Our Submission to the Government’s “Barriers to Community Energy Projects” Call for Evidence
Below is our submission to the Government’s “Barriers to community energy projects” Call for Evidence. This consultation was begun by the Department for Energy Security and Net Zero in response to our nationwide public campaign to see new measures established in law to support the development of community energy projects across the country.
Summary
In the midst of both an energy price and climate crisis when cheap, clean, home-produced energy has never been more vital, there is huge potential nationwide for growth in small-scale renewable energy generation – especially by community groups that provide cheaper, greener power and distribute the benefits locally.
Community energy schemes, the term given to community-owned and run renewable energy generation projects, currently account for around 0.5% of the UK’s electricity generating capacity. This could grow twentyfold in ten years, according to studies. These schemes have seen almost no growth for over six years, despite renewable technologies being cheaper than ever. The largest barrier blocking growth is the prohibitive costs they face in accessing markets to sell their electricity.
The solution that we recommend to overcoming this barrier and realise this potential growth is to enable community groups to sell electricity that they generate to local customers. We laid out a mechanism that would do this in last year’s Local Electricity Bill, which we authored together with Dr Jeff Hardy, Nigel Cornwall and other energy system experts. This Bill received support from the Front Benches of Labour, the Liberal Democrats, the Greens, Plaid Cymru and the Scottish National Party, alongside 325 MPs from all parties, including 125 Conservatives. It is also supported by over 115 principal councils and over 100 national organisations including the National Trust, the Church of England, CPRE, the Energy Saving Trust, the RSPB, WWF, Greenpeace and Friends of the Earth.
Adopting this solution would help give credit to the Government’s greenhouse gas emissions reduction plan, a revised version of which is required from Ministers by May 2025 as a result of the High Court’s ruling in May this year that current plans are inadequate and thus unlawful due to the duties on the Government under the Climate Change Act.[1]
Ministers have said repeatedly, over many years, that they want growth in community energy generation. But the Government opposed two amendments, based on the Local Electricity Bill, to last year’s Energy Act that would have established local supply rights by creating:
An export guarantee scheme for smaller-scale sites that generate low carbon electricity to export it to an existing larger electricity supplier on fair terms, and
A supplier services scheme, requiring existing larger suppliers to work with community schemes to sell the power they generate to local customers.
Opposition parties have all repeatedly stated support for this solution. In particular, the Labour Front Bench restated their support at the Energy Act’s House of Commons Second Reading and Committee stages last year and, furthermore, introduced their own mirroring clauses[2] (New Clauses 53 and 58) at Report stage on 5th September 2023. At that debate Labour’s Shadow Energy Minister, Dr Alan Whitehead, stated:
“On our new clause 53, the Government say they support community and local energy. Indeed, as the Minister said, the Government have put a modest amount of funding into supporting community energy but, as the hon. Member for Hastings and Rye (Sally-Ann Hart), who is not in her place now, said, we still do not have an understanding of how community energy can actually work. We think community energy will be an important part of the decarbonisation process. It is not one of the large, shiny things upon which money will be lavished in large amounts but, in aggregate, it will have a huge impact on decarbonising energy in this country
“The Government still have not introduced arrangements that will enable local power producers to trade locally and get the proper value of their trade, which is vital to the success and certainty of these projects. Labour wants to support local energy projects practically, particularly through the ‘valley of death’ period where the pockets of community energy are usually shallower than needed for all the planning permissions to run their course.”
We agree wholeheartedly with these words.
1. Which type of stakeholder is responding?
This response is from a wide-ranging group of national charities, principle councils, local community organisations and energy industry bodies, all based in the UK. It was co-ordinated by Power for People, a non-governmental organisation.
It is specifically endorsed by the following organisations:
Action with Communities in Rural England The Low Carbon Hub IPS Ltd
Ashden Climate Solutions MCS Charitable Foundation
The Black Environment Network Operation Noah
The Church of England Environment Programme Patagonia
Climate Emergency UK Possible
Communities for Renewables Protect Our Winters
Community Energy London Pure Leapfrog
Community Energy South Sitigrid
Community Energy Wales Solar for Schools
CPRE - the countryside charity Solarplicity
Eden Project Triodos Bank
Environmental Justice Foundation UK for Good
Essex County Council UK100
Forum for the Future We Own It
Green Christian The Women's Environmental Network
2. Where are you, or your organisation, responding from within UK?
Power for People represents a coalition of individuals, community groups and national organisations from across the UK. Power for People’s office is at the Camden Collective, 5-7 Buck Street, London NW1 8NJ.
3. What are the barriers, financial and non-financial, preventing the establishment, development, and scaling of community energy projects? Please include any relevant quantitative and qualitative evidence.
Community energy schemes face insurmountable costs when it comes to selling the electricity they generate to local customers. Estimates of financial, technical and operational requirements involved in becoming a licensed supplier put initial costs in excess of £1 million.[1]
The evidence for this is the simple fact that not one of the few hundred existing community-based renewable energy generation schemes in the UK sells electricity that they generate directly to customers local to the scheme.
Below is a selection of quotes from case studies of community energy groups, all of which describe the barriers blocking local supply.
Aberdeen Community Energy, Aberdeen - “Without a doubt we’d prefer to sell to customers directly. If we were able to retail like this we could receive a much higher rate than we’re currently getting under our generation contract but we could supply to the community at a rate that is much better than what local people are paying.”
Amber & Derwent Valley Community Energy, Derbyshire - “For the hundreds of local community energy groups, becoming licensed to sell energy to local customers cannot happen in the current circumstances.”
Brent Pure Energy, Brent, London - “If there was a local energy law that said that we could register with OFGEM and receive market rate, or at least proportional cost for electricity, we expect that that would make a lot of difference.”
Burnside Community Energy, Cumbria – “Our ultimate aim is to build enough generation to supply the entire village of Burneside. Setting up as a licensed local supplier would certainly be much more attractive if the financial and bureaucratic hurdles were removed or significantly lowered.”
Community Energy Birmingham, Birmingham - “Being able to sell electricity locally would lead to a new flow of income, meaning we could consider new projects.”
CREW Energy, Lambeth, London - “If we could sell energy directly to people it would definitely help with starting more projects.”
Cuckmere Community Solar Company, Sussex - “We would love to sell our energy locally but at the moment the market is not set up to make that easy. The priority is to build a sustainable financial model, and we hope that the changes in the market can come.”
Egni Mynydd CYF, Gwynedd - “We were interested in looking to see if we could support employment and businesses in the local community, but we were advised that becoming a supplier would be very expensive and difficult to do.”
Harborough Energy, Leicestershire - “We took great efforts to establish what the market could offer but the market is stacked against the small players at the moment.”
Hertford Energy Now, Hertfordshire - “We have thought a fair bit about how we sell more widely but we don’t see how. It is a very big challenge for a small company.”
Harbury Energy Initiative, Warwickshire - “We thought that maybe there was a commercial opportunity to sell locally. We were advised that it was simply not doable, so we didn’t take it any further.”
Orchard Community Energy, Kent - “As a Community Energy Society there is no way you can supply to local customers at the moment, as the regulatory framework stops it.”
Repower Balcombe, West Sussex - “It’s certainly a possibility that we could build more renewable capacity, if we could sell the energy to local people.”
SE24, South London - “We have not considered becoming a licenced supplier because of the sheer cost and complexity of it. There are acres and acres of roofs with Solar PV potential in our community which are not being used, and which could be used.”
Sheffield Renewables, Yorkshire - “It is currently not finically viable for projects to export excess generated energy, which makes the project itself not financially viable if the building cannot purchase all the electricity generated from the Solar PV.”
Uist Wind, Scotland - “Should it become easier to sell locally, there could be less dependence on big companies and greater empowerment by smaller communities, such as on islands, some of whom are currently heavily reliant on fuel imports. Skills capacity to understand complicated energy systems and associated legal requirements, is still a limiting factor, but any opportunity to drive local renewable energy supplies is extremely welcome.”
Full details of all these above case studies and more are in ‘The Call for a Level Playing Field’ report.[2]
4. Please indicate whether the community energy scheme(s) you typically work with are urban or rural?
The barriers to accessing markets to sell energy directly to local customers affects both urban and rural community energy schemes.
5. Are there any regional issues impeding community energy projects? Please include any relevant quantitative and qualitative evidence.
The barriers to accessing markets to sell energy directly to local customers applies to all regions of Britain because they are a result of regulations that govern energy markets.
6. Where you have identified possible or actual barriers, do you have any proposals for how these might be reduced or removed, and why do you think the actions you propose would be effective and appropriate? Please include any relevant quantitative and qualitative evidence.
Solution 1: The Local Electricity Bill
Last year, the Local Electricity Bill and the amendments to the Energy Act made by Peers[3] at its House of Lords Report Stage on 28th March and also the amendments to the Energy Act tabled by the Labour Front Bench[4] 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:
1. 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.
2. 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.
3. 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.
7. Which existing or past government support mechanisms and policies have been most helpful in implementing community energy projects and why? Please include any relevant quantitative and qualitative evidence.
No past government support mechanisms or policies have been successful in establishing local supply for community energy, whereby schemes sell electricity directly to local customers.
Previously, community energy schemes could plan knowing the income they would receive from OFGEM’s Feed-in Tariffs. When that scheme closed to new applicants in April 2019, many planned community energy generation projects were scrapped and there has since been a collapse in growth.
Other Government interventions that have been attempted have failed to reverse the slump in new projects. 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. The more recent “Smart Export Guarantee”, which places a requirement on larger existing electricity suppliers to purchase power from small schemes, has no guaranteed purchase price or length of contract, making community investment almost impossible.
8. Could you share any evidence, either quantitative or qualitative, demonstrating how community energy projects are supporting the delivery of the UK’s national net zero targets and providing additional benefits (e.g., reducing fuel poverty and improving community well-being).
Job creation: In 2021 community energy groups across the UK had 3,325 volunteers and 644 full time staff, with around 30% of groups employing no paid staff.[5] This equates to roughly five volunteers for every paid staff member. At a ten-fold increase, and with the professionalisation of the sector that the access to local markets would create, more than 33,000 jobs could be created.[6] Almost all constituencies would benefit from this, due to the distributed nature of community energy schemes.
Energy security: Enabling the supply of locally-generated electricity would reduce dependence on imported energy, increasing the resilience of domestic energy supply. Community energy groups tend to create investment amongst local people in smaller installations not likely to be built by larger developers.
Cheaper prices and warmer homes: By ploughing profits back into the local area, community energy can help people cut their bills. In 2021, community energy groups spent £510,160 on energy efficiency upgrades, helping 20,843 people reduce their energy bills and stay warm. An additional 57,600 individuals were engaged in energy efficiency initiatives. The efforts of community energy groups saved £3.35 million on consumer energy bills in 2021.[7] At a tenfold increase in community energy, £90 million could be saved on consumer bills due to the expansion of energy efficiency initiatives,[8] helping 830,000 people.
Climate change: If community energy generation was enabled to grow to 3,000 megawatts – a tenfold increase – around 1.5 million tonnes of greenhouse gas emissions could be saved each year. This is roughly equivalent to the emissions of all UK domestic flights.[9]
Public appetite for Net Zero: Community energy is a vital foundation stone of the sustainable economy we are striving to create and can drive public acceptance and an appetite for change. It enables people to see tangible benefits in their area: a friend is employed by the community energy company, the local sports centre is refurbished from the community energy fund – these can create profound perception benefits.
Furthermore, the ‘Review of Electricity Market Arrangements (REMA): technical research supporting consultation’ report, commissioned by the Department for Energy Security and Net Zero and published on 12th March 2024 concluded that, “Local markets can support more efficient use of transmission and distribution system networks and resources, which would contribute to lower system costs.”[10]
9. Could you share any evidence, either quantitative or qualitative, of the wider system impacts (positive and negative) of community energy schemes and how any negative impacts can be mitigated.
Any potential negative impacts of the local supply mechanism’s we suggest in our above answer to question 6 can be mitigated by an effective oversight requirement from the Secretary of State and the energy regulator. That is why our suggested solutions contain a requirement for oversight and review by both.
[1] https://www.judiciary.uk/wp-content/uploads/2024/05/Friends-of-the-Earth-v-Secretary-of-State-for-Energy-Security-and-Net-Zero-003.pdft
[2] https://publications.parliament.uk/pa/bills/cbill/58-03/0340/amend/energy_day_rep_0905.pdf
[3] IPPR, ‘Community and Local Energy’; 2016 https://www.ippr.org/files/publications/pdf/community-energy_June2016.pdf
[4] https://povertyandenvironmenttrust.org/s/The-Call-for-a-Level-Playing-Field.pdf
[5] https://bills.parliament.uk/bills/3311/stages/17294t
[6] https://publications.parliament.uk/pa/bills/cbill/58-03/0340/amend/energy_day_rep_0905.pdf
[7] Community Energy England, ‘Community Energy State of the Sector Report’; 2022
[8] The Poverty and Environment Trust, ‘The Call for A Level Playing Field’; December 2021
[9] Community Energy England, ‘Community Energy State of the Sector Report’; 2022
[10] WPI Economics for SP Energy Networks, ‘The Future of Community Energy’; January 2020; http://wpieconomics.com/site/wp-content/uploads/2020/01/Future-of-Community-Energy-20200129-Web-Spreads.pdf
11] Ibid
[12] Electricity market design – evidence from international markets https://www.gov.uk/government/publications/review-of-electricity-market-arrangements-rema-technical-research-supporting-consultation, Ove Arup and Partners, page 101
Contact: Steve Shaw, Director of Power for People, steve.shaw@powerforpeople.org.uk