14/02/2017

By Alex Germanis, CEO of Pure Leapfrog

In trying to maximise community benefit, are communities better off working with the private sector more closely?

Many communities strive to make things better. When it comes to UK energy, it’s pretty common for community groups to want a cleaner energy system (read renewables) and fairer (where the benefits stay in the community). Communities are willing to dedicate thousands of volunteer hours to achieve these environmental and societal benefits. 

But even with these broad commonalities, there are mixed motivations, ambitions and objectives. One discussion that usually surfaces relates to money and who should get paid. Should directors of groups be paid a salary? What’s a fair return for investors? How should the professional service firms be remunerated? Many of these debates justifiably stem from to wanting to retain value and benefits in the community, which is typically a big motivator.

Yet trying to extract as much value for the community as possible can lead to perverse outcomes. If community led, owned and managed projects are going to maintain any level of growth we need to look at what the magic ingredients are for success. Partnerships with commercial entities is key to this and one thing is clear. Community groups need to make the most of what they’re good at. Leveraging in expertise, skills and capacity cannot be underestimated.

So here are my magic ingredients for scaling up community energy in the UK. These are aimed at the multitude of volunteer led entities, often in the form of registered societies.

community energy and private sector diagram for February 2017 blog

Leverage community expertise

Communities are great at a number of things. In particular:

  • Knowing what the needs are in their community, engaging with those who need it most and delivering social impact. Commercial developers for example are set up to build infrastructure not to cater for local issues or undertake meaningful local engagement.
  • Building trust. Community groups by their very nature can build on their local presence, and as non-profit maximising don’t have the perceived value extraction that the private sector can be stuck with. This isn’t always the case and big brands can have a degree of trust, but this tends to centre around technical competency, not that they are acting in someone’s best interest.

Develop long term partnerships

The energy sector has never been more in a state of flux than today. There is a fine line between driving innovations and best practice, and reinventing the wheel. One way to achieve this is through partnerships;

  • Private sector partnerships. The private sector brings with it expertise, capital and resources. These financial and physical resources can be highly valuable when combined with the passion and engagement of community groups. There are ways to ensure communities can maintain value without selling out or becoming routes to market for the commercial sector. An increasing number of corporates are taking a more values based approach to business and partnering with them can be great way to deliver projects at scale.
  • Public sector partnerships. In general terms that typically means a local authority. Not all groups have the luxury of having an engaging and open partner to work with. Successes in the sector typically occur where there is political buy in. Where that happens projects can be easier to develop and deliver.

Taking the professional approach

To state the obvious but sometimes overlooked point, community energy groups are businesses. They generate a financial return and report to required authorities. Yet:

  • Free isn’t always good. Hand me downs can cost later down the line, and volunteer time is finite. It will likely pay off in the long run to invest in professional contracts.
  • Professionalism doesn’t mean wearing a suit but it does mean high standards in areas such as governance and project management. Good governance will be key for lenders for example.
  • Debt might have a bad rep in personal finance terms but project finance can help build up an asset base and bring financial rigour to project economics. Leveraging existing equity with debt can help to bring further generating capacity into the portfolio without lengthy external engagement.

The economics of solar PV are starting to look favourable again – at least under certain circumstances. New opportunities to deliver on community energy groups’ ambitions to roll out clean energy with a social impact are very much still possible and getting the right business model that incorporates private and public sector partnerships will be key.

Alex Germanis,

CEO Pure Leapfrog