What is the community energy challenge?
The government's Community Energy Strategy Report published in January of this year presented a high level scenario of community energy providing 3GW of community energy by 2020, from today's base of 60MW. That requires us to deliver 420MW new capacity pa on average or if we allow for some steep exponential growth about 75% year on year increase.
How much money do we need to rise to do this?
If we use £1m per MW as a working cost then we need to raise £3b over this period or £420m pa on average.
What needs to happen on the ground to do this?
If the average community share offer is £250k then that means 1680 share offers each year. According to DECC there are 5000 groups out there and so that it one share offer every 2-3 years per group. If we can go for bigger projects like the 2.4MW, £2.2m West Solent Solar Co-operative or the Isle of Mull Garmony £1.3m Hydro project then that number falls.
Are there enough investors to buy into this?
Retail sales of investment products were £20b in 2013 according to the Investment Management Association and so community energy needs to take 2% share of this market. However, if we can bring in bank or other finance to share the load then we might need say half of this.
Why would mainstream retail investors buy into this?
Returns are good for investors if they are looking for income generating investments. With the recent changes in the budget the only way investors can access EIS tax relief for renewables is through community energy investments. This is a good offer.
What are the barriers?
Two real barriers as always in this world of chicken and eggs. We need to have a distribution mechanism that reaches out to retail investors and firms will be reluctant to invest in setting these platforms up until they see a pipeline of projects. However, these are underway as we have Trillion Fund which is a platform that publishes information on community investments and Abundance Generation that markets debenture investments in renewable projects. Many retail investors rely on their IFAs for presenting products to them and until we get into these advisors then marketing to investors, despite these two start ups will be a challenge. The Ethical Investors Association is a good group to start with, but we need to get to the mainstream advisors. I am sure that Trillion and Abundance will be looking into this.
So can we do it?
If we can keep 5,000 community groups motivated and supported, if we can deliver large projects with good EIS returns, if we can access mainstream investors through the IFAs then perhaps, yes, we can.
Christoph Harwood, Partner, Marksman Consulting