Solar developers are rushing to finish projects before the untimely closure of the RO for larger solar farms. For the next round of solar farms the Voluntary Agreement on Shared Ownership, initiated by DECC, expects all projects over £2.5 million to offer some form of investment opportunity to the local community. The £2.5 million threshold should therefore capture all sub 5MW RO schemes, which will be the bread and butter of the utility solar industry from April.
Legislation in the current Infrastructure Bill provides for potentially forcing grid-connected projects over 5MW to make an offer. Given the industry has been decapitated at 5MW (CfDs notwithstanding) one might argue that the solar industry has been exempted, but that would not be in the spirit of supporting this agenda, which (with caveats) has real potential value for the industry.
The critical word is offer. As developers will know, local communities vary hugely in terms of engagement and resources. At the STA we're educating our members early on the full range of possible approaches to community investment and shared ownership to identify successful approaches. The requirement is to offer. If communities choose not to take that up, that is their choice but it's a choice we think best practice should offer.
The STA sits on the Shared Ownership Taskforce and was successful at ensuring debt-based instruments became a recognised approach – after all, the solar sector has successfully pioneered local bond offers. DECC also now recognises partnerships with local authorities, who are critical to the community energy agenda. We are still pushing them to recognise social housing providers and innovative forms of investment that will not risk alienating traditional finance.
It is disappointing that the government's vision for community energy strategy is somewhat passive – riding on the coat tails of the commercial industry when it happens to roll into town. More is needed to boost the UK's tiny community energy sector.
Action is also urgently needed to correct the feed-in tariffs at the community scale so that communities can confidently develop, lead and fully own their own schemes. The direct sale to the local community of local solar power would be a real game changer and something DECC should pursue vigorously for real electricity market reform. This tends to be the first question local people ask: why can't I buy the power? Innovations by the GLA and Ovo energy may be bringing this prospect nearer to reality.
Nevertheless even within this narrow agenda, the industry has an opportunity to identify cost-effective approaches to local investment that further boost the already strong popularity of solar farms. The danger is that the costs of this agenda risk being disproportionate for the solar industry given solar alone is capped at 5MW under the RO – yet some costs of doing this are fixed. For CfD solar the cost pressures could hardly be more overwhelming.
That's why we're committing to innovating where it is commercially viable – and the disproportionate costs issue is why Split Ownership schemes may not be economically viable for RO solar. It's a real shame that the 5MW + 5MW FiT (which will allow shared grid assets) isn't constructed to enable serious take-off because this is an approach that is interesting lots of our members.
The trick will be to find approaches that might enable the solar industry to get ahead. Where there are well-organised community energy groups developers may find partnership with co-ops and community benefit societies work very well indeed. But the reality is that few members of the public own shares and many want lower-risk investments regulated by the FCA.
We know bond and mini-bond offers are already proving very popular with local people but we're particularly interested in the potential to roll some debt-based instruments into ISAs from next September. Holding an ISA in your local solar farm is likely to have very broad appeal indeed, and the tax benefits could enable cost-effective financing. That's the kind of public-industry engagement that excites us.
Investment is for people that have some spare cash. Developers must remain sensitive to the fact that people in some local communities simply don't – fuel poverty is more concentrated in rural communities after all. We're learning from the experience of the wind industry in how to reduce local energy bills as a form of shared revenue – one of the most socially equitable ways to engage.
The different legal vehicles for community investment are subject to very different legal, tax, management and FCA rules. The agenda is further complicated by tensions between the community energy sector and the FCA, and uncertainty over continued eligibility to various tax breaks. Where there is an established local community energy group they are likely to have their own views about how to move ahead. But often we expect it will be left to the developer to try to engage the community and to make an attractive offer that is appropriate to each unique community. So it's vital that developers can understand the range of approaches and their full implications.
Now is the time to move from talk to action. All of these approaches will be covered at our STA Masterclass next Wednesday on community investment and shared ownership, designed specifically for solar developers. Importantly we will be hearing from the Community Interest Company Regulator, DECC and, we hope, the Financial Conduct Authority.
It is important that developers understand the regulatory framework in which they will be operating and the risks associated with different investment instruments. Ultimately it is flexibility – the freedom to innovate – that will provide clear evidence on what works.
The end goal is to give people a more direct financial stake in accelerating the deployment of renewable power that is now so essential to all our futures. It is this end result – community backing and investment for accelerated solar deployment – which we should all be aiming for.