Tuesday 12 March 2013

We are at the beginning of not one but two revolutions, an energy revolution and a finance revolution.

 

The global financial crisis exposed the stupidity, greed and complete lack of ethics in large parts of the financial system. Lots of people made an awful lot of money without doing anything useful. Banks built dubious models that “proved” a bunch of high risk assets were low risk, mortgage salespeople made fortunes selling mortgages to people who couldn’t afford them, private equity principals made fortunes by loading companies up with unsupportable debt and executives in big companies voted themselves huge pay rises while overseeing poor performance. Meanwhile governments were happy to encourage this behaviour. Needless to say most people think this is is unacceptable and want another way of doing things. This is manifesting itself in the rise of community funding vehicles, crowd funding, and credit unions – more and more re-connecting finance with the real world of people and projects.

 

Meanwhile in the energy scene (and this bit is primarily about the UK), we have an oligopoly composed of large energy suppliers effectively controlling the market. Public trust in energy companies is at an all time low, prices are going up and there is a record number of people in fuel poverty. Just like in the finance world there is a growing interest in community based energy schemes and companies. Most of these, however, are focused on installing renewables and taking advantage of Feed-in tariffs (which is an unsustainable business model for society as a whole), or on some form of community switching or cooperative buying model where large numbers of people club together to use their buying power – also ultimately limited in its effect. These types of schemes are all laudable but they are not the real answer.

 

The real answer is community owned energy supply companies.

 

In Germany many municipalities own their own utility and in many cases these utilities are truly multi-utility i.e. they supply power, gas, heat, cooling, water and waste water services. In the USA about 2,500 cities still own their own utility. Before the nationalisation of the UK electricity industry in 1947 there were over 500 electricity companies, many owned by local authorities. Why can’t we go back to that?

 

What should community energy supply companies do?

 

As well as straight-forward energy supply a community energy company should offer a full range of energy services aimed at improving the energy efficiency of customers’ buildings and facilities, this should be a central part of the energy supply offering and not an add-on. They should be technology agnostic, and supply vs. demand side agnostic, utilising technologies such as Combined Heat and Power, energy efficiency, some renewables, and where viable local storage. An integrated energy supply and demand side company would be a Community Energy Service Company (CESCo).

 

How should they be financed?

 

The community energy movement needs to be tied to the community financing movement. Consumers want safe steady incomes on their savings at rates better than those given by their high street banks, incomes that utilities traditionally gave and which community utilities can produce. Institutional investors want safe long-term income which is what utilities and energy projects, whether they be supply or demand side, can provide. A community energy supply company could access both community finance and institutional investors.

 

Benefits

 

Local energy companies could bring huge benefits in terms of improved local control, a greater sense of community engagement, job creation, and improving education on energy issues.

 

Barriers

 

Of course there are real barriers to establishing a local energy supply company, particularly around licensing and trading of power. But the biggest barrier is simply the idea that it is all too difficult. It can be done. We need to start a revolution by starting Community Energy Service Companies (CESCos).

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Dr Steven Fawkes

Welcome to my blog on energy efficiency and energy efficiency financing. The first question people ask is why my blog is called 'only eleven percent' - the answer is here. I look forward to engaging with you!

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