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The green crowd: How crowdfunding could transform local authority energy projects

Image: Lightsource BP.

In my work as a consultant advising local authorities on renewable energy projects, the source of the funding is always an essential element of the discussions. Local authorities are fortunate in that they have access to the Public Works Loans Board, which is essentially a bottomless pit of potential funding provided at competitive rates by central government.

This point is often missed by commercial contractors seeking to enter into joint ventures with local councils and offering to provide the funding as part of their contribution.

But there are other ways in which the money for civic projects can be raised. Of most interest is crowdfunding, whereby the public is offered the chance to invest in a local authority led project, for financial return.

This option has been open to local authorities for many years, yet only one has used it to date. Now a new report by Leeds University seeks to persuade local authorities of the benefits of this route.

The report ‘Financing for Society: Assessing the Suitability of Crowd Funding for the Public Sector’ is published by the Bauman Institute and has been written by academics from Leeds University. They recount that against a background of overall borrowing prudence and austerity, local authorities are being asked to lead on some of the biggest issues facing the country, including decarbonisation, the building of social housing and providing effective social care to an ageing population. So sourcing of new money is essential.

One of the reasons that local authorities are attracted to renewable energy projects is the lure of a financial return. Despite their public sector status, councils are able to enter into commercial deals and make a profit in so doing. Solar farms are a good example of where this is possible. One way of persuading Members to approve schemes is to focus on the financial benefit and to stress that whereas elsewhere council money spent on a project (such as a new road) is just spent, renewable energy projects have rates of return for many years to come.

But one of the questions arising from the new report is whether council funds should be spent on other areas, leaving the commercial areas for crowdfunding. In simple terms, this would mean that the decarbonisation issue would be paid for by the public (seeking a financial return) and the council’s own funds would be spent where no financial return is possible.

As the report points out, there are different types of crowdfunding, including the donation based model (their example is a skate park next to a park); debt crowdfunding on a profit or not for profit basis; and the notion of the community municipal bond, such as to provide new social housing. For renewable energy, it is the debt crowdfunding model which works best.

The only example so far is Swindon Borough Council and its crowdfunding of two 5MW solar farms in its area. This is surprising, bearing in mind that crowdfunding was being discussed by Cornwall Council as early as 2009, as part of the Green Cornwall Programme.

The first project in Swindon was Common Farm and the second one was Chapel Farm, both procured in 2016. In a public offering organised by leading crowdfunding platform Abundance, both projects were fully subscribed quickly and the council contributed the remaining funding. Investors trusted the council’s brand and were guaranteed a fixed return from revenues derived from the feed-in tariff and Renewables Obligation.

“Aside from generating enough electricity to supply the equivalent of 1,200 homes, the Chapel Farm solar project is a new biodiversity hotspot on an ex-landfill site. It is a project that will create a cleaner, greener Swindon while supporting local community initiatives and providing a stable income for the council,” it said.

Easy to see, therefore, why the council would want to promote such a project. With Swindon having trailblazed some projects, where other authorities had in the past simply discussed the possibilities, it was widely regarded that many more projects would follow. But this has not proved to be the case. The primary reason from my experience is that where a profit is possible and the council’s own assets and land are the basis of its generation, the council wants to earn that money for itself, in order to plough back into local services. The parlance of their financial position has been well documented in recent years.

Crowdfunding is not just about money though. Taking wind energy as an example, this approach can go some way towards engaging successfully with the community and ensuring schemes are supported. Such community support is essential to wind energy developments under planning rules in England and, cynical as it may sound, the best way to get people behind a project is to offer them a financial stake in it. With Abundance an investor can pledge as little as £5 for a stake and so there is no potential for such projects being labelled as elitist and only for the rich.

The new report also identifies that one of the main reasons why crowdfunding is not more prevalent is a lack of knowledge and experience within capacity pressed local authorities. I have not found this in my experience and believe that the principal reason behind the dearth of projects is the desire for local authorities with a viable project to capture the income for themselves. This is a perfectly legitimate course of action in the circumstances.

Whatever decision is taken as part of the process of considering a project, crowdfunding should be in the mix of potential options. Of course, Swindon Council’s schemes show that this does not need to fund 100% of the capital, and a combination of public money and local authority funding might be the best of all worlds. That way, more projects could be completed and the decarbonisation programme accelerated considerably.

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Contributer

Stephen Cirell

Stephen Cirell is an independent consultant specialising in local authority renewable energy projects. He is author of ‘A Guide to Solar PV Projects in Local Government’.

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