Financing community energy case studies: Brighton and Hove Energy Services

Commencing in 2016, the Financing Community Energy project provides a comprehensive quantitative and qualitative analysis of the role of finance in the evolution of the UK community energy sector.

This report presents the final of our four case studies of UK community energy organisations, exploring how these organisations have sought to finance their projects against a backdrop of diminishing government support for grassroots sustainable development.

Overview of case study

Established in 2013, Brighton and Hove Energy Services’ (BHESCo) primary focus was to develop both renewable energy and energy efficiency projects, whilst also ensuring people have equal access to energy. BHESCo is rather unlike our other community energy case studies in that it operates very much like an Energy Services Company (ESCo), where they accept some degree of responsibility to provide the energy service that its customers ultimately desire (e.g. lighting, ambient temperature), rather than the straightforward supply of heat or electricity.

A big part of BHESCo’s work is education, providing free advice to almost 2,000 people about how to reduce their energy bills, many of whom are at threat of fuel poverty. It is also responsible for conducting energy performance surveys, as well as installing a wide range of renewable energy (e.g. solar PV) and efficiency (e.g. LED lighting) measures across almost 500 properties. Over 23 of its projects are on community buildings, and BHESCo estimates it is saving these occupants £42,000 per year on their energy bills.

Finally, they also monitor the performance of these measures over time to ensure they deliver the targeted emissions and cost reductions. In effect, it offers a BHESCo describes its offers a ‘turn-key service’, from the initial energy survey, right through to post-installation monitoring. Importantly, BHESCo operates a Pay-As-You-Save model whereby the customer pays nothing upfront, but covers the cost of the measures through the savings they generate, normally over a 10 year period.

Mirroring most of our other cases, BHESCo has relied heavily on community shares. Together these have raised over £500,000 since the first share offer in 2015. Prior to this BHESCo relied on small loans, including from its founder. Unlike our other cases however, BHESCo relies relatively little on price guarantee schemes like the FiT and RHI, which accounted for just 5% of its income in 2018/19. Instead, its income is mainly derived from the Pay-As-You-Save contracts, although many of these are facilitated by government grants that account for about a third of its income.

Key findings

• Energy efficiency and heating services can constitute a core offering of community groups. Unlike many other community organisations, BHESCo has been able to develop a compelling value proposition, centred on delivering affordable comfort and warmth, through a combination of efficiency and generation measures. By employing a Pay-As-You-Save model, it has unlocked a previously untapped revenue stream for communities, which importantly is less reliant on generation subsidies such as the Feed-in-Tariff (FiT). However, we find the model is limited in its ability to assist the fuel poor, who cannot be expected to share any cost savings generated, and tenants of rented properties where landlords are uninterested in investing in energy savings.
• Financing a serviced based model presents uncommon challenges in the community energy sector. Compared with other community energy groups, BHESCo’s investors must consider higher operating costs, on-going capital needs and a more complex offering, based on its business model rather than a singular asset. However, BHESCo has negotiated these challenges deftly and is open to alternative approaches, involving blended finance and working in consortia, as it explores potential larger scale projects.
• The complexity of BHESCo’s business model presents both advantages and disadvantages. On the one hand, its relative complexity makes the venture less dependent on any single technology, customer, revenue stream or subsidy (such as the FiT), versus most other community energy groups. This helps to insulate the organisation from market and policy shocks. On the other hand, the complexity of BHESCo’s business model and the novelty of its proposition mean it has taken time to mature as a venture. For a time, it relied strongly on grants and the commitment of its key founder and CEO.
• The adoption of the bona fide co-operative legal structure stems from both financial and ethical considerations. A co-operative model was adopted largely as a means of raising relatively low cost community shares. This was largely a reaction to a lack of affordable finance being offered to community-led energy efficiency oriented businesses like BHESCo, even from ethical investors. Beyond finance, the co-op model was also selected on ethical grounds. Specifically, the cooperative model’s ‘one shareholder-one vote’ model provides a broader distribution of power versus the ‘one share-one vote’ model employed by companies limited by shares. Furthermore, the absence of an asset lock provides its citizen investors with the option that assets can be liquidated to pay back their investment.