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When EIS tax relief for community energy investments was axed last year, the government created another hurdle for the UK’s shift to renewable energy. The second blow came shortly afterwards, when changes to the Feed-in Tariff for domestic systems saw rates slashed from 12.03p/kWh to 4.39p/kWh.
Despite unsupportive government policies, there’s a strong public will to switch to renewable energy, break the Big Six’s monopoly and keep profits in the community. Several cities in the UK are already generating a fifth – and in some cases over a quarter – of the power for their homes through solar, wind and biomass.
Community energy is bigger than you might think; in November alone 28 projects – from ground-mounted solar arrays to rooftop solar PV systems – launched across the UK in time to allow investors to beat the EIS deadline. Together, they raised £12.8 million.
Over a third of this funding (£4.8 million) came from just five projects led by Mongoose Energy, a community energy firm that helps communities set up, fund, launch and run renewable energy projects. Over the course of 2015 Mongoose raised over £40 million; it’s looking to do the same over the next three months, with £120 million in the pipeline for 2016.
‘There is an assumption that changes to government policy have knocked confidence. This is something you hear from people on the periphery of the community energy industry. But when you talk to community energy groups, and have been involved for a while, you see that both equity and bond fundraisers go quickly. We don’t really see a difference between now and, for example, 12 months ago.’
Jan-Willem Bode, CEO of Mongoose Energy
Community energy started as a very bottom-up business model around 10 to 15 years ago; local energy coops were the early adopters and the movement was driven by the rising fear of climate change. The big boost came after the economic crisis hit and dissatisfaction with the structure of the UK’s energy system mounted.
The boom came from 2011 onwards, when government policy was particularly favourable. The sector became pretty sizeable just a couple of years ago when a number of players saw a way to develop community energy as a business model. At this point some of the financial markets started to pay attention, and investment through crowdfunding became the norm.
While the 2011 boost was a help, the coalition government’s Community Energy Strategy really got things moving in 2014. It defined the sector and the market response led to a massive uptake; far more individuals became interested in setting up community benefit societies.
Recent U-turns under the Tories could have spelled disaster, but the sector has responded with greater innovation – putting a big emphasis on new business models and financial instruments. There’s been a move to take existing assets – such as large-scale arrays – into community ownership and to focus on other renewables, such as offshore wind, biomass and anaerobic digestion.
‘Even with big changes, like the ending of EIS tax relief, we’re still seeing significant demand. Bath and West Community Energy closed early after hitting its £1.6 million target for a for a 4MWp solar array in just six weeks – a period that also included Christmas – and Bristol Energy Cooperative, which launched its latest bond offer in February, is having similar success. In total, BEC has raised around £800k through its bond and share offers.’
Jan-Willem Bode, CEO of Mongoose Energy
When you consider the rate at which people are investing in community energy shares and products, even post-EIS tax relief, it seems the wider investment community shares the optimism of those directly involved in the projects.
The aim is still for community energy projects to offer good rates of return: the current instruments offer 6% per annum on a two-year bond, which is significantly higher than many other products on the market.
Now the government has cut incentives for other investment opportunities, such as buy-to-let properties, community energy has suddenly become a very compelling investment proposition. The added bonus is that these investments are ‘positive’ in terms of their environmental and social benefits; the community funds raised have been used to reduce energy poverty, promote biodiversity and support local communities.
‘For community investors, we can still run projects that provide a decent rate of return’, Jan-Willem told us. ‘Bristol Energy Cooperative, for example, is currently seeking £2 million to bring a 4.6MWp array by the proposed Hinkley C nuclear plant into community ownership and is offering a two-year bond with a fixed-rate return of 6%.’
What is changing is the type of financial investment coming to market. While there was historically a big focus on giving 7% plus EIS tax relief equity, different financial instruments are starting to emerge – such as two-year bonds – in addition to the equity fundraisers. The different options now available are a sign that the market is maturing – and that community energy is still going strong.
Click here to find out more about Mongoose Energy and its projects.
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