In early 2008 I came up with what I thought was a fantastically unique idea to develop a community-owned anaerobic digester in North Herefordshire. I thought the idea was so good that I wrote an application to NESTA’s Big Green Challenge for some
funding and duly found out that a nice chap down the road called Jay had
written an almost identical business plan.
And so as Jay and I were introduced, Project LeAD (Leominster’s
Anaerobic Digester) was born.
Three years, and much hard work later, we still do not have
our community-owned AD plant built, but we have learned a great deal along the
way. Thanks to the time given by both our businesses, Low and Behold and
Biologic Design, and the financial and business support provided by Sharenergy
and ReAlliance, we have been able to delve deep into the world of community
ownership and AD.
When we started our project, the impetus was to support the
local economy. The plan has always been
to develop an asset that could deal with the waste from local farms and food
producers, create renewable energy and a financial return that could be used
locally, and a product that would help our farmers become less reliant on
chemical fertilisers. The closed loop
nature of the project made it an ideal candidate for community ownership. At our first public meeting, two years after
the idea was born, over eighty people turned up and without a doubter, all
offered their support and most offered to invest their money.
The project identified a site, conveniently located on the
outskirts of town and secured a potential heat client in the form of the local
swimming pool, which was willing to discuss a long-term contract. The legislative environment was good, with
the introduction of feed-in-tariffs being imminent and the Renewable Heat
Incentive in the pipeline. However the
plant is not yet built and the experience highlights some of the issues for the
development of community-owned assets and of AD.
The first unexpected and interesting issue raised by this
project was around what constitutes a community. For Project LeAD the idea of a community was
geographic: the project would operate for the benefit of a market town and its
surrounding area and in an ideal world, the investors would mainly come from
the county. We gained support from the
Co-operative Enterprise Hub to investigate how to develop a co-operative model
that would reflect this; support that was based on our definition of
community.
However the question was often asked whether it would be
possible to raise the finance in such a limited area. For the 20,000 tonne per annum plant modelled
it was estimated that 50% of the equity, approximately £1million, would be
raised through a community share offer.
If the money could not be raised within a geographic area, but had to
found further afield, would this still be a ‘community’ owned project? If the definition of community were widened
to mean a community of interest, for example, and investors came from all over
the country, would that still be community-ownership? Or does that take a project too far from its
original purpose?
We were confident that with a return to investors of 6-8%
and the tax benefits from the EIS, that the fin ance could be raised locally. In fact, many of the stages of development
that we thought initially would be problematic turned out to be
straightforward. A number of suitable
sites were identified; a local business partnership was established to spread
digestate and relationships built with farmers who would take the material;
food producers and farmers with slurry who were keen to work with us were
introduced and the technological options for our feedstock mix were appropriate
and cost-effective.
The Catch-22 situation arose when it came to getting commitments
in writing. We needed to have feedstock
contracts in place for 75% of the total volume in order to access the
finance. But when it came to sitting
down with identified feedstock suppliers to agree the Heads of Terms, we were unable
to reach agreement. What was the main
reason for the unwillingness of companies to sign a contract? Because we had
not yet built the plant. Yet the plant
could not be built without the finance which could not be accessed without the
feedstock contracts. And so we went
round in circles; the classic Catch-22.
Project LeAD expanded and incorporated, becoming Marches AD
CIC. The expansion brought with it the
Cwm Harry Land Trust who had an existing IVC and food waste collection
service. Partner farmers guaranteed a slurry
baseload, but still we could not reach the magical 75% target.
The problem with an unwillingness to sign contracts came
ironically, with the increased awareness and confidence in the AD market. In 2008 when we spoke to potential partners,
any hesitancy was around the capability of the technology. By 2010/11 this had changed and an
unwillingness to sign a feedstock contract was based on the perception that the
market was changing rapidly and that a better deal could be reached if the
feedstock provider waited. We were told
that because it would take 18 months to build and commission a plant, anyone
signing a contract now could lose out from potential falls in the gate fee that
could happen during that time as more facilities came on-stream. Feedstock providers increasingly asked why
they should commit to anyone when the market was on the cusp of being ‘flooded’
with facilities. So we found ourselves
in the peculiar situation of being stymied by the increased awareness and
promotion of AD as a solution to an organic waste problem.
For communities thinking of owning and developing their own
renewable energy infrastructure, there is a valuable lesson to be learnt from
this experience: feedstock contracts are key.
While skills, expertise, site and technology all have an important part
to play and will be critical in the operation of a plant, the project will not
be able to overcome the Catch-22 of financing without the feedstock
contracts. As the organics processing
market develops and more facilities are built, the problem is likely to become
greater.
The gate fee for food wastes is indeed falling. We shall have to wait and see whether this
knocks some of the fledgling players out of the market as in the short-term
there are likely to be significant pressures on gate fees. However the reality is that policy has been
the key driver of AD, as a response to both the Landfill Directive and the need
for increased renewable energy. The
solar industry has already suffered from unexpected changes to the FIT regime
and the uncertainty over the stability of future funding makes it even harder
to raise finance for infrastructure projects.
Politics has, on the one-hand, blown hot air into the AD industry and
given the perception that the market is about to explode, which in our case
made it difficult to get those critical feedstock contracts. While on the other hand, policy, from FITs to
the Waste Review, is making the investment environment less certain. All of this does not mean a bleak future for
AD or community ownership, but it does make it harder for new entrants to the
market.
Project LeAD is on hold, but not dead. We have become more inventive in our approach
and are now looking at potential joint-ventures. The community is still enthusiastic about
owning an asset and 18th October sees the launch of Leominster
Community Solar, a 50kw PV array on the local sports centre, again developed by
Sharenergy. While the AD may not be
built, the opportunities for other communities to learn from this experience
are great and it is hoped that with our support, a community-owned AD will be
built in the Marches.
Philippa Roberts MCIWM is the Managing Director
of Low and Behold.
Project LeAD and Marches AD
CIC were supported by
WRAP as part of the ReAlliance, The Third Sector Capacity Building
Programme. Two reports were
commissioned, and three-months of staff time were supported, by Sharenergy as
part of a project funded by AWM. Legal
support was provided by Community First, through the Co-operative Enterprise
Hub, an initiative of the Co-operative Group.
More information about the learning from this project can be found on www.lowandbehold.co.uk
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