Investing in Community Energy

Our government likes Community Energy. Do you? Transition Cambridge is hosting a forum about it on 14th Feb. I think it is a great idea, which is why I am part of the team setting up Cambridge Community Energy Ltd. The idea is to create opportunities for investment which also benefit the community and the planet. Here is a quick intro but come along on Friday if you can to find out more and tell us what you think about it.

Solar panels on Ridgefield Primary School, Cambridge

Community Energy can mean different things but our project is about using local funding to generate renewable energy and with additional local benefits. There are lots of similar projects around the country in various stages of completion. Ours is based in the city and we will use solar PV panels. The basic idea is:

• We find a building with a suitable roof that can use solar electricity and provides a community amenity - such as a school.
• We offer shares to local people with money to invest
• We do a deal with the school to 'rent' the roof and install solar panels.
• We give the school electricity from the panels at a cheap rate.
• We use that money plus the money from the Feed in Tariffs to give the investors a sensible return
• We use any money left over for other community projects.

Unfortunately this is more complicated than it sounds and there are significant costs in setting up and running the company, with annual accounts, VAT, share dividends etc to administer. You need a sizable roof (or lots of roofs) to make the investment viable.

One would have thought that it would be cheaper for the school to just take out a loan. However, one school we are negotiating with have already been offered a loan and rejected that option because of the risk involved and up front costs. The loan was offered at a fixed rate which sounds great except that in the first few years the school would be running the project at a loss. After a few years of energy price increase the savings from free electricity would go up and so would the Feed in Tariff income because it is linked to RPI; together they would more than pay for the loan. In the long run it could work out very well for them, probably. However, schools aren't in the business of making bets on inflation.

The community energy fund works for the school because they are guaranteed to make savings from the start as long as the panels generate something. The community investors accept a rather lower income in the early years on the understanding that they will get larger returns later on - depending on inflation, possibly unexpected maintenance costs and the weather.

As an investor I like this idea because

• It is a reasonably low risk investment (though certainly not zero risk)
• My returns are linked to inflation - if inflation goes up so do my returns
• I can get some of my investment back through tax relief (see EIS and SEIS).
• I am benefiting the school through savings from cheap electricity - and hopefully other community projects will get some funds too.
• I am helping to de-carbonise our electricity supply, minimising climate change.

The downside is that it is quite a long term investment - 20 years (as long as the Feed in Tariffs last). I may be able to take my money out earlier, though there is no guarantee of this.

However, there are other ways to invest in renewable energy, for example through mini bonds from energy suppliers: Good Energy and Ecotricity have both issued bonds recently. These bonds are typically for just a few years and offer a fixed rate of return but there is still risk involved and no local community benefit. Assuming you have some funds to invest - what would you do? The government expects community initiatives to provide up to 14% of our renewables capacity by 2020. Is this reasonable? Join the discussion on 14th Feb to find out more and see what other people think.