The new ‘civic’ energy sector: implications for ownership, governance and financing of low carbon energy infrastructure

Mr Stephen Hall, Sustainability Research Institute, University of Leeds

Timothy J. Foxon, Sustainability Research Institute, University of Leeds

Ronan Bolton, University of Edinburgh

This paper presents findings from comparative case analysis of the UK’s latent ‘civic’ energy sector with the expansion of this sector in Germany. Drawing from evolutionary and institutional economics we discuss the relative importance of local financial structures, regulation and urban political economy, in the delivery of a substantive civic energy sector. We argue that given the correct support, the civic energy sector could take a much more active stake in the prospective UK energy transition, which would materially contribute to delivering a secure and affordable UK low carbon energy future.

The way UK low-carbon generation capacity is delivered is changing. Several studies have shown the reduced dominance of corporate utility ownership, and an increasing diversity of finance actors (PwC, 2010; Nelson & Pierpont 2013). This includes greater participation from institutional investors, medium sized private companies and independent power producers. In parallel, we identify a recent growth of interest in electricity and heat generation, distribution and supply, shown by UK cities and communities (Core Cities ‘Step 6′, 2013; Capener, 2014). The goals of these actors differ from traditional corporate entities. We class this sector as the ‘civic’ energy sector, and argue that under the right circumstances, this sector could provide substantive UK generation capacity. The ability of such actors to deliver low-carbon generation is demonstrated in Germany, where municipalities, citizen investors and co-operatives, own circa 40% of low-carbon capacity, and municipalities are taking a leading role (Buchan, 2012; Auer & Heymann, 2013).

Traditionally UK low-carbon energy capacity has been built by large scale commercial developers and or utilities, whose finances and subsequent revenues are globally mobile (Rutledge, 2012). One alternative is a proliferation of distributed energy generators, which are owned fully or in part by municipalities, communities, or small scale investors. This approach does not exclude traditional sources of finance and ownership, but adds to them. If the civic generation sector is allowed to grow, the UK can move from a corporate generation model to a mix of corporate, municipal and citizen ownership. The current alternative ownership models that exist in the UK are defined as the ‘community energy sector’ (Seyfang, 2013) and the ‘Municipal ESCO model’ (Hannon et al, 2013). Expanded into the future, the community and municipal actors together, would constitute a ‘civic energy sector’.

Recent rhetoric from government has recognised the role local energy schemes can play in meeting demand and has culminated in the recent ‘Community Energy Strategy’ (DECC, 2014). The DECC strategy however, has several omissions when compared with the authors’ definition of the ‘civic’ energy sector, which additionally includes municipal authorities, housing associations and ownership through small scale finance. The paper draws on interviews with industry and civic stakeholders in the UK and Germany to demonstrate the potential of the civic energy sector to deliver substantial elements of new low-carbon capacity. This demonstrates the potential for municipal and city-regional actors working with traditional infrastructure companies to develop new business and financing models for local generation capacity; but also highlights the barriers from regulatory institutions (Bolton and Foxon, 2013) and existing practices that need to be overcome.

Short references: PwC (2010), Meeting the 2020 renewable energy targets [PwC]; Nelson and Pierpont (2013), The Challenge of Institutional Investment in Renewable Energy [CPI]; Capener, (2014) Community Renewable Electricity Generation: Potential Sector Growth to 2020 [DECC]; Buchan (2012), The Energiewende – Germany’s Gamble [Oxford Institute for Energy Studies]; Auer & Heymann, (2013) Germany’s energy turnaround [Deutsche Bank];  Seyfang (2013), Energy Policy, 61, 977-989; Hannon et al. (2013), Energy Policy 61, 1031-1045; Bolton and Foxon, Env Plan A 45(9), 2194-2211.

Keywords: Civic energy sector, finance, ownership, distributed generation.