What has BHESCo been doing to accelerate the clean energy transition in rural communities?
Since 2018, BHESCo have been working with a rural community in East Sussex to replace their oil powered heating system with efficient, low-carbon heat pumps in a way that is affordable to all residents.
To achieve this goal of a just transition, BHESCo are employing a ‘fabric-first’ approach, improving the energy efficiency of each property before installing the heat pumps. This is so that the heat pumps use less electricity lowering the cost of providing a comfortable level of heating for each property.
The scope of Phase 1 of the project included the improvement of 22 properties in the village, including a 19th century school building, employing a two-step approach:
– First, install energy efficiency improvements
– Second, install the heat pumps
Fund raising mechanisms and community ownership
The estimated cost for the project is £860,000. The heat network infrastructure is estimated to have a working life of 100 years, building in the flexibility to accommodate future efficient heating technologies. The funding will be raised via a community share offer, by a special purpose energy services social enterprise, paying investors a target interest rate of 3%.
By raising upfront costs in this way, we present an opportunity for the community to become part-owners of the energy supply company and the heat delivery infrastructure from which they will benefit. They will also be directly financing the clean energy transition while benefiting financially from it.
A recent Government report has also shown that direct public participation in local low-carbon initiatives has the potential to accelerate the delivery of wider net zero policies.
Project management costs compared to private sector
Being ‘not-for-profit’ by their nature, community energy groups can operate at much lower financial margins compared to the private sector. New clean energy projects can be delivered more cost-effectively as there is no obligation to earn profits for private shareholders.
This means that the cost of heating to customers can be significantly reduced. Consider that a commercial company will seek operating margins of 20% for their shareholders, where a social enterprise can deliver projects at margins less than half this rate.
Raising the capital costs for a project through a community ownership model (at a cost of 3% annual interest payments) is considerably more cost-efficient than through commercial borrowing (typically 8-10%).
Furthermore, community energy groups are willing to work in areas (such as energy efficiency) that are not highly profitable. This is due to the fact that, as not for profit businesses, success for community energy groups is measured though a socio-environmental lens, as opposed to strictly fiscal incentives.
Local job creation potential
Community energy projects have the potential for wide scale job creation within the local project area, in addition to stimulating wider supply chains.
By our estimates, BHESCo’s proposed heat network in Firle Village will require 296 weeks of labour, equating to the full-time employment of 6 persons during the construction period. This can be multiplied across the 2,500 villages currently off the gas grid in England.
Lower heat and power prices for consumers
As a not-for profit sector, community energy can deliver heat and energy prices on behalf of project consumers at a considerably lower cost than would be acceptable for profit-making private corporations.
For example, to ensure that its customers, like schools and SMEs, receive the benefit from their decision to reduce their carbon emissions, the typical electricity price that BHESCo charges for customers at solar PV sites is 11p/kWh.
Compare this to one of the ‘Big Six’ energy companies charges its customers 19.68p/kWh (as of 21 July 2021). According to its Interim Financial Results for the 6 months up to 30th September 2020, they made a 35% profit on their operations, allowing for a significant dividend to their shareholders.
This demonstrates that, even when their customers are experiencing the worst pandemic in 100 years, private energy suppliers focus their attention on delivering returns to their shareholders instead of supporting their customers by providing access to clean, affordable energy.
This in turn leads us to the question of how we incentivise business and the general public to change their perspective and priorities when it comes to tackling the climate crisis.