Our Submission to the ESNZ Select Committee’s “Unlocking Community Energy at Scale” Call for Evidence
Below is our submission to the Energy Security and Net Zero Select Committee’s “Unlocking Community Energy at Scale” Call for Evidence.
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Power for People aims to see the UK rapidly transition to 100% clean energy and for this to benefit local communities. Our co-ordination of nationwide public advocacy in recent years has substantially raised community energy’s profile in Westminster, among the public and in civil society.
Community energy generating capacity needed to grow by an average of 500 MW per year since 2020 to meet its potential of 5.7 GW in 2030, as projected by WPI Economics. However, our calculations show the sector has grown by an average of just 26 MW per year and accounts for roughly 0.5% of the UK’s total generating capacity. At this rate, community energy will make a meagre contribution to the Government’s planned 8 GW of additional renewable power by 2030.
A significant uplift in financial support, along with energy market reform, is needed to achieve community energy’s potential. We have been campaigning for the Local Electricity Bill which, if made law, would enable smaller renewable energy schemes to sell their power directly to local households and businesses.
In the previous Parliament, the Bill was supported by a cross-party group of 326 MPs and backed by the Labour leadership. Ed Miliband, then Shadow Secretary of State for Energy Security and Net Zero, put down two amendments to the Conservative Government’s Energy Bill (new clauses 53 and 58) that were almost identical to the Local Electricity Bill. Yet after 6 months of a Labour Government, there has been no announcement on plans to establish local supply rights.
We ask the Committee to question Ministers on their plans to establish local supply rights, given their clear and unequivocal support for it when in opposition.
With proper enablement, community energy could play a key role in achieving the Government’s 2030 clean power mission and meeting the UK’s climate targets. this submission in intended to aid the committee in its enquiry and ultimately to help unlock the sector’s significant and unrealised potential.
How could the Local Power Plan to be produced by Great British Energy build upon existing community energy support schemes, such as the Community Energy Fund?
The evidence shows that, so far, the Community Energy Fund (CEF) has been successful. The Local Power Plan should, therefore,
commit to extending its duration to mid-2029, i.e. the expected end of this Parliament,
extend its geographical scope to include Scotland and Wales,
increase its annual amount from £5 million to £25 million, and
increase the maximum grant value for large projects.
Whilst we will always welcome any form of public enablement, we continue to call for the regulatory reform of the establishment of local supply rights. This would ensure community energy schemes can stand on their own two feet in the market and thus, ultimately, have far greater impact than public grants like the CEF.
The Community Energy Fund so far
The CEF commenced with £10 million of funding, to be distributed over two years, with £1 million going to the administration costs of the regional Net Zero Hubs that would consider applications and award grants.
There has been significant uptake of the CEF since it launched at the end of 2023, demonstrating the nationwide appetite for new locally owned renewable generation and the need to support it. Government data suggests that half of the total £9 million of CEF funding was awarded before the halfway point in the fund’s duration. Furthermore, the Greater South East Net Zero Hub was oversubscribed, meaning viable projects did not receive grants and were unable to proceed.
The table below shows that at least £4.7 million has been awarded so far to support low carbon and renewable energy or electric vehicles (type A projects) and energy efficiency or advice (type B projects).
Table 1: Summary of CEF grants awarded by region as of 28.12.2024. Data was retrieved from each Net Zero Hub, Community Energy England and the Department for Energy Security and Net Zero (DESNZ).
Our calculations suggest that roughly £31,000 in CEF funding supported 1 MW of new generating capacity, so total new capacity supported by the CEF could be up to 146 MW. This is a great improvement from the current growth rate of 26 MW per year, but still a far cry from the growth needed to meet community energy’s potential. Furthermore, it appears that most CEF grants have funded feasibility studies for early-stage projects (see chart 1), which will take time and additional funding to develop.
Chart 1: Successful CEF applications by stage. Data was retrieved from each Net Zero Hub, Community Energy England and DESNZ.
While the CEF has provided a welcome boost for new community energy projects, its duration and scope must be extended and its amount increased. This will prevent the CEF from becoming oversubscribed in areas of high demand, support the development of early-stage projects and unlock the huge potential for community energy across all UK nations.
Regional case studies
We interviewed successful CEF applicants from across England and many said that their feasibility studies or project development would not have been possible without grant funding from the Government. The following case studies show how the CEF has enabled new community energy projects.
North West: More Renewables, a Lancaster-based community benefit society, received £38,138 to support a shared renewable heating system. If it goes ahead, the project will help several properties transition from gas to heat pumps by 2030. More Renewables praised the CEF for offering specific funding for consultancy and other initial costs faced by community energy projects, which can often struggle to secure grant funding. Whilst challenges remain in developing the project and ensuring financial viability, the grant provided a low-risk opportunity to carry out a feasibility study and lay initial groundwork.
North East and Yorkshire: York Community Energy (YCE) received £38,142 in funding to develop its Solar City York project, which aims to install up to 1 MWp of community-owned solar across the city. The funding has facilitated feasibility studies for 12 potential sites and enabled YCE to expand staff capacity, conduct surveys, and cover legal fees needed to develop the project. It also gave YCE more legitimacy with local businesses which was pivotal in building a strong portfolio of sites. However, staff capacity and administration remain significant challenges for YCE in developing and running projects as the group is led by part-time volunteers.
Midlands: Brassington Community Heating CIC secured £100,000 to develop a low-carbon heat network in Brassington, powered by air source heat pumps and electricity from a local wind farm. The project aims to deliver 827 kW of heat, reduce carbon emissions by 700 tonnes annually, lower energy costs and improve air quality. These benefits are particularly important for Brassington which is not connected to the mains gas grid and where many still rely on oil, petroleum gas and solid fuel to heat their homes. The CEF has been crucial to developing this project after its initial feasibility study, which was supported by the now ceased Rural Community Energy Fund (RCEF).
London: North Kensington Community Energy (NKCE) secured £40,000 to support a feasibility study for 500 kW of rooftop solar across six council buildings in Kensington and Chelsea. Once operational, funds generated from the installations will contribute to NKCE’s Community Fund, which supports local initiatives including community gardening, cookery courses, youth programs and additional low-carbon energy projects. The grant will also bolster Repowering London's ‘Community Lead’ approach by funding dedicated staff for local engagement, ensuring that local benefits remain central to NKCE’s work.
South West: Bristol Energy Cooperative (BEC) received funding to support two renewable energy projects, which combine low-carbon technologies to maximise generation and address grid constraints. BEC also had a third CEF application approved to explore options for introducing community ownership of a large-scale solar farm. These projects require detailed feasibility work which would have been too risky for BEC to fund without CEF stage 1 funding, particularly given the marginal returns involved. However, CEF stage 2 funding is not sufficient to support BEC’s larger-scale projects which require funding to cover capital costs and construction.
South East: Energise Sussex Coast (ESC) secured £40,000 to progress a stalled 6.3 MW solar farm, initially supported by the RCEF. Previous setbacks due to planning application costs and a subsequent budget overrun were resolved with the CEF grant, which will also fund consultation with the public and UK Power Networks and help ESC investigate the viability of a private wire connection. Without CEF funding, the costs of progressing this project would have been insurmountable for ESC which, as a Community Benefit Society, does not qualify for charity discounts.
How should the energy market and licensing regulations be reformed to enable community energy projects to sell the electricity that they generate to local customers, without the current barriers, and be properly remunerated for doing so? What lessons can be learnt from other jurisdictions?
The CEF has proven to be a launchpad for new community energy projects, as shown above. However, at its current scale, it cannot ensure their long-term viability. Without a mechanism to generate substantial revenue from electricity or heat generated, there is often no financial incentive for new groups to start up. Meanwhile, a minimal income stream for existing groups limits their expansion and ultimately their investment appeal.
Previous Government interventions
Government support for small-scale renewables in the form of the Feed-in Tariff (FIT) led to a remarkable uplift in installed solar capacity in the early 2010s (see chart 3). However, new installed capacity levelled off after 2015, shortly before FIT payments dropped to below 10p/kWh (see chart 4). The FIT has now been replaced with the Smart Energy Guarantee which typically provides lower, more variable payments and less investment certainty for new projects as a result.[1]
Chart 2: UK installed solar capacity (1996-2021). Source: BP Statistical Review of World Energy.
Chart 3: UK Solar Feed-in tariff rate (2014-2019). Source: Green Business Watch.
Other Government interventions have failed to reverse the decline in new small-scale renewables projects. For example, not a single community scheme has used the “License Lite” route to market due to a failure to place reasonable limits on its costs and fully licensed energy utilities being under no obligation to partner with community groups wishing to become License Lite suppliers.
Potential solutions
The Local Power Plan should reform the energy market so that small-scale generators receive a fair price for the electricity they generate, ensuring they are financially sustainable and that new projects are incentivised.
Solution 1: The Local Electricity Bill
In 2023, the Local Electricity Bill and the amendments to the Energy Act made by Peers[2] at its House of Lords Report Stage on 28th March and also the amendments to the Energy Act tabled by the Labour Front Bench[3] at its House of Commons Report Stage on 5th September all proposed a two-part solution that can be described as follows:
1. A Community and Smaller-scale Electricity Export Guarantee Scheme
This would provide a guaranteed income for the electricity from small-scale renewable energy generators (capacity below 5 megawatts). This would mean communities are properly remunerated for their contribution to the energy system and thus could raise funds to expand existing projects or establish new ones. The guaranteed price would be set annually by OFGEM, and the initial contract guaranteed for at least 5 years.
All small-scale generation sites, whether community owned or built by a small business or landowner, would get this guaranteed price.
Community energy sites would be separately registered and progress monitored by OFGEM, with annual reporting, to ensure the mechanism is delivering on the huge potential there is for such schemes.
2. A Community and Smaller-scale Electricity Suppliers Services Scheme
Community schemes registered under the above “Community and Smaller-scale Electricity Export Guarantee Scheme” may use this supplier services scheme to sell the electricity they generate locally. There is no requirement to do this – schemes may simply operate using the proceeds of the Export Guarantee set up by the “Community and Smaller-scale Electricity Export Guarantee Scheme”. For some, such returns may be sufficient to encourage local people to invest in a new scheme, as was the case with community schemes set up when the Feed-in Tariff scheme was operational.
However, if a community energy group wants to sell the electricity it generates directly to the local community – perhaps as an additional incentive to local people to invest in further capacity or because it believes it can offer a lower tariff to help the less well off in the community – this clause allows it to do so in conjunction with an existing licenced supplier that is buying electricity from the site. An agreed ‘community energy tariff’ can then be offered to consumers local to the site.
The licensed supplier would manage consumer metering and billing and would be able to charge the community energy scheme a reasonable fee for these services. Any profit from the sale of the electricity would be returned to the community energy group. The total amount of electricity sold would be equivalent to the amount generated by the site. As with the “Community and Smaller-scale Electricity Export Guarantee Scheme”, OFGEM will monitor and report annually on the success of this scheme and how it might be improved to encourage community generation.
Solution 2: A More Flexible Obligation
We are not wedded to the mechanism laid out in the Local Electricity Bill of 2023. It is a thorough attempt to remove the barriers to local supply and we remain open to it being improved.
In the spirit of this, we suggest that the mechanism in the Bill could be improved by establishing the following alternative mechanism:
Replacing its requirements on licensed suppliers with a broader requirement on them to support community energy in a way that would ensure growth in community energy generation schemes over time. This could be modelled on the concept of Contracts for Difference and offered by licensed suppliers to community energy generation schemes.
Including an accompanying Britain-wide tradeable community energy generation credit scheme, so that licensed suppliers who wished to specialise more in business arrangements that saw growth in community energy generation schemes could receive payments from those who preferred not to.
Placing a minimum requirement on licensed suppliers to source a portion of their electricity from community generation schemes and a duty on the Secretary of State to increase this minimum over time, in consultation with the regulator, to a final fixed target. For example, the initial minimum could be 0.5% with a relatively steady increase to 10% by 2035.
The above mechanism would give licensed suppliers more flexibility, help ensure increasing public ownership in the energy system’s transition and, most importantly, enable community energy generation to be able to stand on its own two feet in the marketplace.
Lessons from other jurisdictions
Valuable insights can be drawn from the following jurisdictions to support the expansion of community energy. In particular, the Government should create a regulatory environment that exempts community energy groups from excessive bureaucracy and facilitates them in selling their electricity for a fair price, through partnerships with large suppliers or otherwise.
European Union: The European Union (EU) has created a supportive regulatory framework for community energy in recent years to help the sector thrive in member states,[4] for example:
The Directive on common rules for the internal electricity market (2019/944) introduced new rules to “enable active consumer participation, individually or through citizen energy communities, in all markets, by generating, consuming, sharing or selling electricity, or by providing flexibility services through demand-response and storage.”
The Renewable Energy Directive (2023/2413) requires member states to enact laws that support community energy initiatives and ensure they are profitable. For example, countries can simplify permitting procedures and reduce setup costs for community energy groups, or encourage local authorities to procure their energy from local and small-scale sources.
The Energy Efficiency Directive (2023/1791) requires local heating plans to assess the potential of community energy groups to develop renewable heating projects.
Germany: Germany has around 1,700 community energy groups, primarily organised as co-operatives focusing on solar PV or limited liability companies operating wind parks. Community energy proliferated in Germany due to fixed feed-in tariffs, support from large energy suppliers, reduced bureaucracy for small community energy groups and laws that facilitate new co-operatives and reduce uncertainty. However, community energy has stalled since feed-in tariffs were replaced by a tendering procedure in 2014 and energy auctions favouring large companies were introduced in 2017.[5]
Denmark: Denmark has one of the highest shares of community energy assets in the EU, with around 52% of its wind capacity owned by citizens and 67% of onshore wind energy generated by citizen-owned parks. This success can be attributed to strong co-operative ownership models, community energy subsidies, tailored tariff models and partnerships with local utilities that facilitate grid connections. However, several barriers have limited the expansion of community energy including legal restrictions on private distribution networks and high grid-sharing costs.[6]
[1] The Telegraph. 14 July 2022. Solar panel owners paid just a fraction of what their power is worth.
[2] https://bills.parliament.uk/bills/3311/stages/17294t
[3] https://publications.parliament.uk/pa/bills/cbill/58-03/0340/amend/energy_day_rep_0905.pdf
[4] European Commission. 2024. Energy Communities.
[5] Nordic. 2023. Nordic Energy Research: Energy Communities – Germany.
[6] Nordic. 2023. Nordic Energy Research: Energy Communities – Denmark.