Growth through acquisition: Ways to expand the co-op energy sector

'A lot of the commercial entities are often tax-incentivised, they’re not in it for long-term ownership. And so a the secondary market is emerging'

The energy co-op sector is looking for ways to grow – and while raising the capital for new projects can be a challenge, buying up existing assets for community ownership is seen as an important way forward.

At the recent Community Energy Conference, Emma Bridge, chief executive of Community Energy England, told delegates this was a useful option for the sector. Community Power Cornwall, for example, has just bought out private firm West Country Renewables, bringing several solar arrays and onshore wind facilities into community ownership.

Matthew Clayton, managing director of Thrive Renewables, an investment company for the sector, says this is an important way for energy co-ops to keep up with conventional business rivals.

The market has recently seen a rush to build renewables before the April 2019 cut-off point for government subsidies and tax incentives, and this has put the community energy sector at a disadvantage, he told Co-op News.

“Community energy companies can build projects,” he said, “but the reality is that the market conditions mean the risk profile of the build phase is too big because of revenue uncertainty. It’s better to buy the asset.

“In the market there’s been an awful lot of deployment of solar and wind in a hurry to meet the different feed-in tariff deadlines – and quite often the community and the energy groups in those areas are left in the dust while a commercial entity sweeps in and gets something built.

“What’s quite helpful is that a lot of the commercial entities are often tax-incentivised, they’re not in it for long-term ownership. And so a secondary market is emerging, where those groups are holding for three years and selling on.”

This means there is an “opportunity to reunite the community energy group with their local energy project”, he said, adding that last year, Thrive invested £11.4m into the acquisition of three different projects.

Thrive, which owns and operates 60 renewable energy projects around the UK and has investment in a further five, is also trying to widen the sector’s reach by appealing to a broad spectrum of investors.

“What makes us a little different is the way we interact with the community, on a number of levels. The first is that we deliberately run a very accessible business model – our key mission is to provide a rewarding connection for individuals with sustainable energy and the way we do that is by running bond issues and share issues which individuals can participate in.

“Our smallest investor has invested £5 and our largest investor has invested more than £5m and we’ve got about 6,250 people in the company itself. Our ownership’s our first community.”

This also applies to finding investors when it comes to building projects from scratch, added Mr Clayton.

Related: Community Energy Conference looks at regulation and tech

“We characterise that as plugging the funding gaps – sometimes that can be working with the landlord or the developer where we buy the asset, others can be joint ventures with the people developing the assets. For instance, we’ve got a joint venture with Energy4All, Baywind.”

One of Thrive’s “most exciting projects”, Mean Moor windfarm, saw it work with Energy4All and three community groups.

“The co-op had a neighbouring farm and wanted to buy the whole site. We were able to provide speed and certainty which the commercial owner needed. An extra 720 individuals are now connected with that project which otherwise have been owned by a city firm.”

Thrive’s method of “bridging the gap” in the market is to fund a project or acquisition, and then give the community “a couple of years to buy us out”, he said.

It is now looking at a solar roof portfolio to bridge another market gap.

“The change in subsidy regimes will bring a divergence in the market,” said Mr Clayton. “Big schemes will get built by the utilities and specialist funds, who will benefit from economies of scale, and there will be more modest scale projects built as as well.

“This will involve values-led organisations and community groups using clever financial models – and hopefully working in a collaborative way.”

In this article

Join the Conversation