Blog: Nature Energy - Financing Community Energy Paper

11 Feb 2020

Community energy has pioneered low-cost citizen finance for renewables, according to a new paper and policy brief in Nature Energy from UKERC’s Financing Community Energy project led by Tyndall Manchester.  However, now that the Feed-in Tariff has closed, new measures for price stability, and business model innovations, will be needed to realise the sector’s potential contribution to the zero-carbon transition.

Community energy growth

Community energy in the UK has grown due to some favourable government policies, and the decreasing cost of renewable energy technologies. However, in the last few years, government has withdrawn most financial support for small scale renewables, putting community energy business models under strain.

We surveyed community energy organisations across the UK to learn more about their business models and finances, and explore the impact of public policy on prospects for their future. We compiled a database of 153 projects from 56 organisations, with information on organisation structures and size, project activities, financing, costs, resources, revenues, customers and community benefit activities.

Three types of community energy

We found that there are three basic sorts of community energy project: larger “standalone renewables” projects (mostly wind, hydro or solar ground-mount); smaller “on site customer” projects (mostly rooftop solar PV); and “demand-side” projects working on energy efficiency and energy advice. Smaller projects mostly use community shares to raise finance, whereas larger projects rely more on loans. Community shares offer interest rates that are, on average, two percentage points lower than loans, suggesting that smaller projects are highly efficient at raising finance.

However, while over 90% of the renewables projects in our sample made a financial surplus in our single-year snapshot, but this falls to just 20% if we remove income from the Feed-in Tariff and similar schemes.

Policy implications

What are the policy implications now that the Feed-in Tariff has closed? In the paper and accompanying policy brief, we suggest that community energy needs new sources of price support for renewables – perhaps from public sector customers, or new public policies; and innovations in business models involving new areas of energy activity.

Related publications:

Business models and financial characteristics of community energy in the UK. Paper in Nature Energy vol 5, February 2020. Open access view-only copy of paper via Nature SharedIt.

Price support allows communities to raise low-cost citizen finance for renewable energy projects. Nature Energy Policy Brief. Open access view-only copy of Policy Brief via Nature SharedIt.

UK Community Energy Business Models: Key Facts. Infographic.

Community Energy_infographic_Key Facts_FINAL.pdf

Authors: Dr Tim Braunholtz-Speight1, Dr Maria Sharmina1, Dr Ed Manderson2, Professor Carly McLachlan1, Dr Matthew Hannon3, Dr Jeff Hardy4, Dr Sarah Mander1

  1. Tyndall Centre for Climate Change Research, School of Engineering, University of Manchester
  2. Department of Economics, School of Social Sciences, University of Manchester
  3. University of Strathclyde Business School
  4. Grantham Institute, Imperial College London