The government will soon be responding to the Shared Ownership Taskforce report, published last November. It may even be published by the end of this week. It will be interesting to see which interpretation of the report it responds to, as there seem to be two.

Those not party to all the discussions won’t know there are two different interpretations or why. It’s not helped by the report itself not being very clear, and the only further guidance having been sponsored by Community Energy England, which some developers might assume would be one-sided.

The site carrying this guidance has also set up a “compliance register” in anticipation of the monitoring exercise which will presumably start shortly. This can be seen here.

1. Split ownership, in which a legally-constituted community enterprise buys a proportion of the development’s physical assets, for example, one wind turbine or 30 PV panels.

2. Shared revenue, in which a legally-constituted community enterprise buys the rights to a future virtual revenue stream which will be calculated on the basis of a specified proportion of the output of an energy production plant less agreed operating costs and generally less virtual debt service – calculated as if the community had acquired the underlying infrastructure.

3. Joint venture, in which a commercial operator and legally-constituted community enterprise work together to create a joint venture to develop, own and manage a project.
 

Returning to the Taskforce itself, the differing views arise because there was a division fairly early on in the process — should the commercial developer be able to raise money directly from individuals or should they be required to go through a community energy group? Put another way, should crowd-funded debt (e.g. bonds and debentures) hold equal status to the three models of community shared ownership listed in the box? This question nearly derailed the Taskforce, until a compromise position was thrashed out; developers could offer bonds/debentures but only alongside one of the three other options.

Despite the compromise, the wording around the issue remained contentious until the publication. I blogged about this when the issue was ‘hot’ using a menu analogy — could developers offer chips or salad alone, or was this a side dish?

It is still contentious to be honest, with two of the three renewables trade associations on the Taskforce promoting the view that the four options hold equal status. I myself am comfortable with the compromise that was agreed. To what extent the REA’s members are with me on this, it’s hard to tell. I’d be happy to get anyone’s comments following this blog.

One of the reasons I am comfortable with it is that in situations where there is no community group, then there is no obligation on the developer to offer a share of their project to anyone. They would of course be welcome to use bonds and debentures if they wish, but they should not be obliged to. With four equal options, the lack of a community energy group does not preclude developers going directly to individuals and offering bonds or debentures. To my way of thinking this requires more of a developer, and risks turning the process into a means of raising funds rather than engaging the community. I summarise the approaches below:

 

Four options of equal status

The 3 + 1 “compromise”

What is the developer expected to do?

Talk to a community group or go straight to individuals

Talk to a community group

What if there is no community group?

The developer is presumably required to seek funding directly from individuals

The obligation is discharged.

What if the community group is not interested, or cannot raise enough money for its share of the project?

Cast the net wider and seek funding from a greater geographical area

The obligation is discharged

What if the community group wants something else, e.g. discounted electricity bills / funding for other community objectives?

This could still leave an expectation on the commercial developer to seek crowd funded debt in addition to any community benefit payment

This is a desirable outcome. It has not resulted in any shared ownership, but there has been a process of community engagement ultimately reflecting the community’s wishes

How many shared ownership projects are there expected to be, as a result of the Taskforce recommendations?

Lots, because raising crowd-funded debt is relatively easy and counts as community ownership

Quite likely to be relatively few, as community shared ownership is not going to be every community’s “cup of tea”

What might success look like?

Many more individual investors and most projects using crowd-funding as a means of raising capital

A more modest number of developer – community energy group partnerships

What would indicate failure?

A sizable proportion of projects not adopting any of the 4 options

Examples of project developers not engaging with community groups in the vicinity of their planned developments
 

As with all things, this could be done well or badly. Clearly it would be bad if there was a community group with utterly unrealistic aspirations, which even the most open-minded and supportive commercial developer could not work with. Likewise, it would be bad if communities felt overlooked by developers who bring in financial investment directly from individuals instead, in a manner which has no bearing on their community.

The UK is in the very early stages of exploring community ownership. It is at a very low level at present and there is much to do in building awareness, understanding and confidence. One thing was pretty much universally agreed by all in the Taskforce was that progress would be better made under a voluntary rather than legislative approach. Neither industry nor community groups want to see legislation, although it would be fair to say that it holds more fear for industry than it does for community representatives.

My understanding from RenewableUK, the secretariat for the Taskforce – is that it feels that legislation is more likely if only a relatively small number of shared ownership schemes arise. It is this fear that has partly led it to promote four equal options. I have no idea what government feels success would look like, despite having asked. Hopefully this will emerge with the publication of the government response and the monitoring exercise – which we will presumably be hearing more about soon.

By way of a closing comment, I have always felt that this entire subject area was approached in the wrong direction. First came the answer – offer communities the chance to invest – but what was the question? Surely the question should have been – how should developers best engage with the communities that host their projects? To me, that suggests talking to community groups, rather than going to individuals as investors.

My objective in writing this blog is to raise awareness in anticipation of the government response document – and to invite industry responses. I’d like to hear your thoughts regardless of which, if any, of the trade associations mentioned you are a member of.

My aim is to follow this up with a blog on the practical issues faced with developing a 5MW plus 5MW split asset community solar project. If you’re experiencing difficulties in doing this, I’d like to hear from you too! If you would like to get in touch, I can be reached here.