Can UK Communities Rally Behind a Fair Deal on Energy?

Nick Hay, Director of Edelman’s UK Cleantech Practice, discusses the return to energy communities.
Published: Fri 23 May 2014

Ofgem’s current competition enquiry into the Big Six is the latest in a series of events pushing communities to take back control of energy. This year’s Edelman Trust Barometer reveals that mistrust of the energy sector has fallen to an all-time low, with only 32% of the UK population trusting the sector; putting it in last place behind the banking sector.  Just over 70% of respondents say the industry isn't being regulated enough at the top.  Whilst at grassroots, many consumers frequently vote with their wallets (using the plethora of switching websites available) to get a better deal on energy. 

Mistrust sparking energy activism

But aside from switching, a new form of consumer activism on energy is emerging.  Increasingly, communities are collectively reducing, purchasing, managing and generating energy locally.  Community energy is of interest to any organised body that stands to gain more from managing its own energy interests. These already include Scottish islands, rural farmlands, urban settings, through to corporations, such as banks.  Community-energy is already popular in Europe. In Germany, for instance, almost 50% of energy generating plants are owned or run by local groups.

The atmosphere of mistrust, price increases and the need for grid modernisation are combining to create the right conditions for a shift to community energy.  Currently there is over 60MW of community-owned renewable electricity capacity in operation in the UK.  At the launch of its Community Energy Strategy, Department of Energy and Climate Change estimated that by 2020, community electricity could generate up to 3GW (from a mixture of solar photovoltaic, onshore wind and hydro projects), enough to provide electricity for over 1 million homes. 

Price increases are one of the main reasons for discontent- energy prices have roughly doubled in the past 10 years and government figures predict a further 50% increase over the next decade.  A recent survey, commissioned by Department of Energy and Climate Change, reveals that 42% of consumers are interested in taking part in community energy if they can save money on their energy bills.   

Self-sufficiency is a powerful thing

Increasingly, the UK public is making the connection between the infrastructure they see, the energy they use and the price they pay for it.  For example, the blackouts caused by Hurricane Stephen on Boxing Day left around 350,000 homes in the South East without power.  Network operators compensated consumers with up to £75 a day for the inconvenience caused.  Whilst for many that didn’t make up for Christmas in the dark, it did cover the daily charge to hire a diesel generator.  That’s exactly what many people did – spawning a new group of first-time energy generators.  Self-sufficiency learned in a crisis can be a powerful thing. 

In the US, when Hurricane Sandy caused mass blackouts, the lights stayed on for large groups across Maryland, New Jersey, New York & Connecticut.  The reason those communities were left unscathed was because their power was separate from the national grid. The power was generated by small-scale diesel, wind and solar, supported by energy storage.  They were operating microgrids.

Microgrids – or localised power systems, which reduce costs and increase reliability by combining energy production and storage, are a key delivery model for community energy projects.  Navigant has identified 4,393 MW of microgrid capacity throughout the world. Last year, the figure stood at 4,148 MW.

North America is leading the adoption of microgrids; with 66% of the global microgrid capacity planned or deployed there. This development in microgrids is driven by the declining reliability of the US centralised distribution grid. 

Back to the future

The microgrid is not a new development.  The UK’s National Grid didn’t start out life as a centralised network. The grid was only conceived in 1938 so that cities did not have to live next to the dirty coal power stations that supplied them. 

The centralised grid system was created to transmit energy to our homes, via pylons and cabling, from the power stations where it was generated.  Before that, power came from a patchwork of small, independent supply networks which serviced small village communities. 

Significantly, looking back, energy was a revenue generator, not a cost, for communities. Up until the end of the end of World War II, UK local authorities generated around half of their income from trading energy from town gas works and local electricity plants. 

With renewable technologies of all shapes and sizes now available at falling prices, there is a serious case for communities to shift away from the National Grid towards a model where energy generation is clean, limitless and, most importantly, local. 

Moving from the “Big Six” to the “Big 60,000” represents an ideological shift which will make energy a matter of devolution where an increase in local energy will see consumers enjoy greater energy independence.

Small Scale Energy, Big Society

The UK Government’s Community Energy Strategy is a major step forward as it aims to encourage communities by offering advice and funding. For instance, the new £10 million Urban Community Energy Fund is supplementing the current £15 million fund for rural projects. 

Greg Barker, Minister of State for Energy & Climate Change, said recently, “Community energy is a perfect expression of the transformative power of the Big Society… enabling communities to generate their own heat and electricity, and their own profits, and as a by-product, help the UK to save energy and help to cut carbon emissions.”

Scale of community energy is appealing

Cynics are prophesising that the Community Energy Strategy will follow the same path of low engagement that blighted the Green Deal (Despite national advertising campaigns, at the end of January 2014, just 746 households had Green Deal energy efficiency measures installed). 

But one of the main issues with the Green Deal (that does not apply to Community Energy) is that small-scale, individual energy efficiency actions and their resulting savings, such as insulating lofts or installing double glazing, do not excite householders, let alone entire communities.  The beauty of community energy is its scale. Shares can be small enough to be within reach for ordinary people, but large enough to make a significant difference.  For instance, the Westmill Cooperative’s two share offers raised over £10m in share capital.  Both offers were over-subscribed and attracted outside funding to finance the balance of the project. Westmill Solar, for example, received £12.5m from the Lancashire local authority Pension Fund.  Combined, the two projects now generate enough energy for nearly 5,000 homes. 

There are many hurdles ahead in the formation of a strong UK Community Energy movement. These include technological and regulatory complexity, gaining access to the grid and ongoing uncertainty over Feed-in Tariffs.  Not least is the issue of finding investment.  But, in the current low interest savings market, shares in community schemes can be very appealing.  In 2013, Britons collectively invested £1.4bn in equity ISAs, despite only delivering small returns, after bank fees have been deducted.  Just 5% of that annual ISA equity investment could create a transformational £70m a year investment in community energy.  

Community projects should be “goodwill factories”

To live up to their promise, community projects should aim to become “goodwill factories”, which clearly deliver and communicate back, tangible benefits, whether financial or social to the community.  Trust, fairness and courtesy must also be exercised, especially when acknowledging uncertainties of opposition groups. 

Consumers are ready to take back control of their energy production and consumption, technology is proven, and the Government is showing its support. Now, it’s up to communities to align their interests and rally behind the promise of Community Energy.

This was blog was developed in conjunction with a recent Arup-Edelman event titled “Back to the Future: Could the UK Return to a Community-Based Grid Model?” 

Nick Hay is the Director of Edelman’s UK Cleantech Practice, a specialist communications team dedicated to helping clients catalyse growth in the new energy economy.