A number of renewable energy co-operative applications have been blocked by the Financial Conduct Authority (FCA) on the grounds that members would not participate enough in these co-operatives.
Six weeks ago the regulator stopped registering new energy co-operatives following the blocking of up to eight applications. Last month, members of the FCA’s mutuals team met with representatives formthe community energy sector, including Energy4All and Community Energy England, to discuss the regulator’s different approach to registration of energy co-ops.
At the meeting members of the team stated that the most common model for an energy co-operative was no longer deemed compliant with FCA’s codes. This not only prevents the FCA from registering any further mutuals of this kind, but would also impede upon existing projects.
When registering a co-operative, the FCA said it takes into account whether members participate by buying or selling from the society, using the services or amenities provided by it and supplying services to carry out its business.
In an interview with the Guardian, Mike Smyth, chair of Energy4All, said the energy sector was appropriate for mutual involvement and that the FCA’s decision came in conflict with the government’s policy that all renewable energy generation should be partially or more owned by a community energy organisation.
A spokeswoman for the regulator said FCA’s rules required member participation in co-operatives further than just investing in them. However, energy co-operatives are too small to apply for licenses to be able to sell electricity from renewable sources directly to members and usually sell to the national grid and divide the profits between members.
According to the FCA, these projects cannot register as co-operatives, but can register as community benefit societies. But Mr Smyth said that community benefit societies were “less flexible” and “less appropriate”.
Labour/Co-op MP and shadow energy minister, Tom Greatrex, who has written a letter to the FCA outlining his concerns, said this decision could have a negative impact on the community energy sector. He said: “David Cameron’s government talk a good game on community energy – but the reality is that future energy co-ops are being put at risk by a change of approach by the FCA. This sudden change threatens a model that combines the twin goods of decarbonisation and community involvement in energy. The FCA’s decision to block energy co-operatives appears to have been taken without consultation and without any change in legislation.”
Mr Greatrex added there may be other forms of participation that the FCA has not considered such as reinvestment of surplus into energy efficiency schemes or other community improvements, decisions on types of generation.
However, Alex Lawrie who is a development worker at Somerset Co-operative Services, welcomed the FCA’s decision, which he said addresses a conflict of interest within some co-operatives. Mr Lawrie has helped set up three different renewable energy projects, as community benefit societies or co-operatives.
He said: “Co-operatives are not, and cannot be, investors clubs. That creates a conflict of interest – investors want a return on their investment, while genuine stakeholders want socially beneficial things like more sustainable communities, employment and carbon reductions. Yes, social investors are generally well aligned with these goals – but it is dangerous to rely on that indefinitely, given that the returns on investments in community energy are good enough to attract more commercially orientated investors.”
Mr Lawrie highlighted the importance of ensuring there was no conflict of interest between investors and those with non investment stakes, usually people who are local to the projects. The solution, he thinks, is using limited membership and non-membership for external investors.
“In Somerset, we have taken a different approach,” he said. “Our Somerset Rules (used by, for example, Avalon Community Energy Cooperative) ensure that local people are the only ones eligible for ‘user member’ shares and can join with only a modest investment, and outside investors have a different form of share with limited voting rights. The FCA has just approved our latest model rules.”
Mr Lawrie says the model proposed by Somerset does not make it more difficult to attract investment. He added: “For some time we’ve had a fairly well established ides of community co-ops in which participation is not economic (like within workers co-op) but has to do with the impact of co-operative on the lives of the local people and the environment of the community. It is important to make distinction between those and the people who just investing in co-ops.”
He added: “Even though members of energy co-ops around the country are all supportive of renewable energy, it is very hard to disentangle that and the financial interest in co-ops. It is sincere but risky to rely on that. The FCA feels it’s not adequate.”
Community Energy England said: “We have been concerned about this issue, because of course most of those who have had applications refused are CEE members. We therefore joined a delegation for a meeting at FCA last month. We were able to give FCA officials a fuller briefing on how these community energy enterprises actually operate, and why they should be eligible for registration. Hopefully that has gone some way towards resolving the issue, though there has not yet been any response to applications submitted since.
“Clearly it would be inappropriate for energy enterprises to be excluded from registration as co-operatives, just because the regulatory regime for energy differs from the retail sector. Should the FCA not accept the points we have made, we will continue to work with partners to ensure that community energy is not discriminated against.”