Community Energy
Social Enterprise
Community energy initiatives typically follow a similar, proven, path. They are constituted as community social enterprises Like a limited company they protect their owners, the community, so for example the community aren’t risking their homes and assets. There are a number of variations, we’d choose the most suitable type.
Normally they are one member, one vote, with each member of the community and investors having a vote. While investors have a vote, it’s just one, irrespective of the size of the investment. Voting drives decisions for the organisation, for example how to direct profits, such as returning money to the community to offset their energy costs and/or community projects and/or helping those in the community in energy poverty.
Depending on how the community decides to set up the social enterprise, membership by the community can be at little or no cost.
There is lots of great setup advice:
Business Plan
The business plan for the community energy project must demonstrate a safe investment where the income generated will equal or exceed the money required to repay the investment and cover operating costs:
Selling electricity to the grid
through a Power Purchase Agreement (PPA)
Selling electricity to the community
normally at a rate significantly less than market prices, which is partially how the community energy initiative saves the community energy costs. This is the Welcome to Energy Local | Energy Local model
Funding
The community enterprise normally raises funds to cover the capital costs using one or more community fundraising rounds. Investors can put in anything from £100 to £100,000 and are typically a combination of some members of the local community and commercial investors, such as pension funds, who are increasingly looking for ethical investments that meet their Environmental, Social and Governance (ESG) policies. The standard terms of such investments are:
- Repayment over 20 years, 5% per year
- Interest on the outstanding investment of around 4%
There may also be government grants available, mainly for heating, such as the £5,000 per home heat pump grant and potentially larger special grants for things such as a heat network.
Pre-Investment Costs
The main costs outside of the capital investment to build the infrastructure typically include Technical and Commercial Consultancy fees:
Technical Consultants Fees
to undertake the technical and commercial feasibility planning from concept through to planning permission.
Typically this is done in phases, by subject area. For example an initial solar generation feasibility report. We’d start with the renewable electricity generation area since this is a fundamental building block.
The most likely source of funding for the technical consultancy would be government grants.
Commercial Consultancy Fees
to undertake the social enterprise set-up and fund-raising round(s). This is typically done as a service from one of the big national community network organisations, such as Welcome to Energy4All – Energy4All. Funded for this would likely be a combination of government grants, other fundraising and percentage commission of the investment funds raised.