Financing community energy case studies: Green Energy Mull

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 second of 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

Green Energy Mull (GEM) is a Community Benefit Company (BenCom) that owns and operates Garmony Hydro; a 400 kW run-of-the-river hydro scheme on the island of Mull, off the west coast of Scotland.

The “overriding” purpose of GEM is the creation of a revenue stream for investment in “long term transformational sustainable change” for the islands of Mull, Iona and smaller neighbouring islands. Making a positive contribution to the environment is an important albeit secondary objective.

GEM drew down over £1.5m of finance to cover its capital costs, which included a combination of government and commercial loans, as well as community shares. This finance was largely repaid via revenue derived from the government’s Feed in Tariff (FiT) but also from sales of its hydroelectricity to an energy supplier. Surplus revenue of approximately £35,000 was channelled into its community benefit fund in 2018, to fund worthy causes around the local islands.

Key lessons

• Government subsidy is the cornerstone to securing both community and private finance. By providing a substantial long-term guaranteed revenue stream, the FiT allowed GEM to raise community investment and further investment from commercial and state-backed lenders. Even with the FiT in place, sourcing commercial finance was challenging. In its absence, it is unlikely that commercial lenders will lend.
• The ability to raise community finance is dependent on the affluence and population density of a locality. Whilst it was still able to raise a significant sum of finance from the local community, it could not raise all the finance it needed, meaning the organisation was forced to access more expensive loan finance from outside the community.
• Communities present important test beds for innovation, but direct long-term benefits may not be forthcoming. In its role as a trusted local organisation, GEM demonstrated an important role for community energy in facilitating innovation, but the extent to which it has enjoyed a long-term benefit from this experimentation is questionable.
• Partnerships with public landowners are critical to project delivery. Forestry and Land Scotland made land available for use by GEM, to site their hydro scheme. Without this, the project could not have taken place.