive in part because it has been constructed backwards; it is reactive, rather than proactive. In other words, planning offices, paradoxically, have no plans. They wait for an
application in a specific location, then either approve or reject it; rather than first deciding where renewable energy should be built, and directing developers to apply for permission in those areas.
The good news, as we have shown in our latest report, is that wholly community owned energy projects in the UK have a 93 per cent chance of being given planning approval (97 per cent in Scotland). Conversely, a privately owned project is two to four times more likely to be denied planning than a community owned one. This should at least drive more investment into community energy, but it doesn’t reduce the amount of money needed for planning.
Why not ‘Help to Generate’?
Last month, the government officially opened phase two of the Help to Buy scheme, a government sponsored 95 per cent mortgage for first homes of up to £600,000. Since the government’s equity stake in each mortgage is up to 20 per cent, and the total programme size is £3.5 billion, Help to Buy could be funding £17.5 billion of property purchasing in the next few years. That’s £17.5 billion worth of stone, wood, and furniture; assets that are highly sought after, but which are entirely unproductive. Unlike renewable energy, property generates very little real wealth at all, instead it just endlessly redistributes debt between landlords, tenants, and banks.
If the government were instead to invest £3.5 billion in supporting community renewables, the resulting projects could potentially generate £17.5 billion of wealth over the next 20 years, rather than just loading us with £17.5 billion of debt. A
‘Help to Generate’ scheme, which provided finance for community owned energy
projects, would help raise incomes and, by virtue of supplanting Help to Buy,
prevent further house price inflation. In other words, such a programme would
generate real wealth and strengthen our economy and society.
Matthew tweets at: @scenetwork and @parsons__green