Cost and financing aspects of community renewable energy projects (FIN-COMMUNITY)
Community Renewable Energy Source (RES) projects are faced with particular barriers.
- The skills, expertise and technical capabilities of community groups to plan, develop, negotiate contracts, finance, build and then operate RES projects;
- The challenges of setting up a community organisation and securing the wider support of other local residents that are not members or investors in the community organisation;
- The difficulties in obtaining finance for the project.
How do community-owned RES projects compare to commercial RES projects in terms of costs and corresponding financial impacts?
Five case studies in Australia, Canada, Denmark, Germany and the UK were analysed, with particular focus on two of the most common renewable energy technologies, namely solar PV projects and wind projects.
Although community projects are often supported by goodwill and a lot of volunteer time, development costs tend to be higher for community projects than commercial projects;
- The construction and operating costs prices tend to be similar to the prices quoted to commercial developers;
- Debt finance is more expensive for communities, or if not more expensive, there is anecdotal evidence that banks will lend smaller amounts (a lower debt: equity ratio) to community developers;
- Offsetting the higher debt costs, equity can often be cheaper to secure as community investors are often happy to receive a rate of return slightly above bank saving rates;
- Depending on the financial structure of community projects the overall financing cost message is that often commercial and community investors end up having a similar weighted average costs of capital.
Community-owned RES projects require additional policy support.
a) Acknowledge that communities are different and need financial assistance and certainty. Governments could consider offering grants to cover early stage feasibility work, and ensure there are entities that can provide finance for all the development stages after early feasibility work. Governments should also provide policy certainty, and with that certainty over levels of electricity support if the project proceeds.
b) Reduce community development costs through knowledge enhancement. Renewable projects should provide government paid development experts to reduce costs, prepare standardised legal contracts for shared ownership projects to reduce legal fees, provide clear, easy to read guidance on what different legal community entities can and cannot do, and work with the community sector to ensure there are authoritative ‘how to’ guides available.
With some targeted development stage support, possibly some revenue support, and a leveled playing field even if community projects can only be viable in those areas with optimal environmental locations, they will find ways to compete with commercial developers, whilst also generating the many extra social and wider economic benefits community projects deliver.
For more information download the final report, the presentation, the financial model, the five case studies and the policy recommendations.