Financing Community Energy Case Studies : Gwent Energy CIC

Cairns, Iain and Hannon, Matthew and Braunholtz-Speight, Tim and McLachlan, Carly and Mander, Sarah and Manderson, Edward and Sharmina, Maria and Hardy, Jeff (2020) Financing Community Energy Case Studies : Gwent Energy CIC. [Report]

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    Abstract

    This report presents the third of four case studies of UK community energy organisations conducted during 2018/19. These will later be included as part of a synthesis briefing alongside a series of sector-level interviews. The case study makes use of a combination of qualitative (e.g. interviews, organisation reports) and quantitative (e.g. financial reports) data. Summary of key lessons: The withdrawal of the FiT has made business model innovation necessary, whilst legacy revenues from the FiT have made experimentation possible. The withdrawal of the FiT has meant that the CIC is unable to employ its existing revenue model for future projects, forcing it towards a more service-oriented approach. Interestingly, the 20-25 year long guaranteed revenue the FiT provides has also provided the CiC with the necessary capital and security for them to experiment with their business model. Community loans and bonds can be a viable alternative to community shares for delivering community energy projects. Instead of crowd-sourcing share finance from hundreds of shareholders, Gwent Energy has shown how raising community loans and bonds through a members-only Investor Club presents a different means of raising capital. Challenges of CIC legal structure have been overcome by an innovative finance model and a cooperative ethos. Whilst it has some advantages, the CIC legal structure suffers from the inability to raise community shares and the lack of an automatic democratic “one shareholder, one vote” system. These shortcomings have been overcome by legally incorporating these voting rights and raising finance through loans and bonds from community members only. In turn, these investors are invited to sit on committees to shape the CIC’s future. Heating business models present key challenges for community groups. Gwent Energy have thus far been unable to expand the heating side of its business, because of a combination of the poor rate of return from some low-carbon heating technologies (e.g. heat pumps), the rising cost of feedstock (e.g. biomass) and the difficulty of getting users to sign up for district heating. High dependency on individuals with appropriate levels of time, skill and commitment to generate social and environmental benefits. The establishment of the CIC would not have been possible without the involvement of one key individual. However, steps are being taken to overcome the dependency on the company’s chief architect.