Thriving community organisations are making a valuable contribution to the UK’s energy transition, but funding remains tight. They are hoping the new Labour government will provide more support.
The UK’s community energy sector has been expanding in recent years despite strong regulatory and economic headwinds, and could soon get a boost if the new Labour government makes good on its plans to improve access to grants and cheap finance for the sector.
Almost 600 organisations comprise the community energy sector in the UK, providing community-based solutions raging from facilitating small-scale solar and wind installations and low carbon transport to advice on energy efficiency. It is a concept becoming increasingly common across Europe.
While each community organisation may be a relatively small-scale operation on its own, together the sector makes a significant impact both in terms of power capacity, emissions savings and shaping attitudes towards the energy transition.
Community organisations have added a cumulative 398 megawatts (MW) of clean energy capacity in the UK on turnover of £43.2m (€51m), adding almost £13m to the local economy across the country, according to data just published by Community Energy England (CEE), a body representing the sector in England. That equates to some 165,980 tonnes of CO2 saved in 2023, CEE estimates.
The sector has expanded over recent years, even if tricky financing conditions and what some see as an unhelpful policy backdrop have hampered growth since the Covid pandemic. Output from community power grew 80% to 617 gigawatt-hours a year between 2017 and 2023, while a 14% increase in new jobs created and a 119% increase in volunteers working in the sector in the 2021-23 period indicates continued vibrancy at the grassroots level.
“It’s a positive picture. The sector has grown and developed in scale and range of projects and services despite a drop off in government support in recent years and other challenges,” Phil Coventry, head of operations at CEE told Impact Investor.
Crowdfunding drive
Among those recently active in fundraising has been Bristol Energy Cooperative (BEC), which has invested over £13m in total to bring 20 solar and battery projects online with a total peak capacity of 12MW, as well as pushing £400,000 into community projects in and around Bristol, southwest England.
BEC recently launched its tenth share offer, aiming to raise £1m, mainly from small-scale investors via the online crowdfunding platform of UK-based sustainable bank Triodos Bank. The cooperative said the money would allow it to add another 1MW of solar energy to its portfolio and help develop further clean energy projects. These projects will power almost 300 homes over 25 years, saving 1,000 tonnes of CO2 emissions and directing an estimated £130,000 into community projects through revenue.
Whitni Thomas, Triodos Bank’s head of corporate finance led the launch of its direct investment crowdfunding platform in 2018, adding to the institution’s range of sustainability-oriented banking and investment services. Triodos Bank has raised some £212m in total for 57 organisations in a variety of sectors across 94 transactions and projects. This includes more than £28m for community energy organisations and projects.
“Community energy just hits lots of different buttons for us, because not only is it about enabling this positive kind of contribution towards a solution for generating clean energy, but it also engages people in their local community.” she told Impact Investor.
She said investors using the platform were not a homogenous group.
“We’ve got investors primarily motivated by the impact, whether it be social or environmental, but we also have a minority group of investors who say to us: I like the impact, but I also like that it’s an investment that is completely uncorrelated to what is going on in public markets,” she said.
Impact investment potential
The sector raises funds through a range of channels including bond issues, grants and some support from the private companies, such as electricity infrastructure provider UK Power Networks, which recently pledged £1m to help community energy groups scale up their net zero programmes.
Many traditional impact investors may not be aware of, or still considering community energy, given the small-scale of investments and long payback times, but it should be on their radars, given the stable interest-based returns on offer, robust track record and range of social and environmental impacts, CEE’s Coventry argued.
“It’s perfectly valid as a very useful type of impact investment. It’s just one with a long-term time horizon,” he said, noting that there is increasing scope for short-term impact-based financing to fund the development and installation costs of renewable energy projects, which enable very rapid action.
Younity – spawned by a partnership between energy providers Your Co-op Energy and Octopus Energy – provides an example of another type of impact tool in the sector, buying power from community-owned renewable energy projects, as well as providing grants and short-term finance for construction costs.
But significant hurdles remain for community energy, highlighted by responses to a consultation originally established by the former Conservative government, now in opposition after the UK general election earlier this month.
In its responses, published in early July, Triodos Bank called for, among other things, a ramping up of subsidies and public grants for the sector, which have dwindled over recent years. It also backed the establishment of a National Community Energy Fund to support urban and rural projects, heat, energy efficiency and retrofit projects, and realise the potential – estimated by CEE in 2020 – for the sector to reach 5 gigawatts of installed capacity by 2030.
“We need a supportive policy environment, and upfront development capital. Yes, you can raise some equity through community shares and so on. But you do need some grant funding to prime some of the projects. It’s quite difficult to fund these things 100% through debt,” Triodos Bank’s Thomas said.
Policy shift on the way?
The sector’s funding difficulties are reflected in CEE figures showing that 79 community power projects that would add 270MW of capacity are currently stalled.
Some of the issues may be addressed in coming months, if the new Labour government makes good on plans for the power sector published in the run up to the election, as part of which it would provide up to £400m a year in low interest loans to communities to develop and build community-owned projects, as well as £600m a year in grants to local authorities.
These are to be delivered by Great British Energy, a new publicly owned company Labour has said it will establish as part of drive to hit a target of running the UK on “100% clean and cheap power” by 2030.
Coventry said allowing UK community energy generators to sell directly to local consumers would be a boon – it is something that happens in some parts of the EU, where this aspect of the sector is often more developed than in the UK. Currently, UK regulations do not allow community energy generators to sell their electricity directly to local people.
“Conceptually, selling directly to the local community would be wonderful, because if, for example, you live in a village and you can buy electricity directly from a wind turbine that you can see from your kitchen window, then you have a different relationship with it,” he said. Plans to build onshore wind turbines, the cheapest form of renewable energy, have often foundered in the UK due to rigid planning regulations. Coventry said the new government had acted quickly to bring the planning system in line with other types of infrastructure, recognising broad public support for wind energy that now exists.
