Menu
Table of Contents
On Wednesday 12th March, Hugh Goulbourne, Director and General Counsel at CO2Sense CIC, provided crucial insights during Parliament’s Energy Security and Net Zero (ESNZ) Committee as part of the Unlocking Community Energy at Scale inquiry. This inquiry addressed the challenges of scaling community energy projects, an important part of achieving a cleaner and more resilient energy future.
Maximising the Potential of Community Energy
The UK Government has allocated £1 billion in its Local Power Plan to support community energy projects and achieve the Clean Power 2030 Mission. This includes:
- £600 million in grants for local authorities.
- £400 million in low-interest loans for community energy organisations.
We estimate that around £3-4 billion is required in order to meet the government’s target of 8GW from CE by 2030. That means it is critical that public funding is structured in such a way that it can attract and crowd in at least £3 of private investment for every £1 of public funding.
The Challenge of Financing Community Energy Projects
Community energy (CE) projects are typically too small-scale (under 1MW and £0.5m) for larger investors (high net worth investors, foundations and family offices). While CE is highly attractive to impact investors, due to its social and environmental benefits without any form of subsidy, or pricing mechanism, which recognises the value of local generation, they provide lower returns than large wind and solar farms.
Low returns mean that in the early stages of project development community energy groups find it nearly impossible to attract private investors. This is why the government’s community energy funding is essential, although the nature of the grant application process should be changed so that it is a less stop and start process.
Even where a community energy group has secured a site, obtained planning permission and has all of the financial and technical resources in place, they find it takes time to secure the construction finance that they need to deliver the project. CE projects are often seen as too small and time consuming, larger impact investors tend to overlook them, creating a funding gap. This inevitably holds up projects and in some cases can mean that it is never delivered because interest in the scheme runs out. This is the market failure which we are looking to address for the government.
How CO2Sense is Helping Bridge the Funding Gap
CO2Sense has committed to being a cornerstone investor in a new fund designed to offer affordable and flexible short and medium term financing tailored to community energy projects.
The fund will be managed by an FCA accredited manager and will be designed to:
- Remove the administrative barriers for high-net-worth individuals, foundations and family offices to invest in CE.
- Accelerate CE projects that are ready for deployment by providing short and medium term loans.
- Help more local people to invest in CE projects.
By introducing a pooled investment vehicle, we are eliminating obstacles that traditionally slow down the growth of community energy initiatives.
How To Make Community Energy More Attractive to Investors
To make investing in community energy easier and more appealing, CO2Sense is looking to simplify the process through the pooled fund approach. The Community Energy Accelerator Fund model will allow self certified/sophisticated/institutional investors to get involved, without dealing with the complexities and administrative challenges typically associated with these smaller-scale CE initiatives.
We have been modelling the fund around a two-year pilot, led by Tim Stumpff, which has been pooling investments from HNWS. The syndicate has already supported 9MW of projects through 16 funded loans totalling £6 million, all with zero defaults or impairments.
Building on this success, we’ve already secured in excess of £5 million in commitments from cornerstone investors and are on track to hit £10 million by summer. Our goal is to grow the fund to £50 million by 2026.
With additional support, particularly through a blended finance approach such as either a capital commitment from the government or a government first-loss guarantee, we are confident that we can grow the fund substantially beyond £50 million. Blended finance is a model where public capital is used to de-risk private investment. This would not only make community energy more financially accessible, but also offer a streamlined and cost-effective solution for the Treasury to achieve this model at scale.
The concept of government guarantees being used to attract in private investors, was also featured in a submission from the CE Investors Club.
Making Community Energy Financially Viable
Right now, community energy projects offer relatively secure returns. Our research indicates that already there is a £300 million pipeline for community energy projects over the next five years, alongside £500 million in local authority Green Bonds. This provides a significant opportunity for investors who want to put their money to work in making an immediate environmental and social impact.
Over the past ten years the CE sector has proven its value to the UK, and it now has the opportunity to scale significantly. GB Energy, as a catalytic investor, can support this expansion in the following ways:
- Participate in funds such as the Community Energy Accelerator Fund so as to derisk them and make them more attractive for a wider investor pool;
- Make quasi-equity investments into community energy groups so that they have the working capital to build a larger pipeline of projects i.e. to cover staff costs for early-stage development, to acquire site options, build market grade technical and financial plans and to navigate the planning process;
- Enable community energy projects to supply excess energy to local households and businesses so as to secure a better power purchase price, whilst also passing on the benefits of more stable/lower unit prices to local users.
By acting as a catalytic investor, GB Energy can set a precedent, attract further investment and help drive the long-term scalability of community energy projects.
Shared Ownership and Community Benefits
There is significant and increasing interest in shared ownership models.
Shared ownership of large commercial renewable energy projects would act as a very valuable financial stimulus for community energy groups. The community group will have the opportunity to pool funds from local members and investors further afield to buy out a proportion of the project (20% is the designated amount under Scottish Government guidance). The returns from this investment provide a revenue stream for the community energy group to explore less commercially attractive projects (for example, solar for community assets and social housing or small hydro and nature recovery projects).
The shared ownership model could also help the government to secure greater support for the ‘net-zero’ policy agenda, which polls show is losing support in areas where local residents are concerned about fields being filled with solar panels, wind turbines or electricity pylons. Enabling a group of local residents to invest will provide local people with a slice of the considerable financial returns.
We urge the Government to introduce incentives for commercial developers to offer community energy groups a share of the project.
Our ambition is for the Community Energy Accelerator Fund to be able to support community groups with medium-term loans so that they can buy out their share of a commercial project. The loan will give the group the time they need to crowd fund and secure investment from other sources.
You can watch the full meeting here.
For more information about how our fund can help your community energy project, please email talk2us@co2sense.co.uk
Stay connected with CO2Sense for updates on how we’re driving community-led renewable energy solutions by following us on LinkedIn
Find out how you could profit by working with CO2Sense
CO2Sense can help you with bridge loans, match funding for community shares and medium-term loans for your renewable energy projects.
Contact us today on talk2us@co2sense.co.uk