Community energy 101: how do I set a project up, and how can Octopus help?

Working out how (or if) your project will connect to the electrical grid is a huge consideration when working out what form your project will take. It might seem intuitive to imagine a community solar or wind farm out in the middle of the countryside. But the transmission and distribution network was designed 120 years ago, around centralised generation stations that supply big cities - rural energy was more of an afterthought. The system wasn’t really designed to handle input from a lot of distributed energy generators.

This means that the further away you get from big cities and big connections, the smaller the cabling and the connection points generally become. If you built a big 10 MW community solar farm and tried to plug it into a smaller 33 KV distribution network, it would blow. So, first, you’ll have to cover distribution network costs for a new transformer and other new upgrades. With that in mind, it’s often less expensive to connect to the grid in towns and cities.

To work out the costs involved, you’ll need to get in touch with the distribution network and ask them for a quote. This differs depending on where you are in the country (for example SSE or UKPN).

Top Tip: Due to high connection fees. Many smaller community energy projects choose not to connect to the grid at all. Instead, for example, they might connect to a shop or other business, and simply sell the energy to them instead. This way, you can also sell your energy at a much higher price than if you sold it directly to the grid. (One thing to bear in mind is that most businesses and organisations don’t own the buildings they’re in - so you’ll have to talk to the landlord in this case!)

On top of connecting to the grid, you’ll have to consider your operating costs. This will most likely include insurance and general maintenance, from replacing converters to cleaning solar panels. It’s also worth thinking about who will be looking after the various areas of the project, like creating community share-raises, keeping things running, and taking care of admin (like putting together an ‘offer document’ - which can be fairly pricey!)

Once you’ve got a site planned out, admin costs don’t tend to grow in line with the size of the project. With that in mind, many successful community energy projects choose to try and get three or four renewable energy sites off the ground at once, all as part of the same project. This may mean a little extra work when it comes to financing, but it does dramatically increase the chances that your project will become self-sufficient and go on to generate profit that can ultimately go towards members, the community itself, and the environment.

When setting up a community energy project, you’ll obviously have to secure financing. Many community energy projects choose to finance themselves with debt (taking out a bank loan for example) before ‘refinancing’ themselves into community ownership with a share offer or a bond raise, where community members buy stakes in a project. Here, it’s worth going after long-term ‘pension’ type investment - the kind of money that members would like to put somewhere and forget about for a long time. Community energy projects tend to offer their members a rate of 3-4% every year on top of their original investment to make sure it’s worth it!

Seeking financing from a bank can be a challenge (especially for smaller community energy projects of around 3 Megawatts or below). The issue is that many community energy projects will seek financing from banks to get themselves off the ground, and then look to refinance their project into community ownership. Banks, however, often aren’t interested in smaller projects, and if they are, due diligence costs, arrangement fees and transaction fees and interest rates (often around 8%) are so high that it can render the project unviable. With that in mind, Octopus and Younity have been working to make more funding available to community energy projects!