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Business models and financial characteristics of community energy in the UK

Abstract

Community energy projects take a decentralized and participatory approach to low-carbon energy. Here we present a quantitative analysis of business models, financing mechanisms and financial performance of UK community energy projects, based on a new survey. We find that business models depend on technology, project size and the fine-tuning of operations to local contexts. Although larger projects rely more on loans, community shares are the most common and cheapest financial instrument in the sector. Community energy has pioneered low-cost citizen finance for renewables, but its future is threatened by reductions, and instability, in policy support. Over 90% of the projects in our sample make a financial surplus during our single-year snapshot, but this falls to just 20% if we remove income from price guarantee mechanisms, such as the Feed-in Tariff scheme. Renewed support and/or business model innovations are therefore needed for the sector to realize its potential contribution to the low-carbon energy transition.

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Fig. 1: Percentage of capital raised by different instruments in relation to the scale of project capital expenditure.

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Data availability

Source data for Fig. 1 are provided with the paper. The data gathered in the Financing Community Energy survey can be found at https://doi.org/10.5286/ukerc.edc.000007, or by searching ‘Financing Community Energy’ on the UK Energy Research Centre’s Energy Data Centre: https://ukerc.rl.ac.uk/

Due to the terms under which the data were collected, individual project records cannot be made public and are therefore not be available. However, aggregated records of small numbers of similar projects are available.

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Acknowledgements

This research was funded as part of the UK Energy Research Centre Phase 3 research programme (grant number EP/L024756/1). C. Birch and C. Walsh, doctoral researchers at the Tyndall Centre for Climate Change Research, University of Manchester, also provided research assistance for the survey. We are grateful for comments from seminar participants at several universities and conferences. Any remaining errors are our own. We would like to thank the survey participants for their time and data, and Community Energy England, in particular E. Bridge and J. Hall, for their practical support and for sharing their State of the Sector data with the research team (further details on this is in the Methods section). We would like to thank SCENE (and in particular J. Harnmeijer and S. Robinson) for additional data which, although they are not analysed in this paper, were very helpful to us in framing our survey work, as noted in the Methods section. We would also like to thank Local Energy Scotland for assistance with marketing the survey.

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Authors

Contributions

C.M. led the research project. C.M., S.M., M.S., E.M., J.H., M.H. and T.B-S. contributed to the conception, framing and design of the survey research. T.B-S. conducted the survey and supervised the work of C.B. and C.W.; he also conducted the analysis of the composition of project finances and the impact of price support mechanisms. M.S. designed and conducted the cluster analysis. E.M. conducted the econometric analyses of financing instrument interest rates and provided descriptive statistical analysis. All authors jointly wrote the paper: T.B-S. led the writing; M.S., E.M., C.M., M.H., J.H. and S.M. contributed text and extensive comments on the structure and content of several drafts of the paper.

Corresponding authors

Correspondence to Tim Braunholtz-Speight, Maria Sharmina or Edward Manderson.

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Competing interests

C.M. is Chair of the Trustees of the climate change charity Possible (formerly 10:10), and a director of Community Energy North. Both of these roles are unpaid. M.H. is an unpaid Trustee of South Seeds, Glasgow, a community environmental charity with a focus on energy. J.H. is a non-executive director of Public Power Solutions Limited, a renewable energy developer that has worked with community groups.

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Supplementary information

Supplementary Information

Supplementary Figs. 1–4, Tables 1 and 2, note 1 and methods.

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Source data

Source Data Fig. 1

Aggregated project financial data by project size and type of financial instrument

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Braunholtz-Speight, T., Sharmina, M., Manderson, E. et al. Business models and financial characteristics of community energy in the UK. Nat Energy 5, 169–177 (2020). https://doi.org/10.1038/s41560-019-0546-4

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