102: Shared ownership of clean energy projects: what, how and why?
What is shared ownership of energy? What opportunities and challenges does it present, both for communities and private companies? And how might it help accelerate the transition to net zero?
Fraser and Matt are joined by Jake Burnyeat, Director of Communities for Renewables CIC, and Jessica Hogan, Energy Analyst at Regen, to discuss Regen's new report, "Sharing Power: Unlocking shared ownership for a fast and fair net zero transition".
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EPISODE TRANSCRIPT
Matt: Hello and welcome to Local Zero with me, Matt, and Fraser.
Fraser: So here's a question: how would you feel about a new wind farm getting built in your area, or a solar farm, or a big new battery storage facility? And would you feel differently about it if you had some kind of stake in the project? Like if the profits went to funding other projects in your community, to support wealth-building in your local area, or even if you and your community owned a significant part of it?
Matt: I absolutely would, Fraser, yeah. These are important questions. That is exactly what today's episode is all about: how shared ownership and shared control of renewable energy projects could potentially help speed up and even smooth out the transition to net zero, and make it fairer and more equitable, to boot. And Fraser, we're talking about this off the back of a report you and colleagues produced at Regen, and I commend everybody to take a quick read.
Fraser: Yeah, it's a barnstormer if I do say so myself. It's called “Sharing Power: unlocking shared ownership for a fast and fair net zero transition”, and it includes lots and lots of detail and recommendations for how we do this in practice.
Matt: Excellent. So, joining us in a bit to chat about the report is Jess Hogan, an Energy Analyst working with Fraser at Regen, and also one of the authors of the report.
Fraser: Also joining us will be Jake Burnyeat. Jake is the founder and Managing Director of Communities for Renewables, a community interest company that helps communities, public sector bodies, non-profits, finance and manage their own renewable energy generation.
Matt: But before we dive in, a quick reminder to give us a follow on LinkedIn, if you haven't already – that's the place to ask us questions, share your thoughts and suggest topics for future episodes. Just search for “Local Zero podcast”.
Fraser: For further reading and to listen to all the wonderful previous episodes of Local Zero, head to localzeropod.com.
Matt: And of course, make sure you've hit the subscribe button wherever you listen to your pods so you never miss a new episode.
So, Fraser. This is our last recording before the Christmas period. How is the run-in looking for you?
Fraser: Uh, chaos.
Matt: Chaos?
Fraser: Utter chaos. Chaos at home, chaos at work, chaos in the house, chaos out… Yeah, it's all chaos, but a nice winter break on the horizon. And I've been strategic, Matt, with the bank holidays and my annual leave this year, so I've managed to wangle three weeks clear over the Christmas period, which is nice.
Matt: Wow, that’s good.
Fraser: How are things for you?
Matt: Yeah, similar. And I think similar for anybody listening to this probably, and anybody else I've spoken to has just got that kind of blank, you know, sort of thousand-yard stare, that part of them is already thinking about the Christmas dinner. But no, it's been a good year. It's been a busy year.
It's been so busy, I think we haven't actually been able to schedule our kind of year-in-review where we normally get the hosts together and have a little Christmas tipple, uh, somewhere in central Glasgow and put the world to rights. But fear not listeners: we will do that in the new year.
Obviously we'll be doing a Dry January and a whole health kick to boot, so it'll probably be a carrot juice and a Ryvita, but we'll have the same barbed responses, uh, and hopefully the same degree of wit. So we look forward to that. That'll be hopefully our first kickoff in the new year with Jen Roberts, who sadly isn't here today because she's got tonsillitis because she's been working so damn hard as well.
Fraser: Yeah, we hope you feel better soon, Jen.
A lot of listeners will have noticed, Matt – I'm sure you'll have noticed as well – but a lot of work happening around Clean Power 2030, which we'll get into a little bit, and a new UK Government select committee inquiry has been opened into unlocking community energy at scale. So we've heard a lot from the boss of GB Energy, Jürgen Maier, former Siemens CEO, uh, talking about ambitions for unlocking community energy more widely.
He, he describes it as “community energy in a box” – creating a package of community-owned energy projects that can easily be replicated anywhere across the country. So an interesting and exciting time for it. And I’d urge everyone to have a look at that, that inquiry call for evidence. It's open until, open until January.
Matt: Yeah, no, it’s a big one.
Fraser: But within that, we've been doing a lot of work as well and be interested to get your thoughts, because it tees up the conversation quite well, Matt. The big headline energy news in the UK for the last couple of months has been Clean Power 2030. So Clean Power 2030 is Labour's big ambition to decarbonise more or less 90 to 95 percent of our energy generation of the grid by the end of the decade.
Now, that's five years ahead of what the previous conservative administration had promised. Very bold target, and this is where mission control comes from. The big man, Chris Stark, has been put in charge of getting this done. But within that, relevant to the topic of the conversation today, there's been a lot of discussion about the role of local places and communities within that.
So, Clean Power 2030. The National Energy System Operator have already set out all the technologies that are needed to do this, all the projects, where they're needed – how much solar, how much wind, how much offshore, how many interconnectors – and their findings, their projections show that most of the stuff we need is already in the pipeline.
What this means is that new community energy projects, which, as we've said, GB Energy and UK Government seem to be going great guns on, are going to struggle to connect to the grid within that 2030 timeline, because so much is already chalked up. So Regen, along with a load of leading organisations, including Communities for Renewables, who Jake is representing today, penned a letter to Ed Miliband and, uh, Michael Shanks, the, the undersecretary, arguing that community and local energy must be considered within Clean Power 2030, and it must be prioritised within that reformed connections queue.
Matt: Yeah. So Fraser, for, in lay terms, are you saying essentially local community energy is being crowded out?
Fraser: That's exactly right. That's exactly right. There's a risk here that we focus only on the big-ticket stuff, the stuff that we can very easily say, “OK, well, we needed 20 gigs of solar and we've got 10 projects that can quite easily make that up”. The risk there is that we then lose the community stuff, which Labour seem keen to pursue as well.
So we make the argument that community energy should be prioritised within this because we know there's an enormous amount of value that comes with it, not least building local and public support for the wider net zero mission. But we also argue that that should include shared ownership, which brings us quite neatly to the topic of conversation today, Matt.
Matt: It does. So, so let me again, without getting stuck into the details, because that's what our guests are going to be here for. But I guess shared ownership creates the opportunity for communities to take a share in some of this bigger-ticket kit, basically – some of the, the larger projects. And invariably the community projects, if they're wholly owned, are normally smaller because you're looking to a community organisation to raise all the necessary funds.
And so instead of it being a hundred-turbine development, it might be a two or three-turbine development. I'm totally generalising here, but that's often what we've seen. Shared ownership unlocks a whole different pathway, right?
Fraser: Exactly. So while so many of these big projects that we need for 2030 are already in the queue, shared ownership gives communities an opportunity to also have a stake in that, that bigger-scale transition and the stuff that we know is already in train and underway.
We've heard, on the back of doing this report and some of the publicity around it, we've had a lot of positive responses, including from developers themselves about the prospect of this. There's an understanding that shared ownership can build stronger community relationships, so it improves their timelines.
It improves if they want to come into a similar area and do, you know, a similar project. It makes it easier for that to go ahead in future. But there's also a general understanding that increasing community ownership in particular will require that element of, of shared ownership, but it's quite a murky process just now.
There's no standard framework for it. It varies place to place – which to some degree it has to – but it's not something that's been done at scale just yet in the way that we're talking about. So this is what the report gets into.
Matt: I think there's maybe just a couple of other things to say. Invariably, community ownership – if we just take wind, for instance, of course, it's not the only generation type for communities to have a stake in, it might be solar or hydro – but wind where communities have normally been involved have been onshore, because you can kind of scale this down, but not offshore. Why?
Because, well, I guess historically it's been more expensive, okay, but it's also the scale, like the kind of minimum viable product or minimum viable scale for these projects has been much bigger. Okay. If you're going to build it, you're going to build it. You're not going to do a little bit. You'll do a, do a lot of it.
And so communities haven't had a foothold in this space around ownership of offshore. I know there's various examples I'm sure listeners will be able to point to where it's being actively discussed. I don't know of any projects they have a share in – and if listeners do, please let us know. And you may do also Fraser, but it opens that door to that, I think.
Fraser: Yeah.
Matt: The other thing to note on this is that whilst I gave an example of, you know, comparing shared ownership, you know, versus what? Well, it might be whole community ownership. Well, of course it swings the other way. You can have whole private or public ownership, right? But the typical model at the moment is around community benefit funds.
So what we're normally doing in the UK is we have a, you know, let's call it a privately owned, 100 percent privately owned project, which donates or siphons off a share of the revenue to a community via a community benefit fund. Now, well, I'm sure we'll get into this with the guests, but that's typically the kind of the practice model at the moment.
So shared ownership fits somewhere in between the two. This kind of privately owned community benefit fund model or the wholly owned community ownership model. And I look forward to exploring the pros and cons of having that, that sort of middling or alternative role really. I mean, I don't know whether you've got any particular takeaways about that without stealing the thunder of your, your esteemed colleagues.
Fraser: I do. I do. I won't step on the, on the toes too much because there's a lot to get into, but I think there's a, there's an important, two important angles here. The first is that we consider full community ownership – you know, we often consider that the gold standard of, you know, engagement of, of ownership of participation in the net zero transition and, you know, the maximum amount of benefit proportionately that can come back to a community.
With shared ownership, however, you still get a lot of that value participating in the ownership of a project, in the project management, which is great for skills development locally. You still obviously get a significant chunk of the revenue back from those projects. But the advantage that I think we identify here is particularly around that fairness piece and accessibility.
So where shared ownership has a distinct advantage over even community ownership – which don't get me wrong we absolutely still need to support – where shared ownership has an advantage is that it allows more communities, perhaps with less technical expertise or less resource behind them or less experience to partner with experienced developers with a lot of resource, with a lot of this expertise that they need who can also absorb a lot of that financial burden.
The project delivery, the administrative side of things. It's a more accessible way to do that. So you don't have to start your own project from scratch. So that doesn't mean necessarily that shared ownership is fair. There's a lot that has to happen, and I know Jess will cover this off when we chat in a bit. But it means that it's an opportunity that is feasible for more communities than full community ownership at present. Doesn't mean that's not going to change, but it's an opportunity worth exploring, we think.
Matt: And I think we need to note as well why we're talking about this now. Again, don’t wanna steal the thunder, but Labour have kind of put this on the table, really, as a key focus through their Local Power Plan.
There's an event we will hopefully be running in March with one of the government's ministers, we hope, to speak to this exact issue at Strathclyde. We hope to record this for Local Zero, too, uh, to explore this in more detail. But it does look to open the doors, I think, not just politically, but financially to more shared ownership.
So your report and this discussion is very timely because what that looks like and how we support that – well, you know, as you said, we haven't done much of it so far. So, why not bring the guests in to let us know a little bit more about what we could or should be doing next?
Fraser: I think that's a great idea.
Jake: Hi, I'm Jake Burnyeat, Founding Director of a not-for-profit company called Communities for Renewables, or CFR. We've been going since 2012, and we help communities to generate their own energy.
Jessica: Hi, I'm Jess Hogan. I'm an Energy Analyst at Regen. I recently completed a PhD where I looked at community acceptance of onshore wind in Scotland, but also in Newfoundland, Canada.
Matt: Jess, Jake, welcome to Local Zero. It's an absolute pleasure to have you along to talk about this particularly interesting subject, about shared ownership for renewable projects. So maybe if we begin with some first principles around shared ownership, which is, you know, what are the different models for shared ownership and what do they entail?
Jake: What we're talking about with shared ownership is a local, not-for-profit community organisation having a share in a wind or solar farm developed by a commercial developer. A local community organisation will be a community interest company or community benefits society, a not-for-profit set up to serve the local community.
And the way it serves that local community is by generating surplus income to reinvest in fuel poverty and net zero transition initiatives in the local area. And the company will be overseen by a board of volunteer directors that represents local community, and local people may also have one member, one vote voting shares to enable them to take part in the governance of that company.
Now, there's three ways that the Regen report sets out that local community energy enterprise can get involved in a commercial development. The first is split ownership. So under split ownership, the solar farm or wind farm is split into two.
And one ends up 100 percent owned by the commercial entity, and one ends up 100 percent owned by the community company. The second is a revenue share, and under the revenue share model, the community company buys, if you like, a share of the revenue from that wind or solar farm. And that revenue share needs to be sufficient to cover the running and finance costs of the community company and generate surplus income.
And the last model is, is a joint venture where the community company and the commercial developer will each own shares in the project’s special-purpose company. But the purpose is the same with all three: it’s to get a sufficient income stream from the project, which can cover the running and finance costs of the community company and generate a surplus income to reinvest in the locality.
Matt: Why on earth are we talking about shared ownership now? Why is this an important subject to tackle today? And there's a lot of context, I think, to unpack. So I'm going to come to Jess first, if that's okay, just to set the scene.
Jessica: Yeah, no, it's a really good question. I think, importantly, to state that shared ownership isn't new. It's been around for a while now. And there was a shared ownership task force in 2014, but that was effectively stalled when the onshore wind ban was put in place in 2015 in England. And so shared ownership is a particularly interesting thing to bring back on the table this year. Because onshore wind ban was lifted, but also at the same time we have the UK Government wants to do the Clean Power 2030.
So they want to get our energy system to clean energy. And this is a really good opportunity for shared ownership because they, they're going to need to bring people along with them on that journey, get public support and backing towards that. And I think shared ownership is a key way that could happen.
And then finally, Great British Energy is just starting up. And so they've talked about de-risking large-scale energy projects in the UK, like floating offshore wind. And we think, like, if they could do it for that big stuff, they could do it for the little stuff as well.
Jake: I think Jess is right to point out that shared ownership is nothing new. And I think really the sector started with shared ownership, with some of the early Energy4All projects that were shared ownership schemes. For CFR, we started out in 2012, it was very early days for community energy, and for the first few years, I spent a long evening sat in village halls talking about the basic concept of community energy, about a community owning its own generation and retaining some of the economic benefit of that locally.
And to be honest, it was a slow start. And something happened in 2015, which was a game changer for us and a game changer for the sector. And it was in the coalition government, the government at the time capped the size of project that could get a renewables obligation at five megawatts. And at the same time, they introduced something called the split FiT policy, which drove a form of shared ownership.
And 49 of the 50 megawatts of community-owned solar that we look after came out of that split FiT policy back in 2015, 16. And a very significant percentage of the community-owned megawatts in the UK has come out of some form of partnership with a commercial developer.
Matt: And Jake, just again for clarification, split FiT. I'm assuming, again, for the uninitiated, FiT, feed-in tariff, I'm assuming is what you're referring to.
Jake: Feed-in tariff, yeah. If we wind back to 2015, there were two subsidy mechanisms for renewable energy. One was called the Renewables Obligation, and one was called the Feed-in Tariff, or FiT. The Renewables Obligation, paid a revenue subsidy to a wind or solar project of any scale, and the Feed-in Tariff paid a revenue subsidy to projects of up to five megawatts in scale.
So the Feed-in Tariff was a key driver to some of the early community energy schemes, because it gave a high level of revenue certainty that enabled those early community energy projects to raise finance and get up-and-running. And for whatever reason, back in 2015, the government capped the size of a project that could get a renewables obligation at 5 megawatts, quite suddenly.
So there are a bunch of developers out there that were developing solar farms of uh, 10, 10 megawatts, say, but they can now only get a subsidy for a 5 megawatts, so they were left with, with a stranded asset. But at the same time, Ed Davey, who was Energy Secretary, introduced the split FiT policy to drive some of this capacity into community ownership.
And the way the split FiT policy worked is it said, you can only get a feed-in tariff for a project of up to 5 megawatts, but two projects, sharing the same site and potentially sharing a grid connection, can both get a feed-in tariff if one of them is community-owned, or if at least one of them is community owned. So that provided a route for commercial developers that had a 10-megawatt solar farm, and they were hoping to get a renewables obligation that could now only get it for 5 megawatts, they could then get a feed-in tariff for these projects, if half of it was put over into community ownership.
And that led to a bunch of commercial developers in 2015, phoning us up and saying, "How do we do this community thing?” And from those conversations, we've helped develop a portfolio of megawatt-scale community-owned solar farms that have really become the backbone of CFR.
The key thing about that split FiT policy and the split project model, is the project may start out as one scheme developed by a commercial developer. The commercial developer may take that project through the really high-risk investment of securing land, uh, planning commissions and grid consent. But then the project is split in two.
It becomes two entirely separate projects. Sometimes there's a grid share arrangement that governs how the connection is shared. But once the community has taken ownership of its side, it can run pretty much independently of the developer. So you end up with one solar farm that is a hundred percent owned by a commercial developer and one solar farm next door that is a hundred percent owned by a local community energy enterprise.
And the same principle could be applied to a wind farm of 10 turbines, for example, where eight are owned by the commercial developer and two are entirely separately owned by the local community.
Fraser: Great. That’s incredibly useful context and a good tour of the history of this discussion up until now. So we have the current context of Clean Power 2030, of GB Energy, of Labour getting behind this 8 gigawatts target of local and community-owned energy, including shared ownership.
Jess, within this work, there's a lot of space given to the value of shared ownership for communities, but also for developers and for this wider clean power mission. What, what is that value? What does it look like to you?
Jessica: Yeah, so for our shared ownership report, we set out kind of four key areas that shared ownership delivers value. I think the first key way is that it can lead to greater local support by people who live near those projects. And this can help speed up project timelines. But also I think what's really valuable and what we've seen with projects now is that those communities build a level of trust with the developers, and that can help when they go to planning permission, uh, if they need to re-power.
So when the project comes to end of their life cycle, and they need to go through planning permission again. I think more generally, it improves support for the wider clean power mission, because it's actually giving people a stake in those projects. But I think probably most importantly to some of the communities is that it's giving financial returns, and sometimes quite substantially.
And then they can reinvest this how they want to, so a lot of community energy groups, they tend to invest in things like fuel poverty and energy efficiency measures for people who might not be able to afford them by themselves.
And I think in terms of the just transition part, shared ownership can be really important to getting more communities involved, because it might be more accessible for some communities than, say, fully community-owned projects, because it, for some communities, it kind of gets this right balance between risk and reward, and so they can balance that off a little bit more than say, uh, a fully community-owned project.
I think importantly, when I say this, it's not to say that we want to do one or the other. I think both, like, fully community-owned projects and shared ownership projects are important. I think it's just giving communities another avenue for them to participate in the clean energy transition.
Fraser: How have you, Jake, in your experience with CFR, how have you seen sort of the value or participation in shared ownership play out for, for communities first?
Jake: So I think it's very important to distinguish between community ownership and community investment. And community investment may form parts of a community ownership model, but it's not all of it. So that the key benefit of a community owning part of a wind farm or or a solar farm is not the investment returns going to local people that may or may not have the money to invest in it.
It is that part of that wind or solar farm becomes owned by a local, not-for-profit company that's governed by local volunteer directors and is set up to generate surplus income, and ideally electricity as well for the local community.
So the operating model for the seven community solar enterprises that we manage that are all uh, split ownership projects, is they own their section of the solar farm – it’s a separate project. That solar farm sells power to the grid and receives a feed-in tariff because the, they’re 2016 project. And the revenue generated from that is used to cover the running costs of solar farm, to cover the, the finance cost associated with acquiring their share in it, which is normally a combination of bank loans and community investment.
But the key thing about those finance costs is they're fixed. And then any surplus income over and above those operating and finance costs is reinvested by that local energy enterprise in funding fuel poverty and net zero initiatives in that locality. So there's a fundamental difference between the solar farm or wind farm paying a fixed community benefit fund, to a community owning the project.
And that was illustrated it in the energy crisis. In the energy crisis, households and businesses ended up paying a lot more for their power.
Matt: There's an interesting distinction there between community ownership and community investment, which I'm not sure I'm 100 percent clear on, which is concerning me because I thought I understood it.
Is the difference is that, for ownership and investment that they both see the community investing in something, but ownership is much more about the control and governance of that project, than just standalone sort of investing into a fund and stepping away? Is, is that too simplistic? And is that, is that how you were framing it or did I misinterpret what you said?
Jake: So I think there's a fundamental principle of local community ownership is that a renewable project, or a share of a renewable project, is owned by a local energy enterprise. That's, that's what's at the heart of it. That local energy enterprise, it might be a community interest company or community benefit society or another form of cooperative.
But it's that local community company owning the project which makes it community-owned. And that local community company will be set up as a not-for-profit, its community benefit purpose written into its founding documents, and it will be governed by representatives of the local community. And its purpose is to serve the local community by generating surplus income and potentially power in future, from its ownership of that renewable energy asset.
To build that renewable energy asset, it needs to raise finance. And one of the ways it can raise finance is through a community share or bond offer. So the community investment bit is a means to the end of having a, a funded community energy company, but for these larger projects, when you're talking about raising £10 million or so, you're not going to raise all that money from the local community.
You're going to raise probably two-thirds of it from a bank loan, one third from a community share or bond offer and a percentage of that bond offer or share offer may come from from local people.
Matt: Thank you. And maybe just to draw the distinction out because I think it's really important to frame these, uh, you, you may differentiate it from, say, a community investing into a project.
Let's say it might be, you know, a company set up within the community to establish a renewable energy project. That might be a company limited by guarantee, or private limited company. Whatever it might be. And you might have individual partners in that community investing into this, but the organisation itself isn't set up to serve that particular community and is not governed, necessarily, by and for the community.
And I think this is this is an important distinction for the whole shared ownership debate that we're having, is about who is sharing that ownership? Because it could be a few hundred members of the community are investing into a project, but without that community governance that it's not by and for the community.
Jake: I can draw an example of the alternative. So a few years ago, one of the big solar developers launched a bond, a collective investment bond, to enable people from all over the UK to invest in their solar company. Now, I would not call that local ownership. That's just a developer raising money from the public.
And it's great because it gives people the opportunity to get involved in renewable energy, but there's no locality connection. And their only involvement is as investors in a renewable energy company. You can also invest in a renewable energy company via your pension, or by buying shares in one of the big renewable energy funds.
What we're talking about is very specific. It is a local company, set up to serve the local community, that takes ownership of a renewable energy asset.
Jessica: Yeah. Can I also just add on that – I also think, so at the beginning we talked about different models of shared ownership. So what Jake is talking about is split ownership. And in that model, communities get voting rights, they have physical assets, whereas, uh, shared revenue, they're investing in the developer's revenue stream. So that is slightly different. They don't have the same amount of control or say in the project, but there is less risk associated with that as well, but also lower potential returns.
Matt: So Jess, that's a really interesting point because I think it's quite different from a lot of the common framings of community ownership. So what would investing in a developer's revenue stream look and feel like? How would a community – let's say somebody's listening to this and thinking, “Great, that's, that sounds perfect”. What does that actually look like in practice?
Jessica: Yeah, so investing in it could be, I think it's usually post-construction. So the developer’s taken on most of the risk, and it's more similar to how investors would look to get other people to invest in their projects beyond communities. So I think it's more similar to that type of portfolio.
Jake: I think of the heart of it as a similar model. The Falck Energy4All projects were largely revenue shares, and you still have a cooperative, so Energy4All still set up a cooperative, but the way it got involved in the project, rather than buying one turbine, it bought a revenue share, so you still have a community co op that's still set up to deliver its community purpose, it's just its involvement in the project is different.
Fraser: There are platforms, for instance, like Abundance, where you can invest from anywhere, as Jake mentioned, without the locality element, but invest the revenue share in a project or a bond to raise finance for a project without having any active say in the governance, versus something like an Energy4All or something that involves more direct ownership.
I think this, what’s an interesting point within this conversation, and Jess, you pull it out in the report really, really well, is that a lot of the value that we see from shared ownership, particularly locally, is in that involvement in the ownership process, right? In terms of the skills that can be developed on the back of that. You've seen that sort of play out in the cases that were in included in there.
Jessica: Yeah, and I think what's important about that and what Jake's highlighted again is that we're not trying to say what type of shared ownership is better than the other. I think what's key is what Jake is saying, is that we're trying to create something where benefits stay local and people can really be involved in that.
And whether that's split, joint venture, shared revenue, I think what's good is that you're giving people a say, they're involved. And I think then you're kind of building kind of a better future for these communities, because they can then use that revenue how they want. And it's less individualistic, like, investment – if I wanted to invest in a renewable project, you know, that's fine, but coming together as a community is very different.
Matt: So correct me if I'm wrong, my understanding of shared ownership can take a number of different models, okay? There's one option, which is where you have a community comes alongside another partner and invests in a discrete amount of kit on a site – that might be one or two turbines, and the site might actually be 10 or 15. Or they invest in a share of the revenue that that site is going to generate.
And what differentiates this from another form of investment is that there is some locality associated with the people who are investing. I mean, I think Jake, you pointed to the communities of place, but maybe it could be community of practice. Is there anything else that we're missing in terms of what community shared ownership looks like? So just so listeners can really walk away with understanding how this works in practice.
Jessica: Yeah, I didn't mention joint venture. Joint venture is another form of shared ownership where communities and the developer own a special purpose vehicle together. And then the community in practice normally owns a minority share in that special purpose vehicles that allows them to then invest. So, that's usually about five to ten percent. And there are examples of this: Crossdykes Wind Farm in Scotland is a joint venture.
Matt: Yeah, I'd love to hear about that. So how has that worked in practice? Because often people, you know, keep floating this, “shared ownership is brand spanking new. You know, we, this, it could look like this, or feel like…” – what does it actually, how does it work in practice? What have you researched?
Jessica: Yeah, so Crossdykes Wind Farm. is based in Scotland. They were actually offered a 10 percent share, originally, by Muirhall Energy. I think there were some complications and that they weren't able to invest at that level. So Muirhall upped their community benefit fund to £7,000 per megawatt installed from £5,000.
And this meant that they were able to invest, but at a lower share, so 5 percent. What's really interesting about this particular one is that the, the developer decided to sell their asset. And so they gave the community the option whether or not they wanted to keep that and transfer to another developer when they sold it, or if they would like to sell it as well. They decided to sell because they felt it was easier.
And now they have a chunk of finance that they can reinvest in another shared ownership project, which they've told me that they're trying to pursue right now.
Matt: Very interesting. So, so Jake, any other examples you can point here, just add some flesh onto the bones of this, this concept?
Jake: I can give you the story of one of the split FiT projects that we started back in, in 2016. So North Somerset, a commercial developer, had got planning, land and grid for a big solar farm, a 15 megawatt solar farm. They tried to get a Contract for Difference for it, didn't get sufficient revenue for, from that. So they, they, they decided to take advantage of the split FiT policy, and put 9.3 of that 15 megawatts over to community ownership.
So, we got involved at that point. We helped negotiate the acquisition arrangement to buy the development rights from the commercial developer. And then we went out and raised a bridge loan of £11 million from a specialist loan fund called Leapfrog Bridge Finance that gave the community the capital they needed to buy and build their share of the project. So we set up a new community company called Burnham and Western Energy. Burnham and Western Energy borrowed that £11 million. They bought the solar farm from the commercial developer. Uh, and then over the next couple of years, we refinanced that bridge loan through a community bond offer via Triodos crowdfunding that raised 4 million, and a long-term bank loan from Triodos Bank at 7.3 million.
So that was two years of work, mostly transactional. Eight years down the line, that is now a fully-functioning local engine enterprise, and it employs a team of four people who are helping local households struggling to pay their bill, um, visiting over 500 households a year. They built up several million pounds of surplus income that they're using to fund solar PV on local community buildings and schools via a very soft pay-as-you-save loan model.
Um, and they've got a grant fund called the Sunshine Grant Fund, which has been handing out around 25,000 a year to local community and community-led climate projects since the project was built.
Matt: Brilliant. And so that was going to be my sort of final follow-up on that to both of you. So, without trying to sound too Tom Cruise and Jerry Maguire, sort of “show me the money", if this is the shared ownership model, how does this stack up against the alternatives?
So, maybe if we frame the most common, which is the Community Benefit Fund model, where a developer sacrifices a certain amount of their revenue per annum, typically, or up to about £5,000 per megawatt installed per annum. Is this shared ownership more lucrative? Is it a more lucrative model for communities?
Jake, the example you gave there, if we were to say, scrap that and go for the corporate community benefit fund model, would they be drawing in more or less money as a result?
Jake: Definitely less. So, first of all, solar farms don't pay £5,000 per megawatt. That, that was, that was a benchmark for wind farms back in the, in the days of the renewables obligation and the feed-in tariff.
So many solar farms pay no community benefit fund now, or they might pay an upfront sum or an annual amount, which is much less than £5,000 per megawatt. And that certainly wasn't the benchmark rates for solar farms when, when the Burnham and Western Energy solar farm was built. But even if it was, we'd be talking about around 50,000 a year of community benefit payments, if that's what they were paying.
Burnham and Western Energy, since it was set up in 2016, has probably generated four or five times that. Because through the energy crisis, they've been benefiting from higher than expected energy prices, which leads to super profits. With a commercially owned solar farm, those super profits go to the developer.
With a community owned solar farm, those super profits go back into the community to help those very households and community organisations that are struggling because of the energy crisis. So it is a basis for resilience and a natural hedge, if you like.
Matt: So an order of magnitude greater return to communities by taking this shared ownership model. Is that fair?
Jake: But with it comes a lot of work and some risk.
Jessica: Yeah. And I, I think it's important to say that like Local Energy Scotland, when they're talking about shared ownership, they don't think of it as shared ownership or community benefit funds. It's meant to be additional. Shared ownership is meant to be, because there's risks associated with it, like the community should still be provided their community benefit fund.
Fraser: Yeah, so it's not seen as a replacement, it's seen as, as additional, reflecting that risk. I think that's an important point and we, we see that with, for instance, Forest Gate Solar as well with, with Eden Renewables, something that is pulled out in the report.
I want to shift the dial slightly because Matt, you've been very academic and very probing there, but pivoting more now towards thinking about some of the challenges, but moreover the solutions in this space. So, Jess, I want to come to you first. The, the report itself and your own research has identified some of the key challenges with this for communities, for developers and also enabling at scale. Can you talk us through some of those?
Jessica: In our report, we highlight five different challenges, but I'm just going to highlight a couple for you just in terms of enabling, a just and fair way to get people involved in shared ownership.
So I think the first thing is, is that there's a general lack of awareness of shared ownership. People don't really know what it is or how it works. So we need to be able to give people some certainty that that will actually be taken up if they do put in that work and effort. I think secondly, there's limited capacity in communities, particularly marginalised communities, to actually participate in these types of projects.
And I think it's important to put out there that, you know, communities have done really amazing things in the community energy space, um, even though they've had limited capacity. But if we want to bring more communities along with us, they're going to need technical, financial, and legal advice, or at least funding in order to get that.
And then I think importantly, a big barrier is finance. So communities can struggle to get access to debt finance, particularly for small or medium-scale projects. And also money is quite expensive right now. So high interest rates means that they might not be able to put as much back in the community. They're just paying off some of that debt. So those are kind of three main challenges I would pull out.
Fraser: I think those are all really useful, Jess. And I think Jake, in terms of the awareness side of things, obviously you're, you're very deep in the sector, you're doing this stuff. Is this something that you experienced, that sort of awareness around shared ownership and certainly the process of realising shared ownership – is that something we need to do more around in your opinion?
Jake: There's awareness amongst commercial developers and willingness amongst commercial developers, and there's awareness and willingness amongst communities. Developers were very aware of it back in 2015, 16, when there was a carrot and a stick for them engaging in shared ownership and there was a period of two years where a lot happened.
We quite often get asked by communities, sometimes the parish councils, how they should engage in commercial developments in their area. But I think there's a very limited number of developers that really want to do this at the moment. And there is a few really good examples like Forest Gate and Eden Renewables and some of the Scotland wind farms.
But it really needs a policy with, with teeth and positive incentives for both developers and communities to raise awareness. And if we had that policy, the awareness would be there.
Fraser: Is this where the Local Power Plan, GB Energy, is this where these new players come in, in your view?
Jake: Yeah. So, I mean, we've got a number of things going on. We've got the Local Power Plan looking to deliver eight gigawatts of local and community owned-energy. And the reality is that is only going to happen if a significant chunk of that comes from shared ownership projects, because the bulk of the projects we need for 2030 are already in the pipeline. So if we want a big chunk of them to be community-owned, we've got to have a meaningful shared ownership policy.
Secondly, the government or the local power plan is looking to deploy a billion pounds a year over three years into municipal and community energy. And again, the only way that level of money is going to be deployed is significantly through shared ownership, so I think it's fundamental to deploying that capital and achieving the gigawatt target, but it's also fundamental to the wider objectives of the government.
The government wants communities and councils to own generation, but they also want to insulate millions of homes and bring bills down. And there is a link between the two, because if we want a functional local energy enterprise in each locality that's doing all the hard-to-do stuff that requires local knowledge and connections – the retrofit, the fuel poverty advice – those organisations need funding, and one way of funding them is to enable them generate their own energy and generate surplus income from that energy, and ideally be able to supply that energy to local households at a fair price.
So the shared ownership is a really, a means to an end of having those functional local energy enterprises in each locality that deliver all the hard-to-do stuff.
Matt: Jake, if I may just take a step back to some of the developers that are already looking towards shared ownership as, as a way forward, despite maybe some of the policies that we've talked about – Local Power Plan – you know, that haven't come to pass yet. So are there any common themes amongst these developers that are looking towards this? Like, what's their rationale? What's the incentive for them?
Jake: Going back to 2015/16, there were developers that engaged in it because it was their only option for realising part of a project. Since then, now, I think, I think it's a very limited number of developers that see it as part of what will make a project a good thing.
And shared ownership and community benefit funds are not going to overcome all local opposition to a controversial project. What they can do is increase support for a project from a group of people that would otherwise be silent and whatever the community thinks of it, they can certainly ensure that the community benefits from it.
But for that to work, it has to be introduced from very early stages. It has to be part of the projects from the very beginning, and the developer and the community needs to have agreed they're going to do this at the very beginning before the project is launched publicly, and it becomes part of the story. It can have the reverse effect if it's introduced to a project late in its development stages by a developer looking to reverse a community that is already opposed to it.
Matt: That's great. I'm going to give, give way to Fraser, but there's, there's maybe – I’m going to flag this in case it's something you want to tackle. If not, I think there's another episode here, but in the Local Power Plan, as you said, Jake, you know, there's the opportunity for local authorities to be that potential investor, you know, there's, there's finance and funding coming down the tracks to unlock that, not just communities. So I, I don't know whether there's opportunity here for local authorities to partner with, with developers or local authorities to partner with communities and whether that shifts the dial on shared ownership at all in your mind or, or not.
Because it's a, it's a critical part of this Local Power Plan. Jess, was it, is this something that you considered in your report at all?
Jessica: Yeah, so we didn't consider local authorities in our report, but it's actually something that we were just talking about yesterday because it is important, and I do think that local authorities and councils will play a part in shared ownership.
And I think GB Energy has already said that that's what they aim to do. I think what's key about that, and something that we've kind of talked about in our Net Zero Living project at Regen, is that there are really good benefits of local authorities working with community energy groups. So, local authorities sometimes have a harder time taking on risk, but community energy groups might be able to do that.
And then, kind of the flip side, local authorities might have better chances at getting access to finance. And that community energy groups might not have that opportunity.
Matt: Yeah. And the potential may be in the future for all three parties to be engaged in a singular project, which sounds messy but exciting. Jake, anything you wanted to add?
Jake: From our perspective, there's a big picture that something like £2,000 per year per head of population disappears from a local economy on energy spend, if you take, uh, domestic and commercial heat and electricity consumption and transport. And for some communities, that's, that's like they're working one day in five to pay the big energy companies.
So anything we can do to shift that, so rather than energy being a drain on a local economy, it's part of a positive local economic multiplier – that’s a good thing. And that could mean ownership of generation by community energy enterprises or local authorities or local businesses. It’s all part of the big picture of let's try and use this technology shift that we're going through, shifting from large-scale fossil fuel generation to distributed renewable generation.
Let’s, let's try and at least in part, achieve a social and economic shift with, with that technology shift. One of the things that the paper highlights is how do marginalised communities get involved in this? And there's a presumption behind that, that wealthy communities will have the resources to engage in one of these shared ownership structures.
And I mean, I've seen wealthy communities struggle with it as well. So I don't think it's necessarily a factor of the community's wealth. I think it's, it's, it's a factor of the community having a professional team that's running the transaction on their behalf. They need to be dealing with a team that's done this before. They can't go through an education process with every, every community that comes to them.
They need a team that knows what they're doing, that's done it before, that represents and manages the process on behalf of the community. That makes it efficient for the developer and for the community to have that, they need funding for that capacity.
Jessica: Yeah, and I think we do set that out in the report, and we kind of made a diagram for how GB Energy could actually support low capacity and less affluent communities.
So it starts out by GB Energy kind of assessing how much capacity a community has, but then kind of what Jake said of offering a low or no interest loan to pay an experienced organisation to support the community through that share offer. So Energy4All is a really good example of a company that's been helping communities to actually, uh, do shared ownership and then in cases where they might not feel like they're ready to even pursue that, uh, we suggested that GB Energy could take a temporary ownership stake and then with that ownership stake, they would then keep the channels open for the community to come back and consider if they would like to take up shared ownership at a different date.
But that GB Energy, with that stake, would set up a benefit fund with the money that would come out of that.
Matt: Thank you. Maybe just to emphasise, other brands are available. Jake, my understanding of communities for renewables is similar to what Energy4All do in that you can help communities to achieve this aim. You've done this before, you know the ropes and you can make it happen and help communities to make that happen. Is that right?
Jake: Yeah, that's correct. Yeah. The projects we did back in, in 2016/17, they were each probably a year of transaction work with the commercial developer and then another year of refinance work following it, and it is a huge amount of work.
And the transaction, once running, is is a process. There's lots to be done. Things have to be turned around quickly. There's finance documents to review, legal documents to review, data rooms to be set up, conditions, precedents to be met. And it's really important that both sides are on it, because if on the community side, or in fact on the on the developer side, they're not used to doing it, costs just can escalate.
So there is a point around template documents and making the process efficient, and that can help to an extent. But what really works is having a team on both sides that's done it before and can run the process efficiently.
Fraser: That to me feels like the perfect note to close out what has been a very interesting conversation. But before we do, I'm going to pin you down. I'm going to be really, really mean because I didn't send you this question before. But starting with Jess and then coming to Jake, what is your one message for government to enable shared ownership going forward? Jess?
Jessica: Yeah, thanks. Yeah, so the one key message to the UK government and the National Energy System Operator would be that they need to recognise shared ownership as a national priority.
So, on one side, the UK government should be encouraging developers to offer shared ownership as standard on all new renewable energy projects, but they also need to incentivise that. So the Clean Power Plan will set out to define what's needed for a Clean Power 2030, and where that will be located. And the National Energy System Operator should really prioritise shared ownership projects as needed in the grid connection queue, to get these projects online quicker, but also kind of encourage developers to actually take up shared ownership.
Jake: One thing the government could do to encourage shared ownership, I think they've got to look at the commercial developers. It's got to be a requirement to offer ownership, shared ownership, not an encouragement. But with that requirement, they have to provide some carrots to the developers. The developer has to have a positive reason to engage in it.
I think those positive reasons could come across a number of areas. It could be points in the grid queue. So if you are offering and seeing through a shared ownership stake, then that bumps you up the grid queue. We could have the same for the Contracts for Difference – that could become part of the local content element of, of a Contract for Difference bid.
And crucially, it's got to be recognised in planning, planning offices have got to be able to add points, if you like, for projects that offer genuine shared ownership. And for both developers and the community there needs to be a price mechanism, so we need a mechanism where the developer and the community agrees a price up-front that they're both happy with, so the developer gets their money back plus a fair profit, and the community knows that if they can come up with that price, the transaction will happen, and the transaction will happen at a price where going forwards, they can generate significant surplus income, over and above their operating and finance costs.
Matt: Perfect. Well, listen, thank you to you both. A complex topic, but a timely one. And as you say, one that if we pursue further, and the current UK Government seems to be very committed to doing so, could really shift the dial on a number of projects that might otherwise not come to fruition. So thank you for that.
And I commend everybody to go out and read the report in more detail, which is a, as Fraser said in the intro, a real barnstormer. So thank you both. And we look forward to having you back soon when we know a little bit more about the Local Power Plan.
Jake: All right. Thanks, guys.
Jess: Thank you.
Matt: A big thank you to Jess and to Jake for joining us just now. A fantastic episode. Fraser's jumped off on important business, so it's left up to me to tell you all to check out the show notes for a link to the Communities for Renewables website and to Regen's “Sharing Power” report. Do give it a read and let us know what you think.
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