After the ‘energy reset’: What next for the UK community energy sector?

To mark the start of our new energy seminars this term we have convinced Leo Murray, of 10:10, to write a blog post on the topic of his talk life after the energy reset.

The Paris Agreement and the UK Climate Change Act demand transformation of Britain’s energy system at a scale and speed not seen since the industrial revolution. The far reaching implications of this process mean that such change cannot succeed without active public participation.

Leo MurrayFollowing many Government initiatives since 2010 a dynamic community energy movement has begun to take shape across Britain. And there are now estimated to be over 500 active community energy groups in the UK. These work by raising money through community share issues and providing annual returns to shareholders. The co-op’s revenue from power sales and Feed-in Tariffs (FIT) are also used to fund community activities such as new playgrounds, energy efficiency improvements for public and community buildings or local business start-up support.

Unfortunately, this virtuous circle is now in danger of grinding to a halt in the UK, following a succession of abrupt changes to the policy landscape since the election of a new Government in May last year. The rationale for this sweeping away of the ‘green crap’ was most clearly articulated in Energy Minister Amber Rudd’s ‘energy reset’ speech in November 2015.

This leaves the future of the UK’s vibrant, grass roots community energy movement hugely uncertain. 10:10’s analysis is that the combination of new tariff rates for renewable power that are too low to support further deployment and that the FIT can no longer be relied on by the community energy sector as the basis for viable business models.

Since February, we have been in dialogue with dozens of established community energy practitioners to identify potential ways forward for the sector in these new, more challenging circumstances. So what can these groups do now?

Direct sales or entering the supply market

Wind turbineThe most obvious approach is to try to keep a greater proportion of the retail price. Electricity exported to the grid earns generators 4.85p/kWh, but is resold to end-users by utilities for up to 15p/kWh. Solving this could be direct selling to on-site customers, such as solar PV on the roof of a factory or even mean a co-op entering the supply market to compete with the big utilities.

The former tactic is already the focus of private sector developers so the best sites are likely to be taken before community groups can find them. Becoming a supplier is even more costly and high risk. For this to be viable regulatory reform to the UK’s energy market will be required and new mechanisms are needed to allow generators to realise the financial rewards of balancing local supply and demand.

Expanding their asset portfolio

Another possible way forward is via the acquisition of commercial renewable energy assets. Small solar farms for instance routinely change hands after construction. As the recent boom period for solar PV deployment draws to a close, there are many such opportunities on the market. These could offer reliable income streams to support community energy businesses to continue to function. But competition is fierce, and well capitalised, professional, commercial fund operators are very likely to beat volunteer-run community groups to the best sites.

Providing storage solutions

Some practitioners feel that the contemporary drive for more storage in the UK’s energy system also represents opportunities for the sector. Making money from grid or community scale storage successfully at present involves providing complex and varied functions and system services that are not within the scope of community groups. Home storage solutions are already viable but it is not obvious how to incorporate these within a community framework.

Renewable heat

Some feel renewable heat could also be a new front for community energy but economies of scale are important here, making it potentially difficult for communities to play a useful role. District heating is best deployed in new developments, which are presently dominated by private sector developers who lack incentives to engage with community groups in this way. In any event, The Department of Energy & Climate Change policy on renewable heat now appears to be skewing towards the large scale, pushing the opportunities here further out of the reach of community energy groups.

Energy efficiency

Energy efficiency meanwhile has already been both a focus for community energy groups and a bugbear for policy makers. Some co-ops have been delivering energy efficiency improvements in a circuitous way via their community benefit funds, and energy services companies have been able to turn a profit through contracting with public sector and commercial buildings to reduce demand. But domestic energy efficiency policies to date have been poorly designed and badly implemented, making progress here frustratingly slow. Community energy groups have inherent advantages over other entities as potential vectors for the delivery of new energy efficiency policy, through their higher levels of trust and local networks and relationships.

Partnerships with local authorities

The final theme that emerged strongly in this investigation is the potential for community groups to partner with Local Authorities to deliver shared objectives on energy. Councils already have the scale to make things like entering the supply market much more realistic. A constructive and enabling approach to grass roots community groups could engender mutually beneficial relationships. But communities have little control over their host authorities’ attitudes and capacity to engage like this, so the potential here will vary greatly from place to place. There is also a danger that ongoing wider austerity drives Local Authorities to take a more active role in the energy system in order to extract profits to plug growing holes in their service delivery budgets. This could quickly lead to community groups’ and councils’ agendas diverging, signs of which are already emerging in places like Bristol.

Conclusion

These are interesting times for energy. The Paris Agreement has given fresh impetus to energy transitions around the world, and the global market for renewables is buoyant and bullish, while oil prices remain volatile and chaotic. Meanwhile, the British ‘energy reset’ has led to an overall national energy policy that badly lacks coherence and is at odds with not just climate policy but, now, even the new decentralised vision of Britain’s energy system being put forward by Energy UK. If our community energy sector can weather the current storms, they should be well placed to help drive the low carbon transition again once the clouds have passed.

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