How can the government boost community energy for a better, fairer society?
What is community energy?
Community energy is exactly what it sounds like — energy generated by a community for its own use. At Efficient Homes, we love community energy because it puts people at the heart of fighting climate change.
While many community projects focus on energy generation via renewable sources, energy efficiency, storage, and low carbon projects can be community energy projects too.
What are the benefits of community energy?
By working together, community energy projects allow people to access cheaper energy while adding many other clear social and economic benefits to local areas, including:
Energy and climate change
- Carbon reduction.
- Increased renewable energy generation at community level (often on buildings that would not be a commercial prospect, e.g. on social housing).
- New investment sources from local investors.
- Stimulates local economy via profits and money staying local.
- More local energy jobs, including upskilling and apprenticeships.
- New partnerships and local cooperation.
Increasing energy awareness
- Changing behaviour and attitudes to energy to help us become a net-zero society.
- Engaging people in local action on climate change, fuel poverty, energy efficiency, innovation.
- Support in the local community for roll-out of future technology (e.g. Smart Meters) and energy efficiency measures.
Increasing energy resilience
- Renewable energy powering community buildings (and schools) help reduce running costs, allowing them to spend more on services to the community and education.
Alleviating fuel poverty
- Doing low-cost, high-return energy saving measures such as reduced bills for vulnerable customers
However, more financial support is needed for community energy schemes to thrive, as occurred under the Coalition Government. Changes to the subsidies made over the past five years, like the replacement of FiT with the Smart Export Guarantee (SEG), have negatively affected the financial viability of community energy projects, particularly small rooftop solar and urban projects.
What is the Smart Export Guarantee?
The Smart Export Guarantee (SEG) pays individuals, businesses and communities for renewable electricity generated and put into the grid. It replaces the Feed-in Tariff (FIT) scheme.
What’s the difference between the new Smart Export Guarantee (SEG) and the old feed-in tariff (FiT)?
The SEG is just one payment based on the amount of electricity you export to the grid, unlike its predecessor, the FiT, where you received two payments — one for your electricity generated and the second for electricity exported to the National Grid. In other words, with SEG, you only get tariffs for the renewable energy you don’t use. So community energy projects that may generate a lot of power but not have much excess — if any — are worse off under the SEG scheme.
Who sets the SEG payment rates?
Whereas the payment rates for the FIT were set by Ofgem and the government and were the same regardless of which supplier paid you, SEG tariff rates are set by the companies which offer them and can vary tremendously. The FIT was paid for by a levy on all customers’ energy bills, whereas the SEG is paid by energy companies who buy the power.
SEG puts the community energy sector at a disadvantage to larger renewable energy projects, which receive long-term certainty from Contracts for Difference.
SEG also does not offer any incentive for suppliers to support community groups. Energy supply companies like Co-op Energy buy community energy and bundle it into tariffs at a slight premium compared to their other fixed rates. This is, however, a unilateral decision, and there is little to signal that other major suppliers will develop similar tariffs through long term contracts.
Which companies have SEG tariffs?
You have to sign up for an SEG tariff with a company. Otherwise, you won’t get paid, and you will export your surplus electricity to the National Grid for free.
Companies with more than 150,000 customers must offer at least one SEG tariff that is export-only and open to all installations, not just those of their customers. This means you can often choose a different supplier to sell your renewable electricity to the one you buy electricity from.
Some smaller energy companies Avro Energy, Bulb, E, Green Network Energy, Octopus, OVO, Shell, Utilita and Utility Warehouse, have chosen to offer an SEG tariff. There is a third category of companies besides traditional energy companies, which have begun offering tariffs as well (including Tesla and Social Energy).
Why do we need a floor price?
At the moment, customers must pay more than zero, but there can be significant differences between the best and the worst rates. This can be up to a 5-fold difference in payments, which would add up significantly over a year if you export a lot of electricity.
The Environmental Audit Committee (EAC) has recommended that BEIS introduces a minimum Smart Export Guarantee floor price above zero and extends the guarantee on the energy export price beyond 12 months.
At Efficient Homes, we support these recommendations because successful business models for community energy depend on predictable, long term income. As it stands, the SEG fails to offer that.
With the lack of generation tariff, the risk around prices and lack of certainty, SEG doesn’t seem to incentivise or reward community energy groups that provide a myriad of economic, environmental and societal benefits.
What else needs to change to encourage more community energy?
The majority of locally-owned energy projects are in more affluent areas, where there is the money, social capital and knowledge to make them happen. Understanding what needs to happen for deprived communities to start projects is critical if we want the benefits of community renewables to be more accessible to all.
Another barrier to project development is the fact that a community project cannot sell its energy to their local people. We believe that the government should remove the regulatory barriers to allow this, and Ofgem should also provide guidance to distribution network operators (DNOs) on how to incorporate community energy into the energy network.
Currently grid connection costs and access charges can be too high for small groups and do not account for the wider decarbonisation benefits, including education and social support that projects bring to their communities.
Looking to the future
By putting communities and citizens at the heart of a shift to clean energy, we can achieve a transition to a net-zero society more quickly, more fairly and with many added benefits.
Efficient Homes is an avid supporter of community energy, and we share the disappointment of the EAC about how the Government has failed to acknowledge the key role community energy can play in changing behaviours and lowering emissions. We believe that by working together, we can achieve our goal to become net-zero by 2050 more easily.