Community energy 101: how do I set a project up, and how can Octopus help?
Who doesn’t love community energy? I mean, what could be better than generating clean, green electricity on a local level and giving back to the community in the process?
Octopus Energy is committed to supporting the growth of community energy through Younity - a joint venture with Midcounties Co-operative. In this blog we’re going to talk about what community energy actually is, what exciting developments are going on in the community energy space right now, what you should consider if you’re planning to set up a community project, and how to sell your community energy to Octopus. On top of all that, we have a ground-breaking community energy announcement to make!
Octopus and Younity are delighted to announce our Community Energy Kickstart!
This £1.5-million-pound revolving fund is set to change the game in the community energy space, helping new projects get off the ground. First we’ll be supporting Bristol Energy Co-operative, providing funding for their 1MW rooftop solar project! (Skip to read more about the Community Energy Kickstart).
What exactly is a community energy project and how do they work?
Community Energy Projects come in all shapes and sizes, but they usually have a couple of things in common. First and foremost, community energy is about ownership - the energy project is owned by members of that community. In other words, community members set up, finance, and own stakes in a green energy generation project - say, a wind turbine, or solar panels on the roof of a local building.
Any money that’s made first goes towards paying those members back - with profits reinvested in the wider community and in some cases, more clean, green community energy projects!
Setting up community energy projects can be a little fiddly, but that hasn’t stopped community-based renewable energy from booming in recent years. A decade ago there were only a handful of community energy projects up and down the country. Now there are around 400.
How do I go about setting up a community energy project?
First things first, you’ve got to remember that there are a lot of shapes a community project can take. When choosing the one that works best for you and your community, there’s a number of things to bear in mind. This includes things like the cost of connecting to the grid, how you’re going to finance your project, who it’s going to support, and how it’s going to run. We work with a bunch of really great organisations up and down the UK who have a tonne of resources on setting up a community energy project. We’re going to run through some of the basics here, but for more information, check out Community Energy England, Scotland, or Wales (based on your location). Younity can also provide support - you can get in touch via email@example.com.
Connecting to the Grid:
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!)
Setting up and running a project:
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!)
Making it all add up:
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.
Financing your community energy project:
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!
How can Octopus help?
Beyond buying the energy from community projects, Octopus and Younity helps to support community energy projects in a load of other ways too!
Introducing the groundbreaking Community Energy Kickstart
As we mentioned before, financing your community energy project can be tricky, especially if you’re looking to borrow from a bank before refinancing your project into community ownership. With that in mind, Octopus Energy and Midcounties Co-operative are changing the game with a ground-breaking £1.5 million-pound revolving fund – the Community Energy Kickstart.
When community energy groups are at the point where they’re ready to put a spade in the ground, they can now apply for that money (which comes with a far more competitive interest rate than anything out there at the moment) and Community Energy Kickstart will finance the construction. Once the project is built and has been refinanced into community ownership, the money will be returned to the revolving fund and it'll be able to finance the next project. The fund is designed to finance three brand-new community powered projects every two years, with Octopus and Younity deploying the first loan to Bristol Energy Co-operative for a 1MW rooftop solar project in December 2022! You can read more about this exciting development on Younity’s site. Get in touch with Younity via firstname.lastname@example.org if you’ve got any related questions.
Invest in Community Energy via your online account with Powershare
Thanks to this new community initiative, people in the UK can now directly invest in expanding community-run renewable energy generation and receive returns – all through your home energy bill! Powershare is available for customers on the Co-op Energy Community Power Tariff, who can invest in community energy projects via their Octopus Energy online account.
This way, rather than investing a larger amount (say £240) upfront, you can now add a little bit extra (say £20) onto your energy bill every month to invest in renewable community energy generation. After two years, that should cover a £240 pound investment into a community energy project. Then, once the project you’re supporting is off the ground and generating profit, your returns will be added as credit on your energy bill.
An independent community energy group, Youth EmPowered, has been set up to operate the community energy projects in question - made up of sixth-formers, young people, and experienced community energy veterans - in order to help empower the next generation of climate leaders.
Powering Communities Fund
For every customer that switches to the Community Power Tariff, Octopus and Midcounties Co-op puts a tenner into their Powering Communities Fund, and that money is distributed to community energy projects twice a year. So far we've given out £34,500 to 13 different community energy projects!
How to get Octopus to buy your Energy:
The easiest part of setting up your community energy project is selling your energy! If you get in touch with Younity via email@example.com, they can have a quote ready for you that very same day.
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