Community Involvement

h2ope pioneered the community approach to hydro and since then we have developed four 100% community owned hydro schemes – New Mills, Settle, Bainbridge and Stockport. Over the four schemes so far developed, our understanding of the processes involved has considerably matured.

That approach was embodied in a legal and financial framework. Hydro schemes with 100% community ownership have been possible through the use of an Industrial Provident Society – a co-operative structure that allows the group to undertake a share offer. Financially, the 100% community owned model could look to 1/3 funding each from grants, a share offer and a bank loan.

However, recent government changes in the Feed in Tariff, coupled with our experience of replicating the 100% community ownership approach on four separate occasions, have led us to revise our thinking. We are now of the opinion that the days of fully 100% community owned hydro schemes which also claim the Feed in Tariff, are very largely over. Consequently, we have had to revise our thinking on the whole subject of community involvement.

1. The Government has wrestled with the issues of grant support being simultaneously offered with the Feed in Tariff as another support mechanism for renewable energy schemes. Given the potential for abuse demonstrated by some of the solar PV interests, it has come as no surprise that the Government has gradually rationalised FiT legislation. Other public grant mechanisms are now incompatible with FiT except for modest and demonstrable expense on for instance a fish pass. Private grants are few and far between in these austere financial times.

2. This has changed the whole face of community hydro ownership. Without grants, the smaller schemes of around 50kW that were possible on the model of 1/3 grants, share equity and loan, have now become largely unviable. Larger schemes are now required of just under 100kW where revenues pay back the capital costs faster, and which have a typical capital cost in the region of £600,000 - £750,000. Such capital costs are, in our experience, beyond the capability of a community to raise on its own. Share offers undertaken by community schemes will find it extremely difficult – based upon the evidence of our work – to raise more than about £250,000, leaving the balance to be made up from bank loans. However, in our experience, banks look to contributing no more than 30 to 40% of capital costs which means that the balance has to be found from other sources of equity – in which case, 100% community ownership will not be possible.

The good news however, is that community involvement is still possible, but the legal framework by which investment in a hydro project will occur is now changing. h2ope has commissioned a legal practice to review the situation and we fully expect that a new ‘legal vehicle’ and funding mechanism for community involvement will soon be in place.