Improving revenues for community energy projects
A blog by Monika Paplaczyk, Investment Director, Thrive Renewables.
Due to changing market realities, getting new community renewable energy projects off the ground comes with challenges. A significant reduction in revenue certainty means projects need additional resources and skills to secure investment and become profitable. Power price volatility has increased over time and is likely to stay that way as we move into the future.
In addition, price stabilisation methods, such as the Contracts for Difference (CfD) auctions favour larger projects, which have economies of scale on their side. Essentially, in a post-subsidy world, Community Energy projects need new business models and new revenue streams to make them work.
We believe that through collaboration, community energy groups can build bigger, more impactful and profitable projects. Collaboration comes in many shapes and sizes and has many benefits. Co-investing alongside businesses, Local Authorities, large investors, or other community energy groups, can get new community energy projects built and operational. Partners can also provide expert knowledge, skills, and experience. Cooperation can eliminate some of the challenges and enables the community energy group to focus on generating community benefit.
How to secure revenue for a new project
It is essential to consider the additional financial risk posed by changing power prices.
- Be prudent when making assumptions about power prices, market volatility will continue
- Wind and solar resources are likely to change due to climate change
- As more wind and solar capacity joins the grid, wind and solar electricity will access lower prices
- Likely other technologies such as storage will complement the revenue streams from wind and solar.
Corporate Power Purchase Agreement (PPA)
Consider agreeing a long-term contract with a business or other organisation such as a local authority to buy your electricity directly.
- Long-term fixing of power prices through a corporate PPA can secure a higher income
- Contracting is complex so work with experts to get a good deal
- Be sure to work with a partner who will still be around in 25 years
- Play to your strengths – organisations with a strong CSR commitment may wish to work with community energy projects as they can deliver the wider societal benefits.
Wind and solar are variable technologies so revenue from generation can be unpredictable. Projects will have payments that need to be met and generation may not always match up with this.
- Maintaining a strong cash buffer or working capital is essential to protect the project from low performance or delayed revenue and ensure you can meet statutory payments.
Larger projects can be more profitable and carry lower risk. A portfolio of projects reduces risk by diversifying revenue and diversifying operational risks.
- Think about co-investing with another community energy group, business, or local authority to increase the size of your project.
- Investing in a diverse portfolio will diversify revenues and provide a buffer against poor performance
- Technical diversification can increase revenue. For example battery storage, wind and heat all have different revenue streams so spread the risk
The UK is working to build an energy system fit for the future, dominated by renewables. By ensuring communities and consumers have the opportunity to play an active role in the energy system, community energy has a crucial role to play in securing a just transition to a clean energy future.
Thrive has been working with communities to take ownership of local renewable energy projects for over 20 years and we believe they are an essential part of our future energy system. In 2017, we supported three community energy coops to take ownership of Mean Moor wind farm through our award-winning Community Energy Funding Bridge. This three turbine project became the largest wind farm in the UK to transfer from corporate to 100% community ownership.
For more information, please contact Monika Paplaczyk – firstname.lastname@example.org
At Thrive, we believe in a clean, smart energy system that is powered by the investment of many. We have built or funded 26 renewable energy projects over the last 26 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.