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Five steps to developing a community-based energy project

Mary Walsh

17th August, 2010

A practical guide to help would-be community developers turn renewable energy projects into climate change-busting reality

Recent years have seen more and more community-owned energy-generation projects. Expressly supported by the Coalition Agreement and with the arrival of feed-in tariffs, it's looking ever more attractive for local communities to harness their collective energy and become renewable developers.

But just how easy is it to do? How do you turn a local community group into a project developer?

Make no mistake, energy projects are infrastructure developments with multiple moving parts. Not an easy task at the best of times, but even less so for a community group with no track record. It can be done, however. By focusing on a number of key strategic areas, and getting the basics right, there is scope for success.

1. Who are we?

The first key action is to get organised - a good idea and an enthusiastic bunch of people can only go so far. In dealing with third parties, it pays to have a structure. From a practical point of view, having people with defined roles and responsibilities provides efficiencies in how to work and prevents duplication. From a legal point of view, having a vehicle through which the project is managed places project assets and liabilities in one place and protects those involved from personal liability.

In terms of how to structure your project, thinking about the money the project needs and what will happen to the project's profits may help. Will the project be a charity? Will it make a profit? Who will own it? Take advice from local voluntary organisations and from those who have been through the process before.

One additional consequence of formalising a project's structure is the stronger sense of identity it engenders. James Heather, project manager of Ham Hydro CIC, says: 'We had talked about the idea of developing a project on the weir at Teddington for a long time, but when we formed a company we really developed a strong identity and sense of purpose. It helped focus our minds and progress in making our bid to the Environment Agency.'

2. Support from the top

Local authorities and MPs can be key in developing a successful project. Councils have resources which community groups can tap. Get your local councillors and MP on board with the plan - having a vote of confidence from those with sway will bring an added element of strength to the proposal and open up opportunities not normally available to start-ups.

With all political parties now voicing support for community-owned renewable projects, support should be forthcoming. Just don't forget to ask.


3. Getting connected

The number of stakeholders involved in making the project happen can be frightening. First and foremost there is the landowner: is he or she going to be happy with your project? Then there are regulatory bodies, such as the Environment Agency and Local Authorities, contractors and suppliers, interest groups and funders - the list goes on. Getting people on board can be one of the toughest challenges. Project managers can find themselves taking a crash course in diplomacy and negotiation.

When it comes to managing objections, don't expect that a community project will have the support of the whole community - there are many shades of opinion when it comes to environmental issues. One clear example comes from small-scale hydro projects. Local anglers may have a very different view of your plans given their involvement with the river. Engaging at an early stage with people likely to be affected can enhance your project plan. Local knowledge should never be underestimated, and harnessing the experience of the wider community can ease the passage of planning applications and adaptation measures.

As to how to manage this? Don't reinvent the wheel. Others have been through this process and can help you. Simon Rammer of the Ashden Awards, an organisation that has been supporting community projects for the past 10 years, notes: 'One of the key steps to accelerating the process of community developing is connecting new groups with ones who've been through the process before - sharing practical experience is key to moving things along.'

4. Managing the risks

You will need to have arrangements in place that eliminate, mitigate or allocate risks. Be self-aware: it's unlikely you will have all the expertise within your team, so make sure you find it from the best possible providers and seek out people who can help get your project off the ground. You need the right people managing the right stages of the process if everything is to fit into place.

H2oPE, a social enterprise based in West Yorkshire, has a track record in managing the development of community-owned renewable energy projects. Its MD, Steve Welsh, observes: 'There are three major constraints community projects face: lack of time, lack of knowledge and lack of money. We judge the risks and manage them, negotiating supply contracts, engaging stakeholders and raising finance. It can be quite a challenge.'

When negotiating, don't be afraid to ask and don't let your relative size put you off. A key area is getting payment terms that benefit you; deferred payments are one area that can ease cash-flow requirements and help facilitate development opportunities. Don't forget that your suppliers have an interest in your project getting off the ground - leverage your buying power.

5. Getting funded

In the current financial climate this may seem an impossibility, but take heart from the multitude of possible funding options available. From grant funding for early stage development to philanthropic investments, share issues and debt finance, an energy project with strong financials will be able to access funding. Start by speaking to NESTA, the Carbon Trust and the Community Sustainable Energy Programme. Attend events that connect projects with potential investors, run by organisations such as EcoConnect or your local development agency.

Put time and effort into building a financial model showing costs and projected returns. Build in contingency and don't underestimate possible expenditure. Investors will want to see that you've been realistic about costs and that you've made provision for the unexpected.

A number of community projects have successfully raised funds through community share options - a true realisation of community ownership. There is appetite for this kind of investment: people are seeking out ethical investment opportunities, and the arrival of feed-in tariffs for small-scale renewables means consistent returns.

Banks are also now looking seriously at lending to community-based projects, recognising fixed revenue streams and the long-term move towards greening the electricity market. And it makes PR sense for banks to be involved in grassroots developments - remind them of this.

Proving a point

Like it or not, there is still a perception among some bodies that community groups are at best naïve, or at worst incapable. Relieve them of that notion from the offset. Set out a professional offering, a strong structure and an efficient modus operandi and you will set the scene for a successful venture. Be aware of all the various aspects of your project and engage with others from as early a stage as possible.

The future looks local. It's time to get involved.

Mary Walsh is a projects lawyer with a background in renewable energy development. www.colbhaconsulting.com

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