Energy Minster Greg Barker this week called for the “big six” to become the “big sixty-thousand” with new disruptive companies leading the transformation. By acting now to support renewable energy crowdfunding, he can make his vision become a reality.
Few words in the sphere of energy rouse as much public disdain as “the big six”*. These large ‘vertically integrated’ utilities not only own over two-thirds of all electricity generation in the UK, but also dominate supply to customers too. They have been accused of predatory pricing, excess profiteering, and undermining a properly functioning competitive market.
It is encouraging then, that during this week’s parliamentary debate over the future of our energy policy, Energy Minister Greg Barker said he was personally committed to “breaking the grip of the big six”, and outlined his alternative vision of the “big sixty-thousand” playing their role in a far more varied and decentralised energy economy.
Who are the ‘big sixty-thousand’?
Almost everybody agrees we want more ‘independents’ – essentially any organisation which is not one of the big six. But this broad term hides the myriad of ways in which people can get involved in the business of energy.
At one end of the spectrum the UK already has large independent developers like RES who build and own large ‘utility-scale’ renewable projects. At the other end there are now over 430,000 small scale solar PV systems installed on roofs across the country.
But it is between these two scales where perhaps the greatest untapped potential for more participation in our energy systems exists.
For example, cooperative energy – where communities come together to finance, build and own local solar and wind renewable projects – could expand massively given the right support. The success of this model in Denmark, along with homegrown examples such as the Baywind project in Cumbria, attest to this point.
However we must also expand our thinking to include new and emerging models for mass participation. This was explicitly recognised this week as Greg Barker placed “new and disruptive companies” at the centre of his vision for a decentralised energy revolution.
New and disruptive companies
Here at Abundance, we believe the advent of crowdfunding is perfectly placed to meet the Minister’s challenge.
Crowdfunding is one of the most significant innovations to emerge in the world of finance in the last decade. By harnessing the power of the masses to directly invest in specific projects, it constitutes an important new source of finance and bypasses the traditional financial institutions that have let us down so badly over the last few years.
Globally, crowdfunding has grown from an estimated $1.5bn in 2011 to $2.8bn in 2012, and when applied to renewable energy, it has the potential to be truly disruptive.
For example here in the UK, in less than 2 years, Abundance has raised over £2.2m for three solar and wind projects from thousands of individuals investing as little as £5. Whilst it’s important to stress such investments are not risk free (they are long-term investments, you may not get back all of your original capital, and returns are variable and not guaranteed) they nonetheless represent a highly innovative new model that is capable of increasing participation in our energy system and helping to break the grip of the big six.
And awareness is spreading. During this week’s parliamentary debate, MP Barry Sheerman advocated renewable energy crowdfunding as “a new form of democratic capitalism that empowers local communities”. We couldn’t have put it better ourselves.
Unleashing the potential of crowdfunding
Whilst the Government is making the right noises, there are two important changes needed to unleash the full potential of “new and disruptive” renewable energy crowdfunding companies.
The first is to remove regulations which treat relatively low-risk renewable financial products like Abundance debentures differently to more mainstream shares and bonds.
At the moment only listed securities can be placed within an ISA wrapper and receive the associated tax benefits, putting unlisted securities at a comparative disadvantage even when they are both good investments and good for the environment. These ISA rules should change to allow the inclusion of unlisted securities (read more here).
The second change is to ensure the proposed new subsidy arrangements for renewables do not prevent mid-sized projects from going ahead. There is currently a real risk this could happen, as the new rules mean community and crowdfunded projects over 5MW in size (that’s 2 or 3 large modern wind turbines) will have to compete directly with far bigger utility-owned projects.
However there is no level playing field here. Utilities simply ‘buy’ and supply their own power, and will be under no obligation to buy anyone else’s. Thus the price independents get for their energy could end up much lower.
Government says it recognises this problem, but it is yet to act, for example by creating a new separate ‘green power’ market. Doing so will be critical in allowing crowdfunded projects to grow in size as local people are brought together with ever larger numbers of more geographically dispersed individuals to co-invest in renewables.
This week the Government made a passionate case for new and disruptive companies to turn the big six into the big sixty-thousand. It must now act to make this a reality.
* The “big six” are: EDF, EON, British Gas, SSE, RWE and Scottish Power.