Shared Ownership of Onshore Renewable Energy Developments

Overview

This section sets out:

• Rationale
• Six key principles
• Role and responsibilities
• Key investment risks
• Extending shared ownership to a wider geographic area
• Community capacity

Rationale

The Scottish Government’s Energy Strategy sets out a vision for a flourishing, competitive local and national energy sector, delivering secure affordable, clean energy for Scotland’s households, communities and businesses.

Shared ownership projects support our ambition for increased levels of local ownership where all stakeholders stand to benefit from greater partnership working and other additional benefits, including creating a lasting legacy, building community capacity, and strengthening corporate social responsibility, as outlined in the diagram below.

Key Principles

The Scottish Government would like to see shared ownership projects being considered, explored, and offered as standard on all new renewable energy projects including, repowering and extensions to existing projects. We welcome the progress made since the Good Practice Principles were published in 2015.

The Scottish Government would encourage communities themselves to make a direct approach to a renewable energy business to discuss any potential for shared ownership opportunities. 

Shared ownership projects are based on building successful working relationships, key to that is creating an environment of trust and respect from the start. Shared Ownership should support community development in the broader sense that is why we define Shared Ownership as “any structure involving a community group as a financial partner”, not individuals (within the geographical area of the project) who are in a position to invest. There are likely to be differing views expressed as part of the process, as in all commercial negotiations, but if all parties agree high level principles of engagement then this can prevent misunderstandings and, help manage the expectations of all involved. 

It is important for all sides to be aware that a shared ownership opportunity is not a proxy for community participation in the decision making process. Communities have the right to object to a development on basis of land use, but still participate in discussions about commercial arrangements to be pursued in the event that planning permission is granted. 

In summary, the renewable energy businesses should make it clear to the community that they can consider any shared ownership opportunity, and still take an independent view of the development in planning.

We would encourage all parties to adopt the following six high level principles:

Roles and Responsibilities

At a quick glance, the roles and responsibilities of the community, renewable energy business and local authorities are as follows:

Community 

• Engage constructively with renewable energy businesses.
• Recognise the complexity of energy projects.
• Appoint a lead organisation, which can be a community council or other representative group. 
• Liaise with other communities who have started or completed a shared ownership project.
• Keep local people apprised.
• Utilise the support provided through Local Energy Scotland.
• Engage specialist, independent, professional commercial advice as required.
• Develop a community action plan (dependent on shared ownership model).
• Explore potential funding options, both Local Energy Scotland, and Scottish Enterprise can sign post as necessary.

Renewables Industry

• Establish geographical boundary(ies) and applicable community(ies). 
• Recognise local level capacity.
• Engage in early discussion openly.
• Participate in effective local consultation. 
• Appoint a single, key point of contact.
• Continue discussions post-consultation with community, as the project progresses through planning/consenting process.
• Provision of appropriate level of information at appropriate time to community as the project progresses through planning/consenting process.
• Utilise the support provided through Local Energy Scotland or other bodies, as necessary.

Local Authorities

• Local Authorities should look to support with identification of appropriate communities and relevant local contacts. 
• It would be helpful to publicly provide a local authority contact name for renewable energy businesses to liaise with in the first instance.

Additional points to consider:

We encourage the renewables industry and communities to conduct their business in a friendly but professional manner, and would highlight in particular the following:

• The opportunity to set out the options for potential shared ownership should be raised as early as possible, likely to be the point at which the project is launched publicly.
• However, communities should be aware that much of the relevant detail is unlikely to be available pre-planning or consent. Discussions prior to this may therefore be relatively high-level.
• Each shared ownership project will be different and the renewable energy business should review likely timings and actions with the community. 
• Ensure a note of public meetings is taken and circulate to those in attendance. Where possible, publish on a website in order that the wider community can access.
• Any offer of Shared Ownership should comply with Financial Conduct Authority (FCA) rules. There may be implications for renewable energy businesses in not ensuring this. 
• After consent and ahead of financial close, more robust information on the opportunity should then be available within adequate timescale to enable the community to engage professional advisors, assess the investment offer and approach commercial funders.
• Investment offer to be agreed before financial close (to give comfort to community’s funders that there is an offer on the table). 

Alternatively a community may decide not to invest until the project is completed and has been constructed. 

• However a community, on reviewing professional advice, may decide not to pursue the shared ownership option and should advise the renewable energy business of its decision. 

There is no standard structure/model for shared ownership, it will vary by renewable energy business and community – and new models are also expected to develop in the future. See section 5 for more details.

Irrespective of the structure, the key issue for the renewable energy business and the community is to assess the offer on a commercial basis, and independent commercial advice should be taken before reaching a decision. Part of the decision making process will include: 

• Evidence that return on investment will allow for project debt to be serviced but will also provide a future income stream for the community. Recognition that ownership comes with a level of risk, which can result in losses. 
• Any surplus income will be used by the community to support its local economic and social projects as outlined in its community action plan.

As such, the level/structure of investment will be tailored, and can vary for each project. It should take into account a range of factors, such as:

• The costs involved with establishing the “arrangement”.
• The renewable energy business’ own preference.
• The community’s appetite for risk
• The community’s capacity to support and deliver.
• The ability of the community to raise the necessary finance, and any terms associated with that finance (i.e. cost, security, diligence).

The above issues are explored further in this document.

Key investment risks

While the expectation is that an investment in a renewable energy project will provide a regular income for a community over the lifetime of the project, there are a number of investment risk factors which might result in losses or lower than expected profits. It is essential that a community takes its own independent financial advice and any other relevant professional advice before making any decision to invest.

Key investment risks can vary and factors may include:

• The return from the investment can go up as well as down which will have implications on the community’s ability to service finance raised. In some cases it may be wholly or partially lost.
• There may be social or reputational risk for community organisations when communities have opposing views on the opportunity.
• The investment should not be regarded as a short term venture and the community must be prepared to take a long term view of their investment.
• Renewable energy generation projects can have significant construction risks including, delayed operation and commissioning, and costs escalation during the construction period.
• Changes in economic conditions and legislation can adversely affect investment.
• The community will not have voting rights – therefore, will have no control over the direction or decision about the project. 
• The project may be adversely impacted by unforeseen external events such as fire or floods. 

Extending shared ownership to a wider geographic area

Shared ownership opportunities could be made available to communities geographically further than the immediate project area, particularly where a local community does not have the capacity to take up the offer or where there is strong appetite to co-invest from a wider area or other community interest group. 

The scale of the project might also determine whether to widen out to a larger geographic area or, where the shared ownership package is limited in size, it would be good practice to give priority to the local community first.

The Scottish Government would encourage all options to be explored accepting that this may be different depending on the renewable energy business and should, therefore, not be seen as an obligation on the renewable industry to offer this. 

Community capacity

Support is available through the Scottish Government’s CARES programme, delivered by Local Energy Scotland, to discuss a potential shared ownership project at any stage of the process.

Developing a shared ownership proposal can take a considerable amount of time for both parties and it is important for a community to understand from the outset the level of commitment required to deliver a successful project. 

A key issue for a community to consider is its capacity (skills and expertise) to support and manage the process. This will be different for each community – for example, some may have paid development staff, while others will be reliant solely on volunteers, community resource may be limited. In some instances, a community may be in receipt of multiple shared ownership opportunities, and giving each due consideration may prove challenging. 

Irrespective of the number of opportunities potentially available or the level of capacity within a community, Local Energy Scotland can assess a community’s overall requirement and, in discussion with them, can outline what support will be available as well as signpost to other organisations who can help. Further information on the type of support available is at section 6.

Some renewable energy businesses may also offer support to the community at the early development stage. Communities should, therefore, seek to discuss with the renewable energy business what support they may offer to the process.