October 31, 2013
Crowdfunding of renewable energy projects is growing fast in Europe. If this grassroots movement gets organized in time to access the big money available in the next round of
cohesion funding, it could have far reaching effects on the European energy sector.
In recession era Europe, much talk is of ‘innovative’ or ‘alternative’ financing for sustainable energy – meaning money other than the public purse. In 2012 crowdfunding in Europe saw an estimated 65 % growth compared to 2011 and reached €735 million. With industry insiders Massolution forecasting an 81 % increase in global crowdfunding volumes in 2013, it looks like crowdfunding might just get serious.
Crowdfunding has several things going for it compared to traditional funding, as was noted recently in a report published by the European Capacity Building Initiative. First, crowdfunding can provide finance to small business and community organizations otherwise excluded from formal finance. This support for entrepreneurship is also touted as a leading advantage by lobby group European
Crowdfunding Network. Speed in mobilising funding is a another characteristic of crowdfunding– as neatly demonstrated in the recent new world record where €1.3 million was raised in just 13 hours by selling shares in a wind turbine to 1700 Dutch households in a deal brokered by Windcentrale. Risk-taking, necessary for marketing novel renewable energy products which still need to be tested in large scale, can also be addressed by crowd sourced finance as it taps into a more risk-tolerant segment of lenders or investors.
Accelerated through social media and online communication, crowdfunding is a financial power tool for energy cooperatives.
To realize the ambitions of local sustainable energy plans, ‘community finance’ – which may be regarded as a form of crowdfunding – could be a big part of the solution. Given the speed with which both crowdfunding and the energy cooperative sector are
expanding (the number of European energy grew cooperatives grew from 1200 last
year to some 2000 this year), community-financed cooperatives could seriously
shake up the energy market in many countries.
Energy cooperatives have perhaps been most successful so far in Denmark. According to Dirk Vansintjan of Belgian renewable energy cooperative Ecopower, ‘For
Danes, it is the natural way of organizing themselves. Since the Middle Ages
they’ve been doing it, and today most renewable projects in the country are
organized this way.’
Germany too is a leader in the field of community energy, with 65 % of its renewable energy capacity community-owned. There are over 600 energy cooperatives in Germany, the number having increased tenfold in the period from 2000-2010.
Despite a long tradition of cooperatives, Spain just gained its first in the energy sector – Som Energia. By June 2013, this cooperative had 8000 members and had invested more
than €3 million in renewable energy production projects – an impressive result
in an acutely recession-struck country in less than two years.
In the UK, where rising household energy prices are hitting the headlines and energy is set to become a major election issue in May 2015, local energy cooperatives are seen as a way to combat the monopoly of the ‘Big Six’ – Britain’s biggest energy suppliers. The movement is supported by some local authorities, such as Cornwall County Council which has made a €1.2 million revolving loan fund available to help community groups build local renewable energy installations. Also at the forefront of this work is Cornish energy charity Community Energy Plus. Energy advisor Neil Farrington says, ‘We are currently working with fifteen community energy cooperatives across Cornwall with more emerging every few weeks.’
In Croatia, the UNDP (United Nations Development Programme) plans to develop a crowdfunding platform for community energy projects and has issued a call for cooperatives to submit project proposals. According to Mak Đukan and Robert Pašičko of the UNDP Environmental Governance program in Croatia, design of the UNDP crowdfunding platform will incorporate the best elements of crowdfunding platforms specifically designed to support renewable energy projects, such as Solar Schools, Abundance Generation, Sun Funder and Solar Mosaic.
If matched or leveraged with other funding, community finance could become a much bigger player in Europe’s energy transition. And it just so happens that between now and next summer, there is a brief window of opportunity to access a big pot of money – upwards of €20 billion in fact. This is the ballpark figure of what will be allocated to investments in energy efficiency and renewable energy in the next funding period of the EU Cohesion Funds for 2014-2020.
Cohesion funds are part of the EU budget aimed at reducing regional disparities in terms of income, wealth and opportunities. How the money is spent at national level is determined by negotiation between the Commission and the national Managing Authority. This is made formal through Partnership Agreements (essentially overarching national strategies, setting out plans for use of the funds) and Operational Programmes (setting out a region’s priorities for delivering the funds). The point is, the negotiation process is taking place now, and for local sustainable energy leaders to have a shot at the money, they need to be aware of and influencing this process.
Whether or not this can happen depends on a number of factors – for example how transparent or opaque the national managing authority is in public consultation, the degree of support and involvement from local authorities and perhaps most importantly, the willingness and capacity of localized initiatives to get to grips with the maze of bureaucracy involved. But given that many energy cooperatives have tackled administrative and legal complexity in gaining grid access, they might just be able to handle this.
Earlier this month representatives from DG Regio (The European Commission’s Directorate-General for Regional Policy) and associations of local authorities discussed the potential for community sustainable energy projects to access cohesion funding. It was concluded that although no precedents exist, there are no legal barriers for community finance to provide the private finance element needed to leverage the EU Cohesion funds.
To be first in this would be some achievement – and for now, the door is open. For example, community led local development is one of the new aspects of cohesion policy that could support voluntary and community organisations, and local authorities among others. Crucially, community led local development (CLLD) must be included in the – now in draft form – national Partnership Agreements. Unless the box is ticked for CLLD, community based crowdfunded initiatives and other third sector enterprises (like renewable energy cooperatives) cannot get access to the big money available through cohesion funding. The devil is in the details – but with billions of euro on the table, there’s a lot to play for. It will be 2021 by the time the next negotiation period rolls around. What will the energy landscape look like then?
CEO Peter Terium of RWE – one of Europe’s largest utilities – stated in 2012: ‘Our core markets are changing remarkably fast. Almost no other industry is currently undergoing such dynamic change as the energy sector…The success of this transformation of the
energy industry will be decided at the local level.’
Can the upstarts join forces with the bureaucrats? If the local can get organized quickly enough, distributed energy could become a game-changer faster than we think.
Read more:ManagEnergy Team