This blog post was written by Thrive Renewables.
As subsidies are now a thing of the past for renewables, it’s even more vital that onshore wind, hydro, solar and other projects are very carefully thought out. At Thrive Renewables, we continue working hard to build more and widen the ownership of UK renewables, and we see community energy projects as a huge part of that. Here are a few things to think about if you want to build your own renewable energy project in your local area.
1) What is your primary objective?
Why are you embarking on this project? Is it to increase the amount renewable energy generated locally? Is it to bring financial benefits into the community? Is it to benefit the local economy? Your objective for the project will shape your business plan, what type of funding you pursue, who you work with, and how you raise the finance.
2) How are you going to fund the development stage?
There are different funding options for different stages of the project due to the level of risk you are taking. The first phase of funding you will need is for the development stage of the project – to finance site assessment studies and professional advisors. At this stage of the project, without planning permission and grid connection, you may not be able to invite investors to invest in the project due to the level of risk involved. Grants are a useful form of funding for community groups at this stage and there are schemes available which can help you cover the development of the project. Here are a few examples:
- Rural community energy fund
- Next generation innovation fund
- Electricity North West Powering our communities fund
3) Is your project feasible?
For your project to be a success, there needs to be enough wind or sunlight resource to make it economically viable. There may be data online and you can do you own calculations, but every site is different and it’s important to ensure your data and calculations are accurate. You can do this through resource studies - these are done by professional consultants who measure wind speed and UV radiation accurately on a site-specific basis. Even just a 5% difference in expected and actual output could make your project unviable, especially now there are no subsidies. It’s vital to know this in advance of any significant capital expenditure.
4) What is your business plan?
A business plan is an important strategic tool. A good business plan will not only help you focus on specific steps to make your project a success but will also help you secure funding and the trust of investors. You should include strong, well thought out financials, considering where your revenue will come from and ensuring you are realistic in your proposals.
5) How will you sell your power?
You should also consider where your long-term revenue will come from. Is it better for your project to export electricity to the grid via a Power Purchase Agreement with a supplier or supply directly to a local entity via a private wire? You need to weigh up the pros and cons of these strategies and choose which one best meets your business needs.
A. Private wire
If you decide to export your renewable energy directly to a local entity, which has the advantage of potentially providing you with a higher price and them with cheaper energy bills by bypassing the grid completely, you should think about the energy usage, longevity and credit worthiness of your potential partner business. If your contract is for 10 years, how do you know the entity will still be there and operating successfully? You should make sure that you secure the rights to the grid for the eventuality that the electricity customer vacates the site and there is no longer any onsite demand.
If exporting to the grid you can obtain a Purchase Power Agreement (PPA). You can get both short term and long term PPAs. Consider talking to as many organisations as possible when sourcing your PPA to find the best deal. It is essential to make sure that you are confident with the credit standing of the counterparty.
6) Do you have the right relationships?
Renewable energy projects require you to work with many different types of professionals such as lawyers, accountants, engineers, consultants, ecologists. Start building these relationships early to establish a long-term beneficial rapport. Seek recommendations from other successful community energy projects and community groups. There are many organisations that will also help you along the way, such as Power to Change, Community Energy England , Community Energy Wales, the Centre for Sustainable Energy, Scottish Government’s Community and Renewable Energy Scheme (CARES) and Energy Hubs.
7) How will you fund construction and operations?
Once you have done your feasibility studies and successfully obtained planning permission and grid connection, you can start to engage with investors and seek funding. A well-developed funding strategy can help guide this stage of your project. The type of funding you seek will be influenced by your objective for the project. Think about seeking cheap, long-term finance from banks and other reputable institutions, alongside crowdfunding from the local community.
Generally, these are the types of finance
- Senior debt (55- 70% of project costs) from banks
- Bonds or share issues
- Mezzanine finance or co-investment (from organisations like Thrive Renewables).
8) Who can you share costs with?
In the subsidy free environment, many benefits can come from working with partners such as Local Authorities, other community groups or commercial renewable operators. Through joint ventures you can build bigger projects and split fees and services. There are also more funding opportunities for larger renewable energy projects which can make them more competitive. One successful example of this is Mean Moor wind farm which was purchased by group of three energy cooperatives, financed by Thrive Renewables.
9) How will you manage operations?
You’ve found investment and built your renewable energy project. Now you must think about operating the site. Who will manage the day to day operations? Who will coordinate health and safety at the site? Who will be first contact in case of emergencies? Who will manage the warranties on the equipment? These are all important questions to consider if managing the project yourself. Another option is to work with an organisation who can manage the operations of your project for you like Energy4All.
10) What about the admin?
It is very important to keep excellent records. Keep up to date data from the project’s operations, plus all agreements and contracts, stored in a secure location and well organized.
At Thrive, we believe in a clean, smart energy system that is powered by the investment of many. Thanks to our 6,000+ investors, we have built or funded 22 renewable energy projects over the last 25 years, the majority of which we own and operate. Whilst Thrive is not an advisor, we are pleased to share our experience of building and operating clean energy projects with community groups. Our values lead, flexible approach to ownership and funding delivers sustainable energy projects and the related positive environmental and social impact.