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Community Energy England: Community energy sector undergoing ‘radical and rapid’ change

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State of the Sector 2020 report notes that the UK now boasts more than 260MW of community-owned energy capacity and has the potential to power 2.2 million homes by 2030 and support nearly 9,000 jobs

2020 will prove a “pivotal year” for the energy sector as community energy groups diversify and test new business models in response to the coronavirus crisis and a tougher policy environment.

That is the headline conclusion from Community Energy England’s(CEE) annual State of the Sector report, published today, which paints a picture of a community energy sector undergoing “radical and rapid change” due to the closure of the government’s Feed-In-Tariff (FiT) on 1 April this year and the ongoing impact of the coronavirus pandemic.

The update confirms that at the close of 2019, the total community-owned energy capacity in England, Wales and Northern Ireland reached 193.9MW of capacity, of which 155.4MW is solar and 33.6MW is wind. Total UK community-owned capacity increased to 264.9MW.

Solar projects dominated the community-owned electricity sector in England, Wales and Northern Ireland in 2019, accounting for 14MW of a total of new 15.4MW of installations. Wind projects accounted for a slimmer 1.2MW tranche of installations, while hydroelectricity made up the rest. Meanwhile, community organisations in the UK installed 2.1MW of heat generation capacity and 547kWh of battery storage, while delivering 102 energy efficiency projects.

Last year saw a surge of  community-owned electricity installations compared to the year before, an increase the report authors suggest was likely prompted by the imminent closure of the government’s FiT subsidy scheme.

The end of the FiT scheme will dramatically alter the support landscape for community electricity projects. Some 97 per cent of community electricity projects in 2019 were supported by the now-ended subsidy scheme.

In today’s report, CEE argues that the Smart Export Guarantee, a policy introduced by the government last January which asks suppliers to offer a payment tariff to small-scale generators, offers only a “limited form of replacement” for the more generous FiT scheme.

The government maintained that the falling cost of renewables justified an end to the popular FiT scheme, which helped drive renewables installations but was funded through a levy on energy bills. Ministers have predicted that lower renewables costs means projects should be able to be deployed without subsidy support.

However, today’s report warns that while renewables costs have fallen significantly, the financial case for many small-scale renewable projects will be “drastically diminished” throughout 2020 and 2021.

Looking ahead, the CEE said the community energy sector will need to identify and develop new business models, ownership schemes, and technologies in order to thrive in the new post-subsidy world.

“With the energy system in a critical stage of transition towards a more decentralised, distributed and digitised system, as well as wholesale changes to the policy support landscape, 2020 will be a pivotal year for the entire energy sector,” the report notes. “For community energy, electricity generation projects are expected to become more financially marginal and difficult to deliver, with a shift towards new models integrating local energy generation with demand management services to achieve project viability.”

The group forecasts that there could be a greater uptake in community shares over debt finance as communities seek to make increasingly marginal projects work. And existing organisations are likely to diversify their approach by embracing energy demand reduction projects and investigating whether low carbon heating, smart grid, and transport projects could be undertaken alongside renewables installations.

The report argues that knowledge sharing and introducing more effective and standardised methods of quantifying and explaining the wider social and environmental value community energy projects can bring could also play a role in catalysing the sector in the years to come.

The report also notes that the community energy sector will likely see fewer projects developed this year due to the impact of Covid-19.

However, it argued that the sector’s response to the crisis has demonstrated the vital role community organisations play in providing local services and fostering community cohesion. Community energy projects across the country have raised hundreds of thousands of pounds between them to support pandemic response initiatives during the crisis.

As such, the sector remains upbeat about the role it could play in the clean energy transition in the coming decade.

In a new ‘vision’ document published alongside the state of the market report, CEE predicts that with the right support and policy mechanisms community energy could be powering the equivalent of 2.2 million homes by 2030, contributing 5,270MW to the energy system, supporting 8,700 jobs, saving 2.5 million tonnes of CO2 emissions, and adding over £1.8bn to the economy each year.

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