Client: The Low Carbon Hub
The Low Carbon Hub is an innovative enterprise established in Oxford to be a catalyst for the “decarbonising” of energy production and consumption in Oxfordshire, UK, working through and with communities. The Low Carbon Hub has two main strands of activity:
- “Powering Up” – helping to develop community renewable energy power generation projects; and
- “Powering Down” – working through communities to reduce energy consumption.
It works with 60 community groups across Oxfordshire on Powering Up activities, providing advice on project development, structuring and capital raising, and providing early funding where essential. An example of its work is the recent financing of the Osney Lock hydro scheme by Low Carbon West Oxford, an active community group in West Oxford. The Low Carbon Hub provide development assistance as required and LCWO raised £650,000 in three weeks in a community share offer to establish an Archimedes screw hydro plant at Osney Lock on the river Thames. The plant is currently under construction.
Powering Down activities are currently focussed on alleviating fuel poverty in disadvantaged areas of Oxford. A pilot project in Barton has enabled the Low Carbon Hub to work out how to make work og this nature financially sustainable, and the programme is about to be expanded – a first of its kind in the UK.
The Low Carbon Hub is doing great work, but needed to work out how to make itself financially sustainable. It was established as a Community Interest Company using grant money and donations. Grant money is project related and therefore finite. Repayments of loans and consultancy time by community projects as they get financed is not under the Low Carbon Hub’s control. The Low Carbon Hub therefore needed to create a long-term source of revenue that was dependable, and to structure itself to facilitate this.
Bainton Capital’s Role:
The Low Carbon Hub’s idea was to directly undertake some renewable energy projects itself. Profits from this activity would provide a 20-year sustainable income stream under the UK Feed-In Tariff legislation. The target market was commercial premises where there was no natural community. The Low Carbon Hub would build, own and operate renewable energy generating plants on commercial premises, and the community benefit would be the funding of the Low Carbon Hub’s fuel poverty activities and with existing community groups doing other projects.
Bainton Capital identified that the main barriers to the implementation of this plan were the legal structure of the Low Carbon Hub and the availability of capital to enable immediate execution of corporate projects, rather than waiting for project-specific share issues to complete, as is the norm for community renewable energy projects.
The Low Carbon Hub is structured as a Community Interest Company, which inhibits its ability to pay returns to and to manage its capital structure. This is fine for a normal business, but does not work for a capital intensive business (like renewable energy). Furthermore, ordinary corporate entities do not enable a combination of the Feed-In Tariff and Enterprise Investment Scheme tax relief, and Industrial and Provident Societies suffer from accounting-related issues which become material when investor cashflows are thin, as in some community projects. A new legal and business structure was proposed and implemented. £150,000 of equity was raised for the first project, which was developed in partnership with the Oxford Bus Company. 150kW of solar panels on the bus-depot roof was installed, and successfully commissioned in October 2013.
and structuring of proposals for a further 8MW of commercial installations. A key requirement was construction funding, to enable implementation of the schemes to be decoupled from the timing of community share issues. Bainton Capital secured a construction financing facility in the City of London to enable the Low Carbon Hub to proceed with its commercial negotiations. The pipeline of active development projects is growing fast and is currently approaching 40MW.
Bainton Capital continues to work with the Low Carbon Hub to improve the efficiency of its project financing and its attractiveness to investors. Currently for example, the Low Carbon Hub’s investment arm is in the process of listing on Ethex, to provide a potential exit route for investors.