Community energy fundamentally changes the relationship between people and energy so that communities own, control and benefit from energy projects in their locality. These projects can include renewable energy and heat generation, energy efficiency measures, and pioneering energy storage and demand management initiatives. The potential for community energy to contribute to a vast array of environmental, social and economic charitable objectives is huge. It could even be a magic bullet for some of the major challenges our environment and communities currently face.
The most obvious benefits are probably climate related. These include: enabling communities to play a substantial role in meeting the UK’s carbon reduction and renewable energy obligations; increasing public support and dramatically reducing nimbyism towards renewable energy projects; and attracting new individuals, communities, institutions, and much needed new investment to progress the transition to a low-carbon economy. But the social, community, and local economic benefits are just as significant. These include: the creation and democratic control of community assets; the retention of profits within the community; and perhaps not least, the creation of a significant income stream for the community’s benefit (often worth millions of pounds over the lifetime of the project). Whether it be for the environment and sustainability, or regeneration and resilience, community energy has something to offer.
To date, communities are using this money to address local fuel poverty, purchase other community assets, provide youth employment training, pay for community facilities, fill gaps in public services resulting from local government budget cuts, and much more – it can be anything, the community is empowered to address its own needs and priorities.
There is some pessimism within the community energy sector at the moment, given government policy changes and subsidy reductions. However, the economics of solar (forecast UK grid parity by 2020), the advances in battery storage, and progress in smart tech mean the prospects for community energy are excellent.
There is a broad consensus that the rise of the prosumer – that is, both energy producer and consumer – whether it be communities, households or businesses, is going to impact the energy market. The trend is towards a more decentralised, decarbonised, and democratised energy system. UBS stated in a briefing paper to its clients: “Power is no longer something that is exclusively produced by huge, centralised units owned by large utilities. By 2025, everybody will be able to produce and store power. And it will be green and cost competitive.” Energy UK, the trade organisation representing the UK’s utility sector, has said: “The combination of small-scale renewables and electricity storage could create a complete paradigm shift in how the power sector operates.”
However, community energy does face short-term challenges. A lack of government support and the removal of tax breaks and subsidies means new models and assistance are required to help bridge the next few years.
Friends Provident Foundation is an endowed charitable foundation and we seek to use all of our capital in pursuit of our objectives, including grants, social investments and shareholder engagement. Community energy provides the opportunity for us to take an integrated approach, and with its myriad benefits it is ideal for our current programme ‘Building Resilient Economies’.
On the grants side, we are supporting Forum for the Future and the Community Energy Coalition to create a ‘community energy asset bank’, which would bring huge efficiencies to community groups seeking to set up projects, increasing success rates and reducing time and costs (currently in its scoping phase, Forum for the Future is looking for match funding to bring the project to fruition). Among others, we are also supporting the Institute of Welsh Affairs to work out a plan for Wales to meet its energy demands from renewable sources by 2035, maximising community energy, and the Centre for Sustainable Energy to build capacity for energy resilience in deprived areas.
The foundation’s current social investments include community shares in the inspiring Awel wind co-op near Swansea, a two-turbine project that is expected to generate £3 million over its lifetime for a local fuel poverty charity (which incidentally has just extended its share offer in order to pay off a bridging loan from the Welsh Government). We have also just bought bonds in Thrive Renewables plc, with the funds being used to facilitate local community ownership of a solar PV project.
The third tranche of our integrated use of capital is the active stewardship of our endowment in mainstream funds and shareholdings in utility companies.
The “paradigm shift” represented by community energy and other prosumers is a huge threat to the utility sector. EU utility companies have been described as being in a ‘death spiral’ due to renewable energy expansion and its resulting reduction of wholesale electricity prices, falling consumer demand, and market disruption including the changing relationship with traditional customers. This is set to continue. Citibank has estimated that, in their current form, utilities in developed economies could see the size of their market shrink by more than 50%. German utility company RWE (owner of nPower) has admitted that “Conventional power generation, quite frankly, as a business unit, is fighting for its economic survival”.
Our Foundation seeks to progress a fair, resilient, and sustainable economic system. As such we favour a managed transition to a low-carbon economy, avoiding huge systemic shocks to both the economy and communities. It has been estimated that the European utility sector has suffered stranded assets of €100 billion in the last five years. This must be a wake-up call and it requires innovation if the sector is to survive.
Throughout 2017, Friends Provident Foundation intends to undertake shareholder engagement with a number of utility companies to develop and adopt <2 degrees transition plans (with work already in progress in this area by the Institutional Investor Group on Climate Change), and to encourage partnerships with prosumers/community energy as part of these plans and the development of more resilient business models. For example, they could develop partnerships with community and aggregated household renewable energy generation and storage. After all, if you can’t beat them maybe it’s best to join them. Utility company involvement would bring benefits, such as finance and scale.
Your charity or foundation can join us in helping to progress community energy. There is potential for match funding via grant giving, shared social investment opportunities, and we would welcome approaches on collaborative engagement of the utility sector. Community energy is at the centre of the Venn diagram of environmental, social and economic charitable causes and has the potential to bring about real systemic change. Charities and foundations should seize this opportunity to support the sector at this exciting and critical time.
Colin Baines is investment engagement manager at Friends Provident Foundation