Community energy sector faces financial barriers

Community energy is not just a niche to mainstream power, but a key part of a vibrant energy sector, argues a report from a socio-economic think-tank. A report...

Community energy is not just a niche to mainstream power, but a key part of a vibrant energy sector, argues a report from a socio-economic think-tank.

A report from ResPublica says community energy, which currently represents 0.4% of the UK’s renewable capacity, has not successfully been integrated into the mainstream supply chain. One of the barriers facing the sector is access to finance and, in particular, the failure of banks to finance small-scale projects.

Community Energy: Unlocking Finance and Investment, supported by Co-operative Energy, highlights a potential solution to finance the sector as being crowdfunding – whether this is the traditional sense of sourcing donations or launching share issues.

Worldwide, crowdfunders contributed $2.7bn in 2012, which has helped to fund more than one million projects. In the UK, £5.2m has been invested in renewable energy projects through Abundance Generation alone – an intermediary platform founded in 2011 which brings together people and businesses to raise money for their projects. Seven projects have attracted an average investment of £1,500, with many investing as little as £5.

A number of projects are also being funded or part funded by local share offers, which have enabled numerous co-operative energy initiatives to get off the ground. As of August 2013, there were over 40 share offers raising £17m from nearly 10,000 investors. This indicates a significant level of demand from people to commit small sums of money to energy projects across the UK.

In Germany, around half of all loans for existing community energy groups come from co-operative banks, and 34% through state aid. In the UK, such businesses struggle to achieve commercial bank loans.

The report calls on the Treasury and the financial services regulator to offer further support of crowdfunding platforms. In response to the failure of the existing major commercial banks to lend to community energy businesses, the think tank urges the regulator – the Financial Conduct Authority – to move beyond its narrow focus on risk protection, and to play a much greater role in facilitating a diverse financial sector. Regulation should allow smaller and more innovative crowdfunding and ‘peer to peer’ initiatives to thrive.

Caroline Julian, co-author of the report and head of research at ResPublica, said: “Community energy groups suffer disproportionately from dwindling levels of lending to SMEs in the UK. As small and start-up ventures, they need additional support. Crowdfunding has opened up a whole new market of investors, and has revealed a range of new ways for people to invest in something good and that offers a reasonable return. We now need a policy and regulatory framework that can further tap into this opportunity.”

The report also calls for the introduction of greater incentives to encourage more people to invest. Recently introduced tax reliefs, such as the Social Investment Tax Relief (SITR), should be opened up to a wider range of small businesses with a strong social purpose. Tax-free saving via ISAs should also be extended to include debt-based securities, which are offered by many peer-to-peer lenders and via crowdfunding, and which are currently excluded from this scope.

Ramsay Dunning, general manager at Co-operative Energy, added: “Global investment in clean energy has dropped over the past two years, and there is little to fill the gap. Crowdfunding could be the turbo-boost that renewable and community energy needs. Pioneers of community energy such as Denmark realised this some time ago, and now enjoy days when renewables meet their entire electricity needs. For this to happen in the UK, there needs to be a much fairer and farsighted system of tax reliefs – a system that is stable and consistent, and which benefits a broad range of community enterprises.”

• Read more: Four problems financing the community energy sector … and four solutions. For further information, view the full report online.

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