Our previous bulletin back in March highlighted the Government’s mission to force renewables developers to offer some form of community ownership for all their renewables developments.  The Government’s preference has always been for the renewable sector to take the initiative with voluntary arrangements to make sure that this happens, but the threat of legislation is in the background.  Part 4 of the new Infrastructure Bill, now contains enabling legislation to allow the Government to pass regulation to enforce a community right to buy scheme.  The enabling legislation is worth reading.  It applies not only to onshore projects but also potentially, to offshore projects 5MW and above and details the types of ownership offerings which the Government intend to consider.

In response to the Secretary of State’s call for voluntary action by the renewable industry.  The “Shared Ownership Taskforce” was established.  This Taskforce which has met a number of times and has worked up proposals which will be reported to report back to the Secretary of State in an effort to avoid legislation. The proposals on which the Shared Ownership Taskforce are now consulting, need careful review and input by the developer community as they have the potential to become quasi-law. The window for responding to Taskforce’s consultation closes at the end of August.

Key points from the proposals:

  1. Any commercial developer of a renewables project above £2.5 million in project costs should offer a percentage of that project to the local community.

Points to note:

  • The £2.5 million threshold equates to a size of project smaller than the 5MW threshold the Government was intending to apply.  Many more developments will be covered.
  • This voluntary scheme will cover all onshore renewable energy projects including renewable heat projects.
  • Private wire projects are intended to be exempt from these provisions.
  1. The community should be offered a stake at fair market value (which includes the concept of building in a development premium). The intention is to have a minimum stake offered to the community based on the percentage of the overall project costs.

Points to note:

  • The minimum stake is still yet to be determined but is going to be anything between 5%-25%.  Government legislation had looked at 5%.
  1. The right to buy will be given to “a Legally Constituted Community Enterprise (“LCE”)” within the community.

Points to note:

  • This goes beyond the intended legislation and will mean  that a developer has to engage with a community company or entity which is either existing or to be established in

a locality.  Offering shares to the general public or to individuals in the community without first going through the LCE does not appear to count.  Whilst there is some logic to this in terms of using the community companies that are already up and running, it does restrict down the options available to renewables developers.

  1. The ownership models that qualify are Joint venture arrangements; split ownership of the project or shared revenue from the project.

Points to note:

  • Crowd funding direct to individuals in the community without going through the LCE appears not to qualify.
  1. It is intended that a developer will be expected to engage with a LCE in advance of the planning application for the Project.

Points to note:

  • The firm intention is that these proposals and right to buy offers will become a material planning consideration which will weigh heavily in consenting decisions.  This means that although this is a voluntary initiative taken by industry, it will become the norm.
  1. If there is insufficient interest from an LCE the developer can carry on with its Project without further offers.
  2. Details of community right to buy offers that are made will be monitored and should be kept by the developer and be publicly available for a number of years.
  3. Projects that are not yet in planning by the time the proposals are crystallised in September this year will be expected to follow these guidelines.

Wider Issues and Thoughts

  • There is a narrow window within which to respond to the Shared Ownership Taskforce on the proposals.
  • DECC will view these proposals as having been led “by industry”.  Developers should have reviewed these proposals, got comfortable with them and be satisfied that they will work.
  • These guidelines currently apply to all onshore renewable energy projects of £2.5 million CAPEX and above.  That means biomass, wind, heat, solar, hydro etc.
  • Community ownership is here to stay and is supported by all political parties. It is essential for developers to engage properly with communities and any right to buy rules in the future.
  • Proper community engagement will undoubtedly help the renewables industry combat the vocal objectors to this form of energy generation.
  • The Taskforce report appears to go beyond the initial Government thinking on legislative proposals for community right to buy.
  • If the industry alongside community entities, cannot agree on voluntary initiatives it is clear that the Government will legislate. There is therefore a significant “stick” hanging over all parties
  • Community energy entities are often established on a voluntary and unsophisticated basis.  These entities will need themselves, to think very carefully about their own, rules, procedures and governance structures.  If the proposals are followed and these entities end up managing and considering stakes in material, large scale renewables projects in their region, it will place considerable onus, responsibilities, duties and potentially liabilities, on the directors and officers of these entities. They need to be properly advised, properly constituted and properly overseen.

Link to the Taskforce consultation is below.

http://www.renewableuk.com/en/renewable-energy/communities-and-energy/shared-ownership/

There are some key areas to think about in a short space of time.