This Community Energy Fortnight, Di Gerry, Senior Corporate Finance Manager at Triodos Bank UK, shares her top tips for community groups on securing funding for their energy projects.
An absence of government subsidies and a limited availability of grants – together with higher interest rates that have driven up the cost of borrowing – has made it much harder for community energy groups to operate in recent years, let alone raise funds to develop new assets.
There is hope that things will improve for the sector after the election, but whatever the outcome may be (and at the time of writing the result hasn’t been declared), here’s my key tips to help community energy groups secure funding to empower their long-term success.
Seek advice
First and foremost, it’s important to seek independent financial advice when approaching finance.
When it comes to choosing the funding option that’s right for your project, there are a range of options available, so be sure to explore a number of options, ask questions about how funding works, the key terms and why it might be a good choice for your organisation.
Choose a finance lead for your board
As sound financial knowledge is crucial to setting up and managing a community renewable energy group, having a board representative who is comfortable with the financial terminology and processes will make a big difference. Your group will be better placed to have a strong understanding of the financial options available and to judge which are the best fit.
Ensure your finance is sustainable
The community energy sector has traditionally relied on short term bridge finance, but this can be expensive and squeeze profits, which may affect the group’s ability to deliver on its impact goals. It’s important to assess the financials over the whole asset lifetime and consider longer term solutions in the marketplace, potentially avoiding additional transaction costs.
Look at a broad range of options
There are numerous ways to raise finance and it’s worth considering methods beyond traditional bank debt.
For example, investment crowdfunding. For those who may not be familiar with the concept, this is a means of connecting organisations that need to borrow money with individuals who want to invest in a cause with the hope of making a return over time. The number of environmentally minded and impact focused investors in the UK continues to grow, while recent developments in the space have enabled individuals, including those in the local community, to support community energy projects.
As an example of crowdfunding in action, Triodos Bank UK raised £4.35m for Empower Community Foundation through two separate bond offers on our crowdfunding platform.
Empower’s two 5MW solar parks, which generate enough electricity to power the equivalent of 2,600 homes a year combined, were originally brought into community ownership using bridging loans, most of which was refinanced by a secured long-term loan from our Project Finance Team.
Our Corporate Finance team worked with Empower to refinance the debt by issuing a bond on our crowdfunding platform. The first tranche of £2.35m was raised in 2022 and the second £2m tranche in 2023. By refinancing expensive debt on more affordable terms for Empower, more money was freed up for investment in local energy resilience projects.
While sourcing finance is particularly challenging for community energy projects in the current landscape, there are options worth exploring that can help you to achieve your goals.
Find out more about the support available from Triodos Bank UK here: triodos.co.uk/raising-capital