Brighton & Hove Energy Services Co-op (BHESCo) CEN0006 Written evidence from Brighton & Hove Energy Services Co- operative (BHESCo)

Introduction: I am the founder and CEO of BHESCo, a community energy services co-operative that facilitates the transition from fossil fuels in the energy supply by removing the economic and technical barriers to the uptake of local, renewable energy and energy efficiency systems by consumers. Our organisation has suffered greatly from changing government policy on clean energy and energy efficiency. I greatly appreciate this opportunity to contribute to this consultation.

Summary of arguments:

 Community Energy (CE) provides the means to achieving a fair and equitable transition to net zero, by working with people in their communities to deliver efficient and cost effective carbon reduction, harnessing local resources to develop projects that may otherwise not happen because of the many barriers that presently exist in the market.  The UK has a track record of leading policy therefore, must include community (local) energy in its Nationally Determined Contributions (NDC)s for COP26  CE needs more, targeted support from government to become more effective. The investment in CE more than pays off in terms of job creation, economic stimulus and energy security. Just retrofitting existing housing stock, representing 80% of the housing market, to a level of EPC C by 2030 will create more than 250,000 jobs1 Because CE is not for profit, there is not a level playing field in the market for CE groups to bid for larger infrastructural projects, although in many cases, the group may have the expertise in house to deliver a more economically advantageous outcome for the consumer. For example, where local authorities issue a tender for heat networks, the cost of preparing the tender will be included in the quote for most commercial companies. CE would prepare a lower quote, to pass on the benefit to the consumer, whereas the consumer/taxpayer will be made to bear the capital costs that are quoted by most large consultancies/ contractors.  CE is a good investment for government yielding high social and economic returns in meeting policy aims: achieving Net Zero and 68% carbon reductions by 2030; providing green skills and jobs as part of the Green Recovery by acting as a referral intermediary for local contractors; levelling up people and places by sharing skills and knowledge transfers, as well as high social returns on investment resulting in physical and mental health and social cost savings, local multiplier returns, increased economic activity as money is saved on energy bills, reduced energy system reinforcement costs as more local generation and flexibility is created, lowing the cost of grid reinforcement.

Call for evidence questions

1. What contribution could community energy (through renewable power and/or energy efficiency) make to achieving net-zero by 2050 in the energy sector and its potential role in decarbonising the heat and transport sectors?

1 RetrofitWorks Industry support document December 2019 Brighton & Hove Energy Services Co-op (BHESCo) CEN0006

1.1.CE is essential to achieving net zero. Please refer to bit.ly/CEEbriefing

1.2.CE is about involving people and communities as the CCC states essential to achieving net zero. A 2050 target is too late to avert catastrophic climate change. The Journal Nature Climate Change concluded in January 2021 that 2.3 degree warming may already be inevitable2.

1.3.CE solves many problems that originate from inequality by delivering multiple social and community benefits. At BHESCo, we’ve supported thousands of vulnerable people to stay warmer in winter by installing simple draught proofing measures and providing independent energy supplier switching advice. Where our local authority provides little or no support, we have become to go to place for people who need help, including debt relief by working with local partner organisations in the voluntary sector. By outsourcing this service to BHESCo, the LA achieves a high social investment return, average about £4.50 of value generation for each £1 invested.

1.4.BHESCo delivers both carbon savings and economic savings to our customers by helping them install, for no upfront cost, energy efficiency and renewable energy systems in their homes and businesses. In the 6 years that we have been trading, we’ve developed over 50 projects, installed 750kW of generation capacity, of which 128kW is renewable heat. Our energy efficiency projects save customers 92,340kWh/year and £18,000/year for their businesses. This is funded by local investors, who become members of our co-operative, earning a 5% annual return by investing in local, clean energy projects. It is a virtuous, socially oriented business model that we are working very hard to scale up and to replicate. We have 8 paid members of staff, 6 of whom started out as volunteers wanting to make a difference.

1.5. BHESCo has been severely impacted by the inconsistency and short term policies of national government. The end of the Feed in Tariff stopped the development of 500kW of new solar generation plant in our region each year, most of which was for the benefit of schools and community centres. The southeast experiences excellent solar irradiation, therefore, the cost of solar arrays has levelized to the cost of fossil fuel based energy generation equipment. The termination of the Non Domestic RHI will destroy our ‘heat as a service’ business model for decarbonisation of heat in rural communities. We expected to work with 10 rural communities in the next five years, with the average capital investment in each community estimated at £3million. Carbon emission reductions were projected to be about 1,000 tonnes/year. BHESCo started in 2013, when the Green Deal was in full swing. Because of the novelty of our social enterprise business model, we needed to build a track record of successful deployment quickly, to gain the trust of people in communities. As with all new business concepts, it has taken us five years to establish financial sustainability and brand recognition. Policy changes create uncertainty in the consumer. Consumers decisions will make or break the uptake of heat pumps, because the renewable heat is delivered at lower temperatures, which confuses the consumer and because the cost of heat pumps is 4x higher than a gas boiler. Although heat pump efficiencies allow its operating costs to approximate the operating costs of a gas boiler, it is extremely challenging to overcome these barriers for the consumer without a tax on all fossil fuels used for heating. If the government would impose a tax on gas and heating oil, it would levelise the playing field, bring in more revenue to the Treasury to support the subsidy on the transition to heat pumps.

1.6. Now that government is supporting onshore wind, because, according to Bloomberg energy, it is the cheapest form of power generation, there must be corresponding support for community energy. Many communities want wind power to generate electricity locally, as they understand that

2 Paying for emissions we've already released (phys.org) Brighton & Hove Energy Services Co-op (BHESCo) CEN0006 local energy is cheaper and more accessible, however, without support from government, these projects will never get developed because of the excessive cost. One cannot underestimate the cost of onshore windfarm development, the challenges of local planning, wind monitoring, technological and economic development. Community energy groups are good at sharing resources for mutual benefit, developing projects at lower cost, which creates more funding available for community benefit when the project is made operational. Compare this to a commercial windfarm by Eon or Scottish Power, where the profits generated for free by the wind are transferred to shareholders in Germany or Spain. Community energy keeps profits for the benefit of the local community, investing instead in improving the fabric of society, combatting issues of isolation, poverty and mental health.

1.7.To deliver on the sector’s vision of 12-20 fold growth, we will need a consistent, reliable and long term subsidy regime to help us to scale up the number of heat networks that we will manage using our ‘heat as a service’ model. We will need a clear commitment to level up the cost of renewable heat compared to heating from fossil fuels.

2. How well are the financial and technical needs of setting up and running community energy projects met by existing Government support mechanisms? What changes would be needed to the access or nature of support to develop community energy further?

2.1. In fairness, CE should be treated the same way as any commercial business. When an entrepreneur starts a business, they must have a bankable business plan to demonstrate that their idea is viable. The difference is that CE adds social value, so should be supported by government, much like an angel investor would support a commercial business. Local Authorities are delivering less social care, CE provides an opportunity to provide social care through a social enterprise business model.

2.2. Government policy supports big business at the expense of social enterprise. The consistent, damaging policies of government over the past 7 years have dealt blow after blow to our business, making it more difficult for us to succeed. For example, terminating the Urban Community Energy Fund eliminated our ability to work with the local authority to roll out heat networks that were identified as viable in the city’s energy study.3 Our UCEF project was to develop an Anaerobic Digestion plant for the region as there is a gaping hole in the southeast. We still, despite noises around support, have not received any support from our LA to identify land for this project, despite overwhelming support from the local community and the inclusion of our project in the local food waste strategy.4

2.3.BHESCo was established to minimise dependency on government grants to provide a clean, affordable energy service to communities. Our business model addresses a gap in the energy market to provide the energy services lacking from the energy industry to local communities. We are still dependent on government funding to run services that help alleviate the impacts of fuel poverty, however, our aim is to establish sufficient scale, so that we no longer require subsidies to provide this community service.

2.4. We have developed 6 projects financed by the Rural Community Energy Fund (RCEF). All funding different types of customers delivering social value with varying technological solutions. RCEF has been invaluable to helping us work out the economics and delivery of renewable energy and efficiency technologies, while engaging with the local community to understand their concerns and

3 Brighton & Hove Energy Study, AECOM December 2012 4 Food Strategy – Brighton and Hove Food Partnership (bhfood.org.uk) Brighton & Hove Energy Services Co-op (BHESCo) CEN0006 to effect the appropriate change to their energy supply while investing in a ‘fabric first’ approach to the installation of heat pumps. The Smart Export Guarantee is another story. Although I do feel that it is fit for purpose, because it is a new process, it is tangled in bureaucratic red tape that is preventing it from being a comprehensive benefit for generators of renewable electricity.

2.5. Contracts for Difference (CfD) is a good example of how government policy supports big business. We suggest the creation of an aggregator for CE groups that would create the scale that is required to capture this benefit. I understand the attraction of larger deals, but this unfairly benefits large corporations that are providing less social value, rewarding them with larger profits. Our team is on the phone daily to customer’s energy suppliers, working out billing errors, helping them defend their rights, as we have countless customers who suffer great anxiety about speaking to their energy supplier about the debt that they have accumulated on their account, or about billing errors and problems with energy meters. The most extreme being single mothers with small children, who don’t have the money to top up the prepayment meter, while mould is growing on the walls and ceiling from the moist, cold air in the home. This year, BHESCo has helped more than 475 people in Brighton and Hove stay warm this winter during the pandemic.

2.6. Access to finance is an issue for start up groups. No bank or traditional financial institution will lend to them. Banks have also established prohibitive lending conditions that are inhibiting economic growth. Lending programmes delivering financial support to CE entrepreneurs under conditions that are affordable for the taxpayer would be ideal. BHESCo has paid 5% interest to its member shareholders every year. We have a £300,000 accumulated deficit from our operations that we hope to regain as we find the biting point between not for profit and making sufficient profit. In the beginning, we ran projects at low margins of 3% thinking that we were a not for profit and the 3% is a good buffer. That has been increased to 8%, as we experience over time the cost of doing business. All new shareholders, and we have a waiting list of 40 people, will receive a 3% annual return on their investment.

3. What are the main barriers to development of new community energy schemes under the current regulatory regime? Do lack of connection or high access charges to the electricity grid pose an obstacle? How could these be overcome?

3.1 Low voltage network reinforcement charges from the DNO will render our heat network schemes unviable. Only by accepting a project IRR of 3%, we are able to roll out these schemes. With RCEF stage 2 funding, we have developed the first tranche of a long road to decarbonisation for the village of Firle in East Sussex5. The 3% IRR is the most we can achieve in order to offer a heat price that, combined with the rise in the customers electricity bill to power the heat pump, must be the equivalent of their oil prices in December 2019 to get the customer onboard. Some environmentally focused customers may accept a small premium of 10%, most don’t want to pay any more for their clean heating system, even when we are removing a stinky oil boiler, they are adamant about not paying more. As the developer, the CE group must bear the network reinforcement charge to connect the heat pumps, along with the heat network infrastructure CAPEX. To ask the customer to invest in reinforcing the asset (low voltage network) owned by a highly profitable DNO is absurd and a sign that the system is broken. Especially since the DNO has been milking the profits from this asset for the past 60 years with little or no infrastructural investment.

With consideration given to the cost of the ‘fabric first’ approach, which is the only way of delivering affordable heat to the consumer, the costs of decarbonising the existing built environment is huge.

5 www.bhesco.co.uk/firle Brighton & Hove Energy Services Co-op (BHESCo) CEN0006

BHESCo must apply for an extension to the NonDomestic RHI (NDRHI) to secure the subsidy that will allow this project to take place. The project is to replace the oil boilers in these 20th century homes with heat pumps. The energy efficiency improvement costs are higher than the heat pump installation. The original scale of the project, being 20 properties and a school, was reduced to 7, so the heat network was no longer economically viable. This is because the landlord can easily receive an exemption of the MEES standard of EPC E or better to let their properties.

3.1. OFGEM has been really horrible and is actually very broken. For example, we installed a ground source heat pump at a school to take them off a 20,000 liter a year oil habit. We misunderstood OFGEM’s requirement for planning permission, which is based on the size of the heat pump. The school’s heat pump was 87kW. OFGEM has made us ask for retrospective planning permission, post installation. We have been dealing with Wealden District Council to process our planning application which normally takes about 3 months. At the end of this month, the NDRHI closes. Not only are we not being paid for the renewable heat that was generated by our heat pump all winter, we also had to file for an extension for the RHI. Naturally, this creates tremendous stress with our staff, our management team and myself, as well as financial losses due to bureaucracy to our co-op. We are absolutely dependant on the RHI in order not to lose a fortune on this project.

3.2 The other example is that a CE group must become a member of RECC in order to get the assignment of rights to the DRHI. The annual membership costs £520. So, if we were to join RECC, the only benefit that we would obtain is ability to apply for the assignment of rights. We would have to get more heat pumps installed in a year to reasonably fund our membership fee without having to increase our heat price to the customer. It is fascinating how bureaucracy has been going on in government for centuries, causing extensive commercial barriers. We really don’t learn from history at all, which is a very sad reflection on humanity.

Collectively, there are a lot of OFGEM stories to substantiate a conclusion that the organisation is broken, causing significant harm.

4. What role should Ofgem play in supporting community energy and resolving regulatory issues, such as decentralisation and incorporating community energy projects into smart electricity grids?

4.1 OFGEM should do its job to regulate the energy market to ensure that the nation’s energy goals are being met within their regulatory framework. It really isn’t spending taxpayers’ money efficiently. It is more of a burden than a benefit needing a comprehensive overall, like a complete operational audit to streamline its regulatory guidelines, to set new, reasonable measurements for compliance and to stop terrorising energy groups who are just trying to do the right thing for communities while undertaking activities to advance action towards achieving Net Zero.

4.2 OFGEM is not in the state right now to do anything correctly without a restructuring of how it works. I don’t have any confidence in the organisation how it operates, on any front, being consumer protection, keeping prices down, enforcing RIIO-1 targets, reducing consumer complaints about the energy suppliers, their administration of the FIT programme and especially as a facilitator of the national goals of Net Zero considering that our only pleasant interaction with OFGEM has been when they pay our RHI amount.

5. What role can local authorities play in developing community energy, for example in planning, decision making and the availability of sites for energy generation?

5.1 Local Authorities (LAs) are key to decarbonising the UK as they control much of the infrastructure, planning new developments and administering the services that affect our lives. Brighton & Hove Energy Services Co-op (BHESCo) CEN0006

Many, like ours in Brighton and Hove, have set ambitious Climate Emergency Plans the majority aiming for net zero by 2030.

5.2 However many LAs have very little idea of how to achieve Net Zero. And so they shouldn’t. It isn’t their core business. Their core business is the provision of social care and upholding the civil structure. Not energy. There are many examples of failed energy projects at Councils where millions of taxpayers money was wasted on schemes. Cambridgeshire is the latest, where they will be spending millions to subsidise the Swaffham Prior scheme where the heat pump network will require massive subsidy because of the way that it was designed to accommodate the thermal efficiency of existing properties. Other failed plans are at Portsmouth Energy Services (Victory Energy), Peterborough (Blue Sky ESCo) and West Sussex (Your Energy Sussex). Brighton and Hove City Council (BHCC) lost millions when West Sussex County Council became a green deal provider. I am sure there are hundreds of these stories across the country.

5.3 As government is pursuing making many inherently inefficient, slow moving, LAs responsible for rolling out the national Net Zero plan, new policy must ensure that LAs are obliged to work in partnership with their local CE groups, or another independent group of qualified interested parties, for example, of MCS accredited installers, or other professional bodies engaging their expertise to roll out their plans, if there is no CE group. It could even be one contractor, procured by the LA, who takes over the responsibility for rolling out programmes. Ideally, the LA would make its low cost funding available at the targeted recipient’s cost of capital (WACC), building in passive income for the LA. For example, BHCC would borrow money from the infrastructural fund at the low rate. They would lend to BHESCo at borrowing rate + 2.5 points. We go out into the community and turn that investment into projects, working in association with the BHCC’s energy, water and sustainability teams. At BHCC, they have been making plans for 13 years on what to do in the city. BHCC declared a climate emergency in 2018 and still has not released their Net Zero plan. We have not been consulted on the energy section of the net zero plan by BHCC, despite our knowledge and reputation.

5.4 BHESCo has an approach to market that starts with an energy survey. We have retrofit co- ordinators, commercial and domestic energy assessors on staff. We can provide energy/carbon emission reduction advice, renewable generation and most importantly engage consumers who will ultimately be making the decision to invest in their lowering the carbon emissions of their properties. BHCC is focusing on and has the most influence on their own property. This is the minority of the property in the city. After 8 years of trying to engage with BHCC unsuccessfully to take action on climate change, we have just got on with it, while they keep rolling over unspent sustainability budgets, actions and promises.

5.5 Collaboration is the key to success, however, it is not the LA’s culture to collaborate. They have a set pattern of putting projects out for tender. Although BHESCo has been doing BHCC fuel poverty work for years, having established a strong reputation in the community, we are still not consulted on major issues, the LA appears to prefer to pay expensive consultants to ask us questions and provide the answers back to the LA.

5.6 LAs must offer sites, building assets and permissions for CE development, with supportive policy including the Local Plan. They can offer practical support: providing office space, staffing resources, assistance with planning, publicity, connections with schools, collaborate to develop finance mechanisms, like co-investing in projects, or providing the CE group the rights to develop a project. Make introductions to the suppliers that they would like to work with to encourage partnership and Brighton & Hove Energy Services Co-op (BHESCo) CEN0006 collaboration and commission CE (rather than remote consultants or contractors) to do relevant work.

5.7 LAs must work with CE to develop ambitious Local Plans with a key role identified for community renewable energy in new development and retrofit and which designate all suitable areas as ‘suitable for wind generation’ in the Local Plan to enable onshore wind development. In Brighton and Hove, the minimum amount of solar PV panels are included on new housing developments, because they meet the planning requirement, not because the LA is optimising clean generation potential on new build. BHESCo works with housing co-operatives to create long term, clean affordable energy. Figure 1 below demonstrates the difference between new developments by the LA (left) and our new low carbon housing development (right). The LA social housing provision is a pitiful gesture at providing long term clean affordable electricity in their social housing.

Figure 1

Most important are practical measures of support. Strategies and inclusion in Local Plans is important to educate wider government to the importance of community energy and make sure it continues to be included in policy.

6. How can policy ensure that community energy projects maximise their positive impacts (social, environmental, economic) on the local communities?

6.1 BHESCo works very hard to retrofit properties. Time and again we face commercial property owners on industrial estates that don’t see the value of solar PV on their roofs because it benefits their tenants and energy provision is not their core business. Many landlords don’t want to invest in improving the thermal efficiency of their properties. The government must eliminate the exemption for MEES compliance. This is the essential stick to ensure that property owners make the investment required to reduce heat losses, to combat fuel poverty. Our experience is that landlords are not investing in properties with EPCs of less than E because they can easily apply for an exemption. To preserve our cultural heritage in properties, while ensuring that everyone has the right to heating and to be comfortable in their homes, MEES must be accelerated to level D and C quicker and must be enforced. Sadly, the exemption is creating inaction, paralysing CE to make a difference.

6.2 CE must be explicitly valued and supported in the Net Zero Strategy (and Net Zero Delivery Framework recommended by the CCC) and in the Comprehensive Spending review with some of the measures set out below. An audit should be undertaken of the Energy strategy to determine value for money of the current plan for the taxpayer. There are measures that are vital to the success of achieving Net Zero that are not included in the strategy, including investment in the distribution network. The current strategy supports big business and large industry and is certain to not deliver a consistent, affordable electricity and heat prices over the next 20 years. One example is the strike Brighton & Hove Energy Services Co-op (BHESCo) CEN0006 price for nuclear power in CfD. The other is that Carbon Capture and Storage is an additional technology, it only adds cost, it doesn’t generate any value to the taxpayer other than financing a ‘business as usual’ approach. A radical change must be made to our energy infrastructure and government must get behind and push this change. Government policy is defined by lobbyists who have the loudest voice. Government together with Ofgem need to identify and fully resource an approach to ‘Local Area Energy Planning’ that sets out a core role for community energy groups.

6.3 Government should reinstate the Urban Community Energy Fund to complement the Rural Community Energy Fund which must also be extended beyond 2022, (or a national Community Energy Fund after the RCEF ends in 2022).

6.4 Ensure that business rates incentivise (rather than punish - as is currently the case) businesses to invest in local, low-carbon renewable generation and that they support community energy. Applying business rates to solar PV is excessively punitive and is a major barrier to uptake of solar PV on rooftops, which is the constructive use of space, as opposed to using land that may otherwise be employed while incentivising large ground mounted arrays, which is currently the policy.

6.5 VAT on ‘energy saving measures’, including heat pumps, solar panels and batteries, should be reduced to zero.

6.6. A Community Feed-in Tariff (just introduced in the Netherlands at 14.6c/kWh) to offer long-term certainty.

6.7 A Community Smart Export Guarantee with a floor-price for exported community energy and a dynamic tariff to enable projects to take advantage of higher prices at times of peak demand, over a reasonably long term. (The Smart Export Guarantee is too short term to assist in making an investment case for a generation project.) This will offer long-term revenue support to community energy and is simpler.

6.8 As mentioned in section 2.5, an aggregation of CE projects should be combined to present a Community Energy CfD, established as a separate market participant. The scheme should be designed with the participation of the sector. The CfD scheme should be opened to sub 5MW projects developed by CE groups by consolidating their projects.

6.9 A Community Renewable Heat Incentive (RHI) must be continued with a visionary, long term, politically impenetrable lifespan.

6.10 Policy that requires Local Authorities to develop collaborative projects and engage CE groups to assist them with ‘Local Area Energy Planning’ instead of their go to position of hiring expensive consultants. Accountability and responsibility guidelines should be set for LA’s for how they spend taxpayers money, measuring their effectiveness in managing budgets and implementing national policy in achieving their Net Zero targets.

6.11 Ensure that the energy transition is regulated to prioritise decarbonisation as soon as possible and to maximise social benefit, by building this into Ofgem official guidelines as part of the organisation’s restructuring exercise.

6.12 Ensure that new local energy conservation, efficiency, DSR and flexibility markets are created that are accessible for new entrants and in particular for community energy groups. This is especially important in areas with grid constraints.

6.13 Study and learn from practice in the Netherlands where government has developed a community Feed-in Tariff at 14.6c/KWh. They have developed a joint approach for community Brighton & Hove Energy Services Co-op (BHESCo) CEN0006 energy - all onshore wind and solar developments have to offer up to 50% investment opportunity for local communities. Investments are being managed through a structure led by coops and not by bankers. Showcase exemplars of successful community energy systems from across the UK’s urban and rural communities; highlighting the elements of their operations that makes them so successful.

7. What are exemplars of successful community energy systems from across the UK’s urban and rural communities; what makes them so successful?

BHESCo’s business model is founded on a virtuous circle. We attract funding from primarily local investors to develop projects that reduce carbon emissions. We offer a number of finance arrangements for the customer that are bespoke for each one’s preferences. The business model was constructed to address market gaps and failures. Other successful CE groups have arisen from collaborations with LAs, for example, Bath and West Community Energy, Plymouth Community Energy, Bristol Energy and Low Carbon Oxford, all have very strong ties with their LAs which have allowed them to develop projects for community benefit. Repower London is successful on the backs of the relationships that the founders established with other residents in their communities. CE will be successful through leadership within CE groups, through knowledge transfer and co- operation between individuals and groups9. The most affordable way of transitioning to Net Zero in the energy supply is by driving a ‘people powered’ movement, tapping into the existing skills in communities, bringing together the electricians, carpenters, contractors, architects, and engineers to glean their ideas, their knowledge of the local landscape, for the benefit of all who live and work in those communities.

March 2021