Community energy projects in Wales are demonstrating what can be achieved through a combination of flexible, tailored financial support and subsidies. But changes to the government’s feed-in tariff have cast doubt over the viability of future schemes
When a Welsh community wanted to raise £1m for the development of a hydro-electric energy scheme, they turned not to a bank but to a ‘responsible finance’ provider, the Robert Owen Community Banking (ROCB).
And thanks to initial support from the fund, the village of Abergwyngregyn was able to set up Ynni Anafon, a hydro-electricity scheme which will generate nearly 1,000MWh of clean energy and provide more than £30,000 each year for local community initiatives.
Ynni Anafon initially borrowed £15,000 from ROCB’s Community Energy Fund. This was used to develop a community share offer through which people could invest and become members of, a ‘society for community benefit’ set up to raise part of the £1m that the scheme needed for installation.
The £456,000 raised by this community share offer paid for the scheme’s turbine and allowed construction to begin – and the Community Energy Fund stepped in with a £150,000 bridging loan to complete the scheme.
ROCB’s Community Energy Fund opened for business in April 2014. It received national recognition earlier this year winning a micro entrepreneurship award from finance giant Citi and national organisation Responsible Finance for the social and community impact it delivers.
Mick Brown, ROCB’s chief executive, told Environment Journal: ‘Ynni Anafon are a huge success, and their project is generating more income to the community than was projected. The financial support we brought in for them at the right time was really crucial – it is highly specialist, high risk finance, and the private sector simply couldn’t be as responsive and flexible as we were.’
And this summer, Community Energy Fund loans of just under £200,000 unlocked a £3m investment from the Welsh Government for a twin-turbine, 4.7MW community wind farm at Mynydd y Gwrhyd. The foundations for the turbines are now in the ground (pictured, left) and community organisation Awel Aman Tawe should be on course to meet a key deadline for securing the current (rather than a reduced) level of income from feed in tariffs (FiTs).
ROCB’s involvement has seen two loans being made to the group, according to Community Energy Fund senior fund manager Neil Lewis. These amount to ‘just under £200,000, primarily to bridge across to financial close on the project, which is seeking to raise some £7.2m from a combination of loans from Triodos, a community share offer (with over £1m raised) and the investment of £3m from Welsh Government’.
It’s an unfair change in the regime. The potential gains to be made in disempowered communities were huge – community energy projects could have re-empowered those communities – Mick Brown, chief executive of Robert Owen Community Banking
Brown says that since the fund can also offer technical advice and mentoring to the community groups it supports through a panel of renewable energy experts from across Wales, it’s been able to give communities the confidence, as well as the capital, to get community energy schemes off the ground. And these schemes will generate local income streams that can be used to tackle local fuel poverty, increase energy efficiency and reduce carbon emissions in some of the most deprived areas in Wales.
Originally capitalised by a Big Lottery Sustainable Steps grant, the fund uses an innovative ‘mezzanine finance’ model to purchase work and fund the various permissions required by community energy groups to create viable projects.
Having already supported over 60 community groups – and made loans of more than £1,000,000 with a further £250,000 under consideration (at the time of writing), the Community Energy Fund is set to do more to help other projects come to fruition.
Changes made by the UK government last year to FiTs are likely to affect organisations like ROCB and the projects that they support. They will lower the rates paid out, but if a project has pre-registered for FiT it is guaranteed a set level of return if it is connected to the energy grid and operating by 29 March 2017.
Mick Brown explains: ‘The change to feed-in tariffs had a big impact on the whole sector. As a result of that, the pipeline of clients that we have been working on reduced – some schemes become unviable overnight; other schemes needed to work twice as hard to make them viable, and are under more pressure.
‘There is more risk in the sector and we’ve had to apply more stringent screening and due diligence but in less time – the whole sector opportunity has been compressed into much tighter timeframe.
‘We’ve been trying to make sure that for anything marginally viable we can find efficiencies through which it can be viable. And it’s worth bearing in mind that for many community groups, especially those with less resources and resilience, the subsidy enables crucial community development to take place. It’s an unfair change in the regime. The potential gains to be made in disempowered communities were huge – community energy projects could have re-empowered those communities.’
And he’s not only frustrated by the FiT changes: ‘There are still a lot of opportunities for the Welsh Government to recognise that there are resources within the sector that they’re not taking up fully.’
Is he concerned about the impact of Brexit?
‘Yes – it’s a significant concern. We’ve transferred dependency on external funding sources from Brussels to Westminster. There are more question marks about Westminster. There is a chain, a pecking order which is a direct line from city of London to west Wales, from highest to lowest income, Wales is at the end of the food chain. The Brexit challenge is for Wales to be noticed and to receive its fair share.’
So what can be done about it? ‘We’re working collectively, with other ‘responsible finance’ providers, and with Responsible Finance, to make the case that the whole of the responsible finance sector could grow,’ he says.
‘What we need is access to capital – we have had fewer routes in Wales to capital even than in England and we must change that. We are nervous of course but it’s down to us to make the case to improve and use this as opportunity. What we are trying to do in Wales is to be less dependent and grow the expertise as well as the size of community finance sector in tandem with community renewables. As a result, Wales is stronger.’