The madness that is the solar coaster is quiet again. We want to swear off the ROC cycle high (and hangover) – until the autumn that is. But not this year.

We have a feed-in tariff (FiT) degression in the summer, and with this degression, a ticking clock on Community Interest Projects (CIPs) where we could rescue stranded larger ‘shovel-ready’ projects.

A lot has been said about CIPs. Most of it is nonsense, with a view that these are just another money-making scheme, or a method by which developers can make large sums of money on previously dead projects. This was the same thinking that promoted a belief in ‘paving of the country with solar panels’ and the egos of eight helicopter developers (a trumping of two Jags Prescott – a huge political success – not)! 

Community Interest Projects are just that – community interest.

So that’s the first problem. Building real community value in the time remaining before the FiT change – unless you are one of those taking a bet that DECC will extend CIP to the 1.3 ROC tariff. The second challenge is finding a fund that will fund both sides of the project – the standard FiT part is easy, but few funds like minority shareholders, massively diluted returns or an infinite contingent liability associated with vendors ‘gaming’ the system; and the biggest (though not last) problem of finding funds that understand the underlying economics, that are willing to suffer small shareholders and to accept creative ownership structures. The single 5MWp FiT project has one price – but it does not come on its own. It comes with an ugly sibling, the CIP, he’s not such a profitable friend and he can bite if not handled right.

There are a multitude of structures that a CIP can operate with: Community Benefit Societies (BENCOMs), Community Interest Companies (CICs), and soon the Social Investment Tax Relief (SITRs). In all cases, the investor can only take 35% out as dividend and 20% of profits must be retained for community investments. The balance goes where? The best answer is with individual investors. A not fully-defined group, but be assured small is small. As for debt: bridge or senior long-term debt could help balance the equity returns, but not the equity structure. Any shenanigans and the owner risks the wrath of Ofgem and HMRC.

We are all novices in this space, but as always there are those that hope we know less than them. As such, I have been proposed multiple approaches. Mostly driven by vendors seeking to maximise price and, once the deal is done, leaving the infinite contingent liabilities with the fund. Obviously this is not acceptable to any fund that seeks to hold assets for their life. The best wheeze yet was to get high net worth investors to buy the balance of equity as the representatives of local communities and balance returns with rather expensive long-term debt payable to sponsor – fully amortising so the sponsor is left holding 35% for free. It may work. It may (‘may being the operative term!) even be legal. But is it ethical and likely to promote the interests of the community? Developers and buyers are faced with a realistic challenge: what is the real price of the asset?

So how to balance the equity structure, equity returns and community benefits? Crowdfunding. Get the local people to be the owners of the projects.

A good crowdfunding structure will promote the project to local communities. It creates an instrument that can be easily understood and marketed on your behalf. Plus, with the advent of SITRs, a tax regime that can reduce the cost of capital to a logical point for a long-term investment, a good scheme marketed well will gather together many owners and share the benefit of this low risk asset class widely.

So we are in another period of frenetic activity. A new challenge for developers and buyers used to an ever changing field. This is an exciting place allowing for a building of trust in our sector and a sharing of benefits so that the broader stakeholder group can better embrace what we bring. Most of all, it may help to give a longer life to a sector plagued by political press; charging us with the death of apple trees that would not have grown well in the brownfield/grade 3 and 4 farm land we have largely employed.

Developers can benefit from this period. Nobody is really an expert here, but with recent experience of trying to land and bed down a few plants this year, I would leave you with these few words of advice; firstly, get the right lawyer to structure the CIP and its pretty sister, the commercially focussed project, correctly. So, don’t fall foul later with an unbankable structure and a host of costs. Please learn from the CfD auctions, there is no fancy gaming that will win. Secondly, do it fast: the large project FiT degression will reduce FiTs by a massive amount and the CIP scheme expansion to include 1.3 ROC accreditation is not certain. If you haven’t learnt already, the government has a massive agenda and you, Mr. Developer, may not even be in their thoughts. Thirdly and finally, work with a crowdfunding specialist. As with the lawyer, create the right equity structure and cost for maximum bankable value. To reiterate, the CIP is just that, a community project. So get locals on board, help your capital costs, be part of the spirit of the scheme; help yourself and our industry to win back the PR game.