Co-op model ‘should not be used as an investment vehicle’

The chief executive of the Midcounties Co-operative, Ben Reid, says the co-operative model should not be used simply as an investment vehicle. He says the Financial Conduct Authority’s decision...

The chief executive of the Midcounties Co-operative, Ben Reid, says the co-operative model should not be used simply as an investment vehicle.

He says the Financial Conduct Authority’s decision to refuse registration to some energy co-ops  – on the grounds that their members were not sufficiently involved – was “a wake-up call”. He adds that he has “sympathy with the decision”.

While admitting this is “probably a bit of a radical statement”, Mr Reid adds that “co-ops should have engagement”.

He says: “We have to be careful to make sure we are not used in an inappropriate context.

“If some of the co-ops have just been a way of raising money, I think that has taken it to the limit – so I think the FCA are right to say that there should be more engagement because co-ops without engagement are not really co-ops.

“I understand the argument that people don’t like it, but maybe we should sit down and say, ‘OK, what do we have to do to make sure we are satisfied?’

“I think it’s really strange that somebody from outside is having to tell us that co-ops should have more engagement with members. That doesn’t sound right. Our business model should not be used as an investment vehicle, it ought to be about engaging people.”

In 2011, Midcounties launched Co-operative Energy in an attempt to challenge, and provide an alternative to, the big six energy firms. It currently serves 200,000 members and its rapid growth is bringing new challenges.

“We’re growing so quickly but we’ve got to grow our system – we need to recruit people, and getting new people in to understand the ethics and principles is difficult; we are going through that growing phase now. We were warned this would be a challenge – even so, it still feels a bit creaky at the moment.

“So yes, as predicted, growing fast has brought its challenges – but it does show that the market is really interested in what we want to say.”

Co-operative Energy is now upgrading its systems to be able to receive even more customers, says Mr Reid.

“Our biggest challenge is making sure that our customer service is up to the standard that we want it to be. We want to be better than the rest. I don’t want to get into a price war and be chasing others. I want us to be service-led. So that’s one of our challenges.

“Second is actually predicting the future. The market is in a flop at the moment. There have been some new entrants in the market that have declared intentions, that are trading at a loss to buy market share, and that makes it difficult in terms of pricing”.

The Co-operative Energy currently sources 68% of its electricity from renewable sources, working closely with the community energy sector, which could be impacted by the potential removal of some tax reliefs.

Enterprise Investment Scheme (EIS) tax breaks could no longer be available for companies receiving subsidies as the renewables obligation certificate (ROC) or the renewable heat incentive (RHI), while the Social Investment Tax Relief (SITR) is also being made incompatible with the Feed-in Tariff.

“It probably affects us indirectly but not directly,” says Mr Reid. “I don’t understand why they have picked up on that. We all agree that we have to do something about improving the production of renewable energy. And the government has put in a policy that is restrictive.”

This could lead to a dramatic slowing down of investment, he warns.

Mr Reid also thinks engagement with local communities should be a requirement of planning consent for renewable energy projects.

“I think personally the only way this will happen is through legislation,” he says. “Thinking that big businesses are going to become friendly to communities is not a strategy that is going to be successful.”

As part of the government’s Community Energy Strategy, a Shared Ownership Taskforce was created to examine the possibility of requiring all commercial developers to offer the opportunity of a shared ownership element to communities. It is seeking views on whether to set a specific minimum percentage (5% or 25%) – or to suggest a range, given that projects differ in terms of range and cost.

“The co-operative is about people taking control of their destiny,” says Mr Reid. “And I can’t think of many items more important than the supply of energy – so taking control, having the right to invest, not the 5 % but maybe 25%, would bring extra money.

“That would be invested in local communities, so there’s a reward coming back. I can only think that it would be hugely positive and it would change the whole cultural thing about environmental projects and the value to community.”

This model fits more closely to Mr Reid’s way of thinking, he says. “If I could redesign the world, I would design it bottom up and communities being involved.

“I can’t do that, but the government can if it made it a requirement of planning consent to engage local communities.”

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