An Overview of Sharenergy Co-operatives
Sharenergy co-operatives are based on and work along the same lines as Energy4All’s existing wind power co-operatives, a model which has been developed since Baywind in 1997.
As a very quick summary, this is how our co-operatives work:
1. We work with community groups to find and develop projects in their area.
2. We provide expertise, support and funding to develop the projects to the point where they are ready to be built.
3. We help the community to set up a co-operative, which then raises shares from local people to finance the build.
4. The ownership of the project transfers to the co-operative which is completely independent.
5. The share offer also raises the money we spent on stages 2 and 3. This is returned to a Revolving Investment Fund so the next community group can use it.
The last point means we are not a grant scheme. However, if for some reason a project does not prove viable, the money spent is not repayable by the community, so there’s no risk to the community group.
To give some idea, a 100kW solar project might cost around £350,000. Around half of that could be met by a loan, meaning that we might raise £150,000 in shares. That could mean 60 co-operative members investing an average of £2500 (you can invest between £250 and £20,000) and getting interest of around 5-8% (averaged over 25 yrs). If the numbers sound daunting, check out Westmill Wind co-operative: £4.8 million raised, over 2000 members!
It’s worth noting that our co-ops do three main things:
1. Build renewable energy installations which generate meaningful amounts of power
2. Provide a local, ethical, financially sound investment opportunity
3. Give people the power to own and operate their own mini green power stations
In addition, the larger projects may well have some surplus which they can use to support local good causes. In the case of the solar project above it’s unlikely there would be very much surplus. Of course, it will be in your hands: you can choose to take less interest and use the money for something local, but you’ll have to persuade all the other investors that this is a good idea! If you can attract grant funding to build the project then that’s less money you’d have to raise from somebody who wants it back, and more income for a ‘good cause’. Grants of this size are in pretty short supply though.
For a quick guide to community share offers from Co-operatives UK and the Development Trusts Association see Investing in Community shares. This is from the perspective of a potential member/investor. If you are contemplating carrying out a share offer there is more general info here or see Community Share and Bond Issues and Community Investment using IPS legislation
Answers to some of our frequently asked questions are below:
Why do you use co-ops rather than another format such as CICs ?
Essentially if one wants to issue shares to members of the public there are only a small number of possible structures and for various reasons we use the Co-operative Society form (until recently these were known as the Co-operative form of Industrial and Provident Societies). CICs place strong restrictions on the amount of return you can give to investors and it is therefore hard to raise lots of money from them. The other possible model is the Community Benefit Society form (until recently known as the Community Benefit form of Industrial and Provident Societies). This is used by some community renewable energy projects, normally ones which attract significant grant funding. In practice the difference between these and Co-operative Societies is not great so we stick with one model.
What are the key features of Co-ops?
-One member one vote
-Follows co-operative principles
-Board elected by members and usually only members on the board
-Members buy shares in the Co-operative
-Maximum holding currently set at £20,000 (this may go up with new legislation)
-Minimum can be set by the Co-operative. Usually £250 to cover admin costs for the (usually) 20 yr project
-Regulated by FSA (not technically a ‘company’ and not regulated by Companies House)
-All share offer prospectuses done to FSA guidelines
-Larger share offers have to have prospectus individually approved by FSA (most Sharenergy projects should fall under the level where this is necessary)
-Our share offers normally qualify for Enterprise Investment Scheme tax relief whereby investors can set 20% of their investment off against tax.
-Share offers are typically carried out over a single a 2 or 3 month period
-Share offers take place only once planning permission is obtained and all relevant contracts are ready to be signed
-Types of shares vary. Sometimes they can be traded between members. More usually they can only be withdrawn (by application to the board: there is no right to withdraw however this is usually granted beyond an initial lockin period: in practice this is perhaps most often invoked in the case of members death)
What are ‘Co-operative Principles’ ?
The set of principles adopted by the co-operative movement worldwide are:
• Self help and self-responsibility
• Democracy and equality
• Honesty and openness
• Social responsibility
• Autonomy and independence
• Member economic participation
• Opportunities for education
• Concern for community
• Co-operation among co-operatives
What happens to the money made by the project ?
Every year the income from the project is allocated to various headings. In roughly this order:
-Operations and maintenance costs
-Rents, rates, statutory costs, admin
-Costs of finance (if a loan is used as part of the initial financing)
-Depreciation (effectively a sinking fund so that the capital invested is built up to pay back at the end of the project period)
If all is well an amount of funds are left. Usually the majority of these funds are distributed as an interest payment to the members (a dividend, if you will: the value of shares does not itself vary over time - the opposite of the usual situation with stock market shares for example). Depending on the project focus there may also be provision for a ‘community fund’ which is usually allocated to an independent body for purposes not directly benefiting the members (for example for fuel poverty alleviation or other energy projects). Allocation of payments is a matter for the board.
At the end of the project, capital is returned to the members from the sinking fund (which by this point will have built up to the capital originally provided) and the co-op decides what to do with its assets. it could wind up, do a new ‘rights issue’ to members for a new project, or pass its assets to a new co-op.
In the specific case of Sharenergy projects, money spent to help develop the project is repaid to the Revolving Investment Fund at share offer time. We seek to recover the costs of developing the projects here so we can help other communities with their projects in the same way.
When do we do a share offer?
We normally split a project into two main phases: development and building. The development phase takes us from first identifying a project to the point where
• planning and permits are in place
• landowner agreements are all signed
• all legal contracts are in place
• the equipment supplier and installers are signed up
This is the point at which we would do a share offer to raise the money for the building phase.
The money used to pay for the development phase is sometimes known as ‘risk money’ because there is a fairly high chance that something will get in the way of the project and in many cases money and effort put in at this stage can be lost…up to a 60% chance with wind projects in the UK currently, for example! While it might be nice to do the share offer early so that you’d have cash in hand to do the development work, this level of risk would not really be fair on members of the public. This is why we operate a Revolving Investment Fund, to make it possible to get through this sticky phase.
