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Press Release: ‘Community Energy: Unlocking Finance and Investment’

1st May 2014

  • ResPublica

Crowdfunding only financial life-line for community energy, think tank says

A new publication by the influential think tank ResPublica reveals that the major banks are failing to lend to community energy businesses. In Germany, around half of all loans for existing community energy groups come from co-operative banks, and 34% through state aid. In the UK, such businesses struggle to achieve commercial bank loans.

The ResPublica report, ‘Community Energy: Unlocking Finance and Investment’, which is supported by Co-operative Energy, argues that crowdfunding has opened up an opportunity to fill this financial chasm. Crowdfunding is the mechanism by which a project or venture is funded by raising small amounts of money from a large number of people.

Worldwide, crowdfunders contributed $2.7 billion in 2012, which has helped to fund more than one million projects. In the UK, £5.2m has been invested in renewable energy projects through Abundance Generation alone – an intermediary platform founded in 2011 which brings together people and businesses to raise money for their projects. Seven projects have attracted an average investment of £1500, with many investing as little as £5.

A rapidly increasing number of projects are also being funded or part funded by local share offers, which have enabled numerous co-operative energy initiatives to get off the ground. As of August 2013, there had been over 40 share offers raising £17 million from nearly 10,000 investors. This indicates a significant level of demand from people to commit small sums of money to energy projects across the UK.

In the context of dwindling levels of lending by the big banks to small and medium-sized businesses, such demand and levels of investment are clearly welcome.

The report calls on the Treasury and the financial services regulator to offer further support of crowdfunding platforms. In response to the failure of the existing major commercial banks to lend to community energy businesses, the think tank urges the regulator – the Financial Conduct Authority (FCA) – to move beyond its narrow focus on risk protection, and to play a much greater role in facilitating a diverse financial sector. Regulation should allow smaller and more innovative crowdfunding and ‘peer to peer’ initiatives to thrive.

The report also calls for the introduction of greater incentives to encourage more people to invest. Recently introduced tax reliefs, such as the Social Investment Tax Relief (SITR), should be opened up to a wider range of small businesses with a strong social purpose. Tax-free saving via ISAs should also be extended to include debt-based securities, which are offered by many peer-to-peer lenders and via crowdfunding, and which are currently excluded from this scope.
Rt Hon Greg Barker, Minister of State for Enterprise and Climate Change said:

“Expanding lending and investment for our small businesses is vital to achieving the competitive, diverse energy market that this country needs. Community energy in particular is central to my ambition to move from the Big 6 to the Big 60,000, and must be supported. We need more community-generated power in the UK’s energy market and to enable a wide range of investors – from commercial banks to individuals – to take advantage of this opportunity.”

Caroline Julian, Head of Research at ResPublica said:

“Community energy groups suffer disproportionately from dwindling levels of lending to SMEs in the UK. As small and start-up ventures, they need additional support. Crowdfunding has opened up a whole new market of investors, and has revealed a range of new ways for people to invest in something good and that offers a reasonable return. We now need a policy and regulatory framework that can further tap into this opportunity.”

Ramsay Dunning, General Manager at Co-operative Energy said:

“Global investment in clean energy has dropped over the past two years, and there is little to fill the gap. Crowdfunding could be the turbo-boost that renewable and community energy needs. Pioneers of community energy such as Denmark realised this some time ago, and now enjoy days when renewables meet their entire electricity needs. For this to happen in the UK, there needs to be a much fairer and farsighted system of tax reliefs – a system that is stable and consistent, and which benefits a broad range of community enterprises.”

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