On 27 February 2015, the Government published its response to the report prepared by the Shared Ownership Taskforce, a group established following the Secretary of State’s call for a voluntary approach to community shared ownership of onshore commercial renewable energy projects.
The report confirms that the Government supports the Taskforce’s November 2014 proposals on how to achieve and develop a voluntary approach to shared ownership (the “Framework”). The Government now expects the Framework to be applied by all commercial renewable energy projects submitted into planning from November 2014, where project costs exceed £2.5m and where the primary purpose is to export at least 75% of energy production for supply via an electricity or gas public distribution network. Commercial developers are expected to offer a stake of between 5% and 25% of a qualifying project, depending on the context.
When the Department of Energy & Climate Change (the “DECC”) published its Community Energy Strategy in January 2014 it stated that it would consider requiring all developers to offer the opportunity of a shared ownership element to communities if significant progress on a voluntary approach to shared ownership of commercial renewable projects was not made by 2015.
The Community Energy Strategy outlines the Government’s expectation that “by 2015 it will be the norm for communities to be offered the opportunity of some level of ownership of new, commercially developed onshore renewables projects”.
In isolation, this expectation could be seen as being a relatively extreme or prescriptive measure. However, and compared with other schemes already implemented in Europe, it is clear that the UK has fallen behind and that the Community
Energy Strategy, together with the threat of legislation in the background, demonstrates the Government’s desire to catch up with these European schemes.
For example, by the end of 2010 community-owned assets made up 40% of Germany’s total renewable energy capacity, with a further 11% owned by farmers and 14% by project developers. The “big four” utility companies - E.ON, RWE, EnBW and Vattenfall - controlled only a 13.5% share of the market.
In Denmark, the majority of wind turbines are wholly owned or jointly owned by citizens, communities, landowners and farmers and, according to Government statistics, 150,000 households in Denmark owned or held shares in wind farm projects as far back as 2001.
The Framework sets out various principles to guide the shared ownership process and suggests potential models for shared ownership. These include:
- Split ownership, where a community enterprise buys a proportion of the development’s physical assets (for example, one wind turbine or a cluster of solar panels).
- Shared revenue, where a community enterprise buys the rights to receive a future ‘virtual’ revenue stream (to be calculated as if the community had acquired a proportion of the underlying infrastructure).
- Joint ventures, where a commercial operator and a community enterprise create a joint venture vehicle, in which they each hold equity, to develop, own and manage a project.
- Individual investment by way of debt-based debentures or bonds.
Infrastructure Act 2015
As an alternative approach to the voluntary protocol for shared ownership, the Infrastructure Act 2015 (which became law in February 2015) gives the Secretary of State powers to make regulations giving individuals and/or community groups the right to purchase a stake in renewable electricity projects in their local area (the “Community Electricity Right”).
At the time of writing this is very much viewed as being a ‘backstop power’, and the Government has indicated that its strong preference is for the successful application of the voluntary approach set out in the Framework, and that Community Electricity Right regulations will only be made if the voluntary approach is not successful.
Interestingly, commercial developers should note that, if implemented, the Community Electricity Right would apply to both onshore and offshore projects generating (or expected to generate) at least 5MW.
Impact on the UK in 2015 (and beyond)
Whether through successful implementation of the voluntary protocol or though mandatory legislation, there is no doubt that community shared ownership will remain on the agenda throughout 2015 and beyond, especially given the recent General Election and the return of a Conservative majority government.
Anecdotally, we understand that take up of the Framework is not currently widespread. Commercial renewable energy developers must now consider how to implement the voluntary protocol. In doing so it is important to consider the implications of structuring and running (and, if applicable, exiting) a renewable energy project in the context of community shared ownership.
Organised and existing community groups should also be seeking to engage proactively with commercial developers to take forward projects in compliance with the voluntary protocol.
The Government intends to undertake a progress review at the end of 2015 to evaluate the initial success of the voluntary protocol. If progress is limited, the Government will consider whether there is a need to consult on exercising the Community Electricity Right backstop powers. Commercial developers and investors therefore need to address offering shared community ownership now, as there are now only seven months in which to convince the Government that the legislative ‘stick’ is not required.
Scotland extends the proposals?
In March 2015 the Scottish Government published a consultation entitled ‘Good Practice Principles for Shared Ownership of Onshore Renewable Energy Developments’ which states the desire of the Scottish Government to push the boundaries of shared ownership further than the proposals outlined by DECC, to cover all onshore renewable projects over 500KW. The consultation is open for responses until 9 June 2015.