The latest challenges faced by community energy projects can be easily addressed - it is time for Ed Davey to act
Almost everyone loves the concept of community energy. Right wingers love the air of old time self-sufficiency and autonomy that comes from a community owning and generating its own power. Left wingers love the co-operative element that underpins the funding of many community projects and the challenge the model presents to corporate power. The government loves the combination of clean energy, 'Big Society' thinking, and the potential for challenging the Big Six's dominance. Environmentalists love the boost to the UK's renewable energy capacity and the ability to engage communities with green issues. And even some within the energy and finance mainstream are starting to love the ability of community projects to help repair the battered reputation of the investment and energy sectors.
So why are proposals for community energy projects currently being rejected by the Financial Conduct Authority (FCA)? And why are senior figures within the fledging community energy sector increasingly concerned that the government is failing to live up to its ambitious new community energy strategy?
As The Guardian revealed today, the FCA has recently rejected around eight applications for the creation of energy co-operatives owing to an interpretation of arcane regulations governing how an organisation qualifies as a mutual that means they fail to qualify. According to the rules, a co-op must demonstrate that members are participating in the mutual through "buying from or selling to the society", "using the services or amenities provided by it", and "supplying services to carry out its business". This is, of course, easy for a co-operative retailer or bank that sells its services to its members, but according to the FCA it rules out some proposed energy co-operatives.
Well, yes, you could interpret it that way if you wanted to choke off one of the most promising developments in the energy sector in decades. Or you could recognise that anyone investing in a community energy project who then also consumes power from the grid is to some degree buying energy produced by the project. It may be a fractional amount, but if the power is being fed into the grid you can make a case that the co-operative member is using some of it, even if they are not sourcing it directly from the wind farm or solar array they have helped finance. Through their energy bills they are also funding the Feed-in Tariff that helps fund the vast majority of community energy projects.
As Shadow Energy Minister Tom Greatrex, Mark Lazarowicz MP and Claudia Beamish MSP pointed out in a letter to the FCA: "We understand that there has been some ambiguity about the meaning of the word 'participation' in ascertaining whether a project is a bona fide co-operative. Participation is clearly more than just a narrow question about whether the product of the co-operative is traded solely with members... There may be other forms of participation that the FCA has not considered. So long as this question remains open, we do not believe that the FCA can reasonably move to block future co-operative energy projects."
It is hard to argue with this logic and hard to see how the FCA can think the rules were meant to be interpreted in this way. It is critical that the emerging community energy sector is properly regulated and financial risks are effectively managed, as one collapsed energy co-operative would inflict untold damage on the sector as a whole. But the current interpretation of the rules would reduce this growing sector to the handful of projects that are able to sell power direct to their members. Getting a community energy project is hard enough as it is, what with planning challenges and tough financial regulations, but this is just another barrier being thrown up in the way of viable clean energy projects.
Energy and Climate Change Secretary Ed Davey needs urgently to clarify these rules and make it clear that energy co-operative members do not have to buy power direct from the project to be 'participating' in the mutual.
He should also take this opportunity to reflect on whether the government really is doing all it can to make community energy a serious player in the UK. The government's recently published strategy talked a good game, but there are already serious concerns within the sector that a promised increase in the Feed-in Tariff threshold to help aid the development of community-scale projects could be shelved.
Equally, the FCA's concerns would prove academic if the government's much-trumpeted Licence Lite regime and its promise of making it easier for community energy projects to sell power direct to customers was delivering. Allowing community energy projects to cut out the middleman would only serve to connect people even more closely with the green energy they are using, but the scheme has singularly struggled to get off the ground.
It would also be worth asking what has happened to George Osborne's promised Green ISAs - the strangely abandoned proposals that could have proved one of the simplest and easiest means of mobilising green investment and driving public interest in low carbon infrastructure.
Almost everyone loves community energy. But love alone is not enough: government and regulators now need to follow up their warm words with action.