Monday, March 25, 2013

Detailed guide: Community Energy

By HM Government

Updated: And updated guide following the publication of the Community Energy Strategy.

The following guide is aimed at communities who may be interested in energy activities or projects.



We have recently published the UK's first Community Energy Strategy, following our Call for Evidence on Community Energy in Summer 2013.



What is community energy?



Community energy covers aspects of collective action to reduce, purchase, manage and generate energy.



Community energy projects have an emphasis on local engagement, local leadership and control and the local community benefiting collectively from the outcomes.



Community-led action can often tackle challenging issues around energy, with community groups well placed to understand their local areas and to bring people together with common purpose.



There are many examples of community energy projects across the UK, with at least 5000 community groups undertaking energy initiatives in the last five years. Examples of community energy projects include:



  • Community-owned renewable electricity installations such as solar photovoltaic (PV) panels, wind turbines or hydroelectric generation.

  • Members of the community jointly switching to a renewable heat source such as a heat pump or biomass boiler.

  • A community group supporting energy saving measures such as the installation of cavity wall or solid wall insulation, which can be funded wholly or partly by the Green Deal.

  • Working in partnership with the local Distribution Network Operator (DNO) to pilot smart technologies.

  • Collective purchasing of heating oil for off gas-grid communities

  • Collective switching of electricity or gas suppliers.

There are many case study examples of community energy activities across the UK in the Community Energy Call for Evidence and Strategy.



In the following sections there is further information on the options to consider, as well as sources of help and guidance.



Support available for Community Energy



Different types of community energy activity may need different types of support from organisations outside of the community. For example, your Local Authority might be able to provide advice and guidance if you are considering applying for planning permission to do an electricity generation project. You might want to talk to local businesses if you are interested in reducing the carbon footprint of your area to see how they can help.



This page provides a list of the support available through Government-funded schemes to support specific types of community energy initiatives. At the end are links to other non-Government organisations that may be able to offer further advice. In 2014, a new information resource for communities in England will be available; more details on this will follow shortly.



Community Electricity and Heat Generation



Community electricity or heat generation can enable communities to benefit from local resources. Renewable electricity and heat generation contribute to the UK's goal of reducing greenhouse gas emissions, helping your community play a part in reducing climate change. Your community may be able to receive a financial benefit from electricity and heat generation, in addition to other benefits, such as bringing everyone together or engaging people with ideas on how to save energy or money on energy bills.



If your community wants to know more about generating electricity or heat, you may be interested in the following. If you click on the headings, they will take you to more detailed pages on the relevant schemes.



Feed-in Tariffs (FITs) scheme



FITs support individuals and organisations, including communities, to generate low-carbon electricity using small-scale systems. The scheme covers solar PV panels, wind turbines, water turbines, anaerobic digestion (biogas energy) and micro combined heat and power (micro-CHP).



Currently you can receive FITs on installations of up to 5 megawatts (MW). We will be consulting in 2014 on the introduction of a higher threshold of 10 MW for community groups. Feed-in Tariffs provide a payment for the electricity that is generated; the up-front costs need to be funded eg via a local share offer or loan finance.



There are additional benefits for some community groups for FITs. Community Interest Companies (CICs), cooperatives and Community Benefit Societies (Industrial and Provident Societies which are not cooperatives) are able to fix tariff rates for a period and may be exempt from certain energy efficiency requirements for energy generated using solar PV panels. For more on FITs arrangements for eligible community groups, see the Ofgem website. Community groups which are not currently eligible for additional benefits can set up a CIC cooperative/Industrial and Provident Society (see below).



The Renewable Heat Incentive (RHI) Scheme



The RHI helps organisations including communities to meet the cost of installing renewable heat technologies. The scheme covers biomass, ground and water source heat pumps, geothermal, solar thermal, biomethane and biogas heating.



Currently the RHI is available for non-domestic installations, but the domestic RHI will launch in Spring 2014. The RHI provides payments for the heat produced renewably for 20 years, and as for FITs, the up-front costs need to be funded by the community organisation. As well as receiving RHI payments, community groups generating heat can sell the heat produced to provide a supplementary income stream.



More detailed information specifically for communities considering the RHI will be available shortly.



Heat Networks Delivery Unit



The Heat Networks Delivery Unit within the Department of Energy and Climate Change (DECC) will support local authority-led heat network projects in England and Wales. There are many funding and delivery models for these. These might include setting up energy service companies (ESCOs) that are wholly owned by the local authority, co-operative models that are owned by those they serve or joint venture companies including a private developer or financier. More information on heat networks is available on the GOV.UK website.



£15m Rural Community Energy Fund (RCEF) - open to applications



The £15m RCEF is aimed at helping rural communities in England access funding to carry out feasibility studies for renewable energy projects, fund pre-planning studies and preparation of planning applications. RCEF funds will support eligible rural projects including wind, solar, biomass, heat pumps, anaerobic digestion, gas Combined Heat and Power (CHP) and hydro through initial grants at stage 1 (less than £20,000) and loans at stage 2. For further information and details of how to apply, see the WRAP website.



£10m fund for non-rural community energy projects – opening 2014



As announced in the Community Energy Strategy, we will be launching an Urban Communities Energy Fund (UCEF) as a counterpart to RCEF for non-rural communities in England in 2014. More details on eligibility criteria and how to apply will follow shortly.



Community groups may also be eligible for tax relief through the Enterprise Investment Scheme (EIS), details of which can be found on the HMRC website. In the Autumn Statement 2013, an outline of a new social investment tax relief were given, which may be of benefit to communities. Information will be available in due course on the GOV.UK website.



Reducing energy use in your community



Reducing energy use can reduce carbon emissions, and also save people money on their energy bills. Communities working together can save energy in a number of ways.



For example, communities may get together to improve the energy efficiency of a local building; share tips on how households can use less energy on a day-to-day basis; or advise people about what support is available to help them insulate their homes.



Communities can be particularly effective at engaging vulnerable consumers and reaching those in fuel poverty.



The main Government programme for installing energy efficiency measures is the Green Deal. In July 2013, the Green Deal Communities scheme was launched to provide £20m to Local Authorities working with community groups to save energy by installing energy efficiency measures. In December 2013 this was extended to £80m.



Community groups can help access hard to reach consumers to support installation of energy efficiency measures via the Green Deal. More information is available on the Green Deal: energy saving for your home or business page. You can find out more about the Green Deal delivery through community groups or through PlanLoCaL's interactive pack for communities.



Some activities undertaken by communities relating to the Green Deal may require a licence under the Consumer Credit Act (1974). DECC, working with the Office of Fair Trading, has produced new guidance for Green Deal participants on licensing requirements under the Consumer Credit Act (1974), to help give community energy groups confidence about engaging with Green Deal.



To help support communities who want to promote the benefits of energy efficiency to others in their area, DECC has committed £430,000 funding to a new Green Open Homes national network being developed by the CSE with Bristol Green Doors. The network offers resources, advice and a new online hub to help local groups and organisations prepare, run and publicise events that show off home energy saving improvements in their communities.



If you are a charity or community interest company which would like to benefit from domestic customers' Green Deal Cashback, you can register on the Green Deal cashback website. The Green Deal Cashback scheme is a limited offer, while funds last. For further information contact the Cashback Administrator on 0300 555 0201.



Community Energy Demand Management



Some community groups who have undertaken energy generation and energy reduction projects have also considered energy demand management. With a progressively smarter grid, consumers are offered more information about their energy use and incentivised to shift their demand to help balance supply and therefore reduce the need for costly generation capacity to meet high peak demand. This also helps to accommodate renewable electricity generation, electrification of heating (eg heat pumps) and electric vehicles.



Communities wishing to undertake demand management projects will likely want to work with their local Distribution Network Operator (DNO). Such partnerships are eligible to apply to Ofgem's Low Carbon Networks Fund if they wish to pilot new approaches. Community groups may also wish to collaborate with others to bid for funding through the Technology Strategy Board Localised Energy Systems competition.



Future community energy management initiatives will benefit from better consumption data, available as a result of the roll-out of smart meters. Most households will have smart meters installed by their energy company between 2015 and 2020, although some energy companies are starting to install smart meters now.



Community Collective Purchasing and Switching



Community energy purchasing and switching can help consumers secure better deals on electricity, gas, heating oil, insulation or renewable technologies through discounts or referral fees. Community groups can bring people together to purchase collectively or switch together, saving money. The involvement of a community group can reach out to the most vulnerable members of the community who may be most in need.



We've published a practical guide to setting up and running a collective purchasing or community buying group.



In 2012/13, we ran the Cheaper Energy Together scheme which supported the development of 31 innovative collective switching and purchasing schemes for energy, and many of these schemes involved collaboration with community groups. You can read more about what was learnt from Cheaper Energy Together. A practical guide to setting up a collective switching scheme is also available.



Further information



The following organisations have produced useful toolkits and links for people interested in establishing or involved with running a community energy project:



Governance and legal structures for community groups



A legal structure is needed to apply for the majority of grants and to qualify for loans. The following are examples of community group legal structures:



There are two types of Industrial and Provident Society:




  • Community Benefit Society (BenCom). This is set up to benefit a particular stakeholder group. They cannot operate like a private company and IPSs can offer community shares (less than £20,000 limit).




  • Co-operative Society. This is run by and for the interest of its members. Co-operatives pay out dividends to members, often on the basis of participation not investment. Each member gets one vote, regardless of the number of shares they own. For further free advice, contact the Co-operative Hub.



Community Interest Companies (CICs) cannot be formed or used solely for the personal gain of a particular person, or group of people. They have an asset lock and a limit on dividends. CICs are supervised by the CIC Regulator. CICs cannot run community share offers.



Charities are run by trustees, supported by donations and have charitable status (tax relief). They are regulated by the Charity Commission.



Joint Ventures involve a community group and one or more other bodies like a private investor who may bring business or technical skills, capital, legal expertise, local land etc.



For further advice:



Choosing a technology



The quality of a product and installation affects its performance. This in turn directly affects income and the financial payback period. Advice should be sought on installations that are less than 50kw (electricity) and less than 45kw (heat), with written estimates of outputs and costs, from MCS installer companies. Above these capacities, communities can get advice from consultants. ‘Due diligence' on technologies/consultants is part of the process.



The following links provide comprehensive information on choosing suitable technologies:



Choosing a consultant



A qualified and experienced consultant can assess on behalf of community groups the feasibility, likely performance and energy outputs, ie the long term income which repays the investment. They can also advise on the most appropriate technology.



Below 50kWs for electricity and 45kWs for heat, MCS installer companies can act as consultants. Communities are not covered by the MCS consumer code of practice but there are routes for any complaints should they arise via MCS. See the MCS site for further advice.



There is further advice on choosing a consultant on the WRAP website.



Planning permission



All renewable energy installations that involve development require planning permission. This may be granted either by a permitted development right (PDR) or by a planning application to the local planning authority. Development is defined in section 55 of the Town and Country Planning Act.



Please see the Planning Portal for further guidance and contact your local planning officer. The following links offer further information:



Communities should also bear in mind that issues such as landscape, ecology, environmental and archaeology, may affect different renewable technologies. For example:



Business planning and funding



Community groups need to develop a business plan. This may have to fund an income and enough profit to pay interest on any premium or loans and give investors a reasonable rate of return. Other costs are likely to include administration, project management, communication, planning, testing, community share offers, land ownership/leasing, insurances, legal advice, installation, grid connection, ongoing maintenance, repair and taxes and decommissioning.



Funding for the up-front costs can come from loans, grants, private investors, or community share offers. Not for profit organisations like CICs and IPSs may find difficulty borrowing all of the funding for less than £1m and may only be able to raise a 50% bank loan.



Some banks specifically support community groups. These include: Charity Bank, Triodos and Cooperative Bank.



Communityshares.org.uk offers advice on community share offers. PlanLocal also have a number of useful videos on finding funding for community projects.



Risk and insurances



It is the responsibility of the community to ensure that adequate insurances are put in place, at every stage of a project. Communities may want to undertake a risk assessment at the same time as drawing up their business plan.



Communities should undertake due diligence and put in place tight legal contracts with installer companies, to cover themselves should installations not perform as expected.



Advice and information



Community Energy Contact Group



The Community Energy Contact Group are representatives from community energy projects who meet regularly with DECC. You can find out more about the group and read the minutes from the quarterly meetings.

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