Community energy initiatives have become an important way for communities to grow stronger.
They help regenerate physical and social infrastructure, but also can help address fuel poverty and promote environmental sustainability across the UK. For these reasons, Big Society Capital has been supportive of Community Energy and committed at least £20m to help grow this impact. Big Society Capital and other social investors want to help more communities grow their impact, however two critical Government announcements over the past quarter have threatened to put the breaks on community energy initiatives just at the time they are building speed.
First, on 27th August, the Department for Energy and Climate Change (DECC) signalled its intention to dramatically reduce Feed-in-Tariffs (FiTs). FiTs provide revenue subsidies to small scale renewable energy generation projects, like solar panels on people’s homes or on the local school, to encourage the uptake of clean energy sources, and they are currently what make community energy groups sustainable. DECC issued a consultation which proposed a cap on new renewable energy project expenditure under the Feed-in-Tariff (FIT) Scheme of £75-100m by 2018/19 (i.e. translating to an 86% cut to some generation tariffs). This will make large numbers of community energy projects unsustainable.
Second, on 26th October, the Treasury revealed that investment in community energy would no longer be eligible for Social Investment Tax Relief, Enterprise Investment Scheme, or Seed Enterprise Investment Scheme, taking effect from 30th November. As many projects rely on members of the community to help finance these projects, this change will restrict the confidence of communities’ ability to finance their own energy projects. Further, recent changes in this market, including removing access to pre-accreditation and eliminating Climate Change Levy exemptions, have also added to the difficulties for community energy projects.
Implementing these changes at such short notice will greatly impede the growth of the community energy sector; a sector which creates many social benefits as well as helping move the UK towards a green economy with low-carbon prosperity, resource security and environmental quality.
Treasury and DECC do have legitimate reasons for taking these actions, and they have not targeted community energy specifically. We understand there are three major ones: (1) they want to lower consumer energy prices; (2) they are concerned that tax incentive schemes see funding directed away from more risky, innovative investments that they were designed for towards less risky energy schemes; and (3) they are worried it is difficult to find a robust way to define genuine community energy schemes. We believe Treasury and DECC can address these concerns and still support community energy to deliver impact right across the UK.
First, community energy is a small part of consumer energy bills. In 2014, the entire Feed-in-Tariff scheme added only £9 per household per year to energy bills, with community energy representing only a very small fraction of that. Weighed against the community benefit, it seems like an easy choice.
Second, community energy is inherently different to other renewable energy schemes and is already riskier for investors. Its smaller size, longer and deeper process of engagement with communities, need for large numbers of local volunteers, and commitment to direct profits away from investors back into the community, deem it higher risk for many investors and developers, but entrench its impact.
Finally, defining genuine community energy is a challenge, but we believe it is possible and necessary to prevent abuse. We consulted on this as part of our response to the FiT consultation and came up with a way to define community energy more robustly, which could be useful to both FiTs and SITR. Three key principles could define community energy:
- Legal form: Must have a genuine social regulator (therefore be a Charity, BenCom or CIC);
- Ownership: Minimum levels of local and individual ownership; and
- Governance: Majority control of the board in hands of locals.
More details are in our submission. Whilst this framework does need to be worked through, it provides a way of targeting communities to safeguard the positive impact on them, avoiding abuse, at a limited cost to the consumer.
We encourage DECC and Treasury to consider these proposals to ensure we can once again drive greater impact to communities across the UK.